Survey finds SMB spending surprise

The coveted midmarket will spend nearly as much on IT as their bigger brethren this year.

Forrester Research Inc. is predicting an 8.1% jump in SMB IT spending this year when compared to last.

A recent Forrester report revises data published by Forrester in March, which overstated IT spending by large companies in 2004 and understated that spent by SMBs.

"The key finding here is that SMB spending is even larger than we thought and is still growing faster than enterprise spending," said Andrew Bartels, lead author on the report.

Based on a more detailed analysis, the Cambridge, Mass.-based research firm now estimates SMBs will spend $374 billion in 2005, compared with $346 billion spent in 2004. That means SMBs would generate 48% of all IT expenditures in 2005.

Large enterprises, which Forrester defines as companies with 1,000 or more employees, will spend $411 billion on IT in 2005, up about 6% from the previous year's $387 billion.

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One of the most striking findings in the new data, Bartels said, is the degree to which professional service companies dominate SMB IT spending. A remarkable 85% of $374 billion spent by SMBs in 2005 will be generated by service companies.

"It really is the sleeping giant of IT spending," Bartels said.

Professional services cover about a dozen different industries, according to the firm. In addition to IT and management consulting, the sector ranges from law, accounting and advertising firms to real estate companies and scientific research institutions. It is not only large, but it represents one of the largest and fastest growing sectors of the economy, Bartels said.

Vendors have been slow to catch on, he added. Because the category is so fragmented, vendors have tended to focus on the sector's differences rather than common IT needs. "In reality there is a lot of commonality. These firms all need specialized billing systems. They all need project management systems, collaboration tools and human capital management tools," Bartels said.

Vendors that continue to ignore the "sleeping giant," do so at their own peril, he added. Indeed, the Forrester report concludes with this veiled warning: "IT vendors that cater to the SMB market, such as Microsoft, Dell, The Sage Group and others have generally done better than those that focus exclusively on the enterprise market."

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