Top 10 Trends for Small, Medium Businesses in 2004

9) Hosted Applications opening doors to SMBs

The promise of hosted applications is that upfront expenditures, installation and ongoing maintenance are no longer issues in deploying applications, AMI said. This is particularly attractive to SMBs who often face budgetary and internal IT resource constraints, but are in need of software solutions that solve their business problems.

Today, with the lower costs of hosted applications, coupled with falling bandwidth prices, SMBs are hopping on board with application service providers (ASPs). With the proliferation of broadband adoption in this emerging "Internet 2.0" business environment, the benefits of the hosted model become more obvious and compelling.

Broadband penetration among U.S. SMBs has nearly doubled in the past two years — increasing from 1.78 million to 3.41 million SMBs — enabling firms to utilize ASPs much more readily.

With this new-found access to such applications as human resources, accounting and finance, and IT service and support, the number of SMBs using hosted applications in the U.S. has grown over the past year to 750,000 SMBs and is expected to grow exponentially over the coming year, reaching 1.05 million businesses. With this high rate of adoption, AMI estimates that overall spending on hosted applications will increase close to 40 percent over the coming year.

10) Value added resellers (VARs) losing channel market shares as U.S. SMBs opt to buy directly from manufacturers

As SMBs mature and their IT awareness increases with respect to their IT adoption, the hardware necessary to build the basic infrastructure becomes "repeated purchase items." Since these repeat purchases do not require much expert advice, SMBs are becoming increasingly self-reliant for such acquisitions and favor buying directly from the manufacturer, or from direct marketers.

AMI studies reveal that VARs' channel share of PC sales will decrease from 32 to 29 percent in 2004, while that of the direct channel (computer manufacturers) is projected to increase by a compounded annual growth rate (CAGR) of 3.1 percent among U.S. SBs. A similar picture emerges in the U.S. MB market as well.

The direct channel presents a competitive price advantage and many manufacturers offer service and support as part of bundled options. This growing preference to buy directly puts pressure on smaller VARs as they lose market share. To make up for the profit loss from standard purchases, VARs need to broaden their portfolios and offer extended services catering to SMBs in more complex technology areas.