5 Hot Topics – Where will small business spend their growing IT budgets in the coming year?

CRN editors pick five hot topics for 2006 that are top of mind for many solution providers

By John Roberts and Larry Hooper, 
Read this article at CRN.com

New York (Dec. 16, 2005 ) – CRN – Heading into the new year, small-business optimism is on the rise, as is the outlook for IT spending.

Forty-eight percent of small businesses expect their IT budgets to increase in the coming year, according to CRN’s October business spending survey. That was up from 44 percent in April and July. Even better, only 9 percent anticipate spending decreases.

This optimistic outlook was bolstered by a confluence of factors. One-third of small businesses cited business expansion, the general business climate and specific project and business needs as having a significant or very significant influence on spending plans.

If these trends hold firm, spending should remain solid at least through the first quarter. But the obvious question for solution providers is just exactly where do small businesses plan to spend those extra IT dollars?

In the survey, security easily outdistanced runners-up desktops and Web services as a spending priority, with 58 percent of small businesses citing security as a high or very high priority. “Solutions relating to spam, viruses, phishing and farming will all be strong sellers next year,” said Ed Solomon, co-president of Net@Work, New York. “Small businesses can no longer deal with all the problems associated with the e-mail and the Web. They need to be mitigated or removed entirely.”

Security is not the only area where small-business solution providers are likely to see strong growth. Web services, wireless and VoIP are attracting increased interest from small businesses. And for the first time, business-class communications services, including voice and data, has made the list of the top six Internet-related spending priorities, the research showed.

Small businesses will continue to spend in bread-and-butter hardware and software categories. “Basics such as operating system upgrades and migrations as well as notebook PCs should see solid growth next year,” said Pete Busam, vice president and COO of Decisive Business Systems, Pennsauken, N.J.

But that doesn’t tell the whole story. Looking behind the numbers—and beyond the basic spending categories—CRN editors identified five emerging trends that many solution providers anticipate will be particularly hot topics for small businesses in the coming year.

1 Network-Attached Storage While storage hardware remained a modest priority for small businesses, solution providers anticipate the move toward network-attached storage appliances will accelerate in 2006 as data grows, prices drop and disaster-recovery concerns move to top of mind.

Solution providers are finding that their small-business customers are using NAS appliances for both primary and secondary storage. As a primary storage device, a NAS appliance provides a low-cost way to add storage capacity for small businesses such as law firms and content creators.

The devices range from full-featured appliances to simple LAN-capable external hard drives. Bryan Computers, Ann Arbor, Mich., often sells Western Digital’s NetCenter, which includes a 320-Gbyte hard drive for about $350, to clients who need extra capacity in a hurry. “It’s popular for [meeting the] immediate needs of the ‘Oh, my God, I need something now’ customer,” said Tony Audas, director of purchasing.

Driving this part of the business in 2006 will be the desire to add storage without adding servers. “There’s no way they are going to buy a server just for more storage,” Audas said.

Other solution providers anticipate a surge in demand for NAS appliances for use in disk-based backups, with data storage on the NAS acting mainly as a prelude to backing it up to tape or an online service. “They can implement the backup software on the NAS and have a SCSI connector for the tape backup,” said Eryck Bredy, president of Bredy Network Management, Woburn, Mass.

2 Security Simplification As the poll shows, security will remain the No. 1 priority for small-business customers. Solution providers said it will not just be security, but security simplification that will capture the attention of small businesses in 2006.

As security threats move from vandalism to profiteering, small businesses are becoming both afraid and overwhelmed. And that’s leading small businesses to rely more heavily on all-in-one solutions and managed security services.

“With the number of threats and the number of different solutions out there to combat them, most customers just want to know they are buying something that can take care of everything,” said Rory Vanselow, owner of Peak Resource Center, a small-business solution provider based in Wauwatosa, Wis. “If you go in there talking about a complicated multilayer solution involving several vendors, they get even more confused. What they want to hear is, ‘This will take care of you. You will be protected.’

3 Mobile and Wireless Technology Nearly 45 percent of small businesses rated wireless solutions as a high or very high priority, and that trend is likely to continue, solution providers said.

Mobile applications help small businesses appear larger than they are and operate more efficiently by allowing key employees to stay connected in the field, and small businesses are becoming leading consumers of wireless notebooks and smartphones.

Peak Resource Center also is finding that more small businesses are opting to implement wireless LANs in place of wired networks. That allows growing businesses to reconfigure office space, expand their network and relocate altogether without having to deal with cable. “That’s a major selling point for a fast-growing small business,” Vanselow said.

4 Hosted VoIP In the emerging category, hosted VoIP services are poised to play a much more significant role in the small-business VAR’s portfolio. Several new vendors have entered the market with channel programs targeted at VARs, and Cisco has started a new business unit dedicated to the space. Gartner predicts the market will jump from 300,000 lines in 2005 to more than 6 million in 2009.

The limited IT resources available to most small-business customers make them an ideal fit for hosted VoIP services, said John Freres, vice president of sales at Dimension Data North America, which is in the midst of developing a hosted VoIP strategy.

“In smaller environments where you might have one person responsible for all the voice, data and PC support, [hosted VoIP] is a service that would make absolute sense,” Freres said. “I would argue that for 20 seats and below it’s a no brainer, but probably 200 seats and below would benefit.”

With hosted VoIP services as part of its portfolio, Dimension Data hopes to reach a customer segment that otherwise could not afford an IP telephony solution.

“For most companies that look at IP telephony, it’s not just the cost of implementation, but [a question of] can they support it or does it make sense to bring in a third party?” Freres said.

As with wireless solutions, one of the motivations for small businesses in adopting hosted VoIP is to appear larger than they really are. “Small businesses want high-end advanced features such as presence awareness, and they’re also looking to be able to support a mobile workforce and remote office,” David Lafferty, director of sales for Call One, a Dallas-based competitive local exchange carrier.

5 Managed Services Cutting across all of the spending categories are service opportunities, and the opportunity for solution providers to offer managed services to small-business customers will be bigger than ever in 2006.

The increasing affordability of MSP platforms has brought managed services within reach of small businesses. Match that with the rising complexity of small-business networks, and the market becomes ripe for managed services. In fact, nearly 60 percent of the small and midsize businesses in a Forrester Research survey indicated they were interested in managed services.

Concerto Networks, Cincinnati, charges $229 a year to remotely manage a single PC with a broadband connection. The managed service model gives customers peace of mind and takes the sting out of IT expenses, owner Steve Pollak said.