Small Businesses Plan Biggest Boost In IT Spending

Small-to-midsize businesses plan to increase their IT budgets by nearly 6 percent in 2007, double the growth rate expected among large enterprises, according to a new survey from AMR Research.

The survey polled 1,000 IT buyers, more than half of which were SMBs (which AMR classifies as businesses that generate less than $1 billion in revenue). Of those surveyed, the smallest businesses forecasted the highest growth rates in IT spending for 2007: Companies with less than $250 million in revenue said they plan to increase their IT budgets by 8 percent. At the other end of the spectrum, large enterprises with revenue of more than $1 billion said they plan to increase their IT budgets by only about 3 percent.

IT investment priorities among U.S. SMBs will remain somewhat consistent from last year, the survey found. Nearly one-quarter of respondents ranked "better utilization and analysis of data throughout their organization" as the most important initiative in the coming year--a trend that will continue to open the door for sales of various business-intelligence software and solutions. About 13 percent of respondents identified the application of "lean" practices across the organization to streamline processes and eliminate redundancies as an IT investment priority.

And 10 percent of respondents singled out e-business initiatives that involve electronically connecting customers and suppliers as a priority.

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One ISV tapping into the growing demand for e-business technologies among SMBs is eOne Group, a provider of e-commerce software solutions. The ISV has helped numerous SMBs get ROI through its eOneCommerce solution. One of its customers, Sandhills Powersports, a small start-up that sells motorcycle parts and accessories, saw an ROI within three months and has increased its revenue by 100 percent with the eOne solution.

One of the most challenging hurdles for eOne Group in selling to SMBs was making the transition from charging customers up-front software licensing fees to the monthly subscription-based fee model favored by cash-strapped SMBs, says Dan Watson, co-founder of eOne Group, Omaha, Neb. But once eOne Group grew large enough to support a monthly subscription model, the move paid off, he says.

EOne Group also joined the IBM ISV Advantage for SMB Initiative, in which IBM has helped it reach out to small businesses through co-marketing.

Another IT investment driver cited by 10 percent of respondents was product innovation and development, and 8 percent also singled out the management of customer experience across channels and touch points as an investment priority.

In Europe, SMB IT priorities shifted more notably from last year. In 2006, surveyed SMBs identified product innovation and development as the top drivers for IT investment; in 2007, the top driver shifted to better utilization and analysis of data.

"It makes a lot of sense, with the increased competition there and the analytics tools out there that companies are now aware of," says Eric Klein, an AMR analyst.

As in the U.S. market, SMBs in Europe plan to increase budgets about 6 percent on the average, but the smallest companies surveyed in Europe plan to increase IT spending 12 percent. U.K.-based SMBs were the most bullish, predicting about 11 percent growth in IT budgets in 2007, followed by France, at nearly 4 percent, and Germany, at about 3 percent.

Notably, in Europe, the survey found that SMBs in manufacturing verticals plan to spend significantly more on IT investments in 2007 than did SMBs in services industries. For example, respondents in the services industry predicted about a 2 percent IT budget increase, with manufacturing companies planning an increase of 6 percent to 9 percent.

IT spending predictions for 2007 are about the same across both manufacturing and services verticals in the United States.

The SMB market is diverse, with business needs often varying widely depending on vertical market, but some trends are consistent across most industries. For example, customer-driven issues will have the greatest impact on software investments in 2007 among SMBs across all verticals, except for pharmaceuticals, where increased competition is at the forefront of IT buyers' concerns.

But when it comes to sales, knowing the exception to the rule is often more crucial than knowing the overall trends.