AMI: SMBs amplify role as drivers of IT market turn-around, operationally justified areas of IT focus capture the lion's share of growth
New York — April 1, 2004 — The top 10 IT trends for the small and medium business (SMB) markets were released today by New York-based Access Markets International (AMI) Partners Inc., a consulting firm specializing in market intelligence, trends and strategy in SMB enterprises.
AMI said it conducts the annual tracking surveys in several countries, including the United States, Canada, France, Germany, the United Kingdom, Australia, China, India, Japan, South Korea, Singapore, Brazil and Mexico.
The trends, according to the survey, are as follows:
1) Asia Pacific SMBs are poised to outstrip counterparts in other regions for IT spending in 2004
AMI forecasts that IT spending by Asia Pacific SMBs (excluding Japan) will grow by 19 percent in 2004, compared with an estimated 10 percent expected growth for SMBs in the rest of the world.
Moreover, the Asia Pacific region accounts for over 60 percent of the 1.5 million additional SMBs expected in 2004, representing tremendous growth opportunities. Globalization and offshore outsourcing trends have driven the need for connectivity among businesses across the world, particularly the emerging markets. With strong government support and initiatives in many Asia Pacific countries, the previously under-saturated SMB markets are expected to make robust strides adopting new and advanced IT products/solutions, thus fueling IT spending. AMI anticipates strong focus on technologies such as virtual private networks (VPNs), networking storage, wireless local area network and broadband access.
2) PC replacement cycles will shrink temporarily to accommodate a shift to laptops
IT vendors have been waiting for the next surge in PC sales. As the last wave of PC purchases were made approximately four years ago, primarily due to fears caused by Y2K, PC purchases have not increased dramatically, resulting in a more than 4-year replacement cycle. With wireless LANs displaying tremendous growth and wireless hubs and access points continuing to emerge, IT hardware manufacturers will sell more portable PCs.
As a result of this prolonged upgrade cycle, coupled with the recent technological advancements, AMI believes that the next PC upgrade wave will hit in 2004. According to AMI surveys, in 2004, worldwide notebook PC sales, among SMBs, will account for almost one-quarter of all SMB PC shipments. This percentage is expected to continue rising in the future, as portable PC shipments are poised to increase approximately 18 percent over the next 12 months.
3) SMBs pushed to change business operations to accommodate large business clients
Large businesses (LBs) account for approximately 25 percent of all B2B transactions conducted by SMBs. Due to the quantity of business conducted, many SMBs have become dependent on the LB space, resulting in some challenges. With this kind of control and power, LBs have been strongly influencing SMBs to adopt advanced technologies at a much faster rate.
Over the past several years, as the economy slowed and markets grew exceptionally competitive, many SMBs became more focused on their top clients. AMI anticipates that this trend will continue through 2004, with more and more SMBs adopting extremely advanced solutions. Specifically, inventory management and supply chain management will surge dramatically with increased sales in enterprise resource planning (ERP)/supply chain management (SCM) software.
AMI also predicts that ERP/SCM will rise approximately 20 percent over the next 12 months in the worldwide SMB space, ultimately creating a more efficient marketplace to satisfy LB needs and requirements.
4) VPNs and firewalls are well-placed due to elevated risks and vulnerabilities in the SMB marketplace
SMBs have been exposed to the risk of unwanted intrusions due to increased utilization of the Internet as a business and e-commerce tool. AMI studies reveal that total spending on security solutions among SMBs is expected to grow 25 to 30 percent annually in developed countries worldwide.
The traditional SMB focus on anti-virus solutions is beginning to expand toward other security measures such as intrusion detection, VPNs, firewalls, remote data backup, remote network security management and spam control. AMI estimates a healthy 41 percent increase in the number of SMBs worldwide deploying VPNs over the next 12 months.
5) Availability of scaled-down storage solutions will prompt investments among SMBs
Interestingly, SMBs account for only 20 percent of all storage spending while representing 40 percent of all IT spending. The slower adoption and lower spending is primarily due to the high costs and complexity involved with implementing storage solutions. However, with increased security needs, compliance regulations and archiving needs, this is poised to change in 2004.
There has always been a need for storage in the SMB space, but the availability of cost-effective solutions has been fairly scarce. With the emergence of iSCSI or IP SAN protocols, SMBs have been taking advantage of storage solutions, thanks to lower costs and fewer internal resources required for these technologies. AMI expects storage spending to increase approximately 18 to 20 percent in the SMB space over the next few years.
6) SMBs liberated by wireless solutions
Wireless usage is exploding in the SMB arena, resulting from an increased need for businesses to stay connected with a growing number of remote sites and mobile employees. According to AMI research, 1.21 million U.S. SMBs have branch offices. Data and communication must flow effectively within and among these offices.
Furthermore, with one-half of U.S. SMBs having mobile employees, these businesses are recognizing the inherent need for wireless technology to facilitate staff connectivity with the home office. Wireless technology enables businesses to keep in contact with remote locations while simplifying the management of inter-office moves and aiding smooth employee relocations.
With the drastic fixed-cost savings of wireless over Ethernet Cabling, coupled with the proliferation of wireless hotspots and thriving Wi-Fi adoption, AMI predicts that the number of U.S. SMBs with a wireless LAN will increase 28 percent in 2004.
7) VoIP gaining ground among SMBs worldwide
Due to the increase in globalization, SMBs are engaging in more offshore activities and, consequently, spending more time and money on international calls. AMI-Partners estimates that 36 percent of total Telecom spending for U.S. SMBs goes toward long-distance charges.
Despite the steady rise in international calling activity, the new millennium has seen a decrease in total long-distance spending among SMBs from $29.9 billion to $25.9 billion. Part of that decline reflects SMBs embracing IP telephony. In efforts to reduce variable costs, without impacting organizational efficiencies, 130,000 U.S. SMBs adopted VoIP and another 110,000 SMBs plan to do so in the next 12 months. As equipment prices continue to fall, VoIP adoption and usage will gain momentum in the SMB space.
8) LINUX is making strides in the SMB space
The price-sensitive SMB market will make a significant move toward embracing LINUX, not only because of the low total cost of ownership (TCO) benefits that can be realized, but also because of its reliability and stability, an area that SMBs attach utmost importance to due to the lack of internal IT resources, AMI said.
In the United States alone, more than 165,000 SMBs have already embraced LINUX and AMI studies reveal an adoption rate increase over the next 12 months. Moreover, widespread LINUX acceptance by large enterprises and government agencies, in countries such as Germany, France, China, India, Brazil and Mexico, gives smaller firms added assurance that the open-source platform offers more benefits than risks.
SMBs can take heart from the likes of major industry players such as IBM, HP and Computer Associates, in addition to e-commerce companies like Amazon who have declared large savings and overall benefits by adopting LINUX.
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.