The State of IT Spending survey is marked by a gloomy outlook, with executives saying their outlook is less optimistic this year than last.
"In 2004, small businesses were very optimistic about the health of their industries, and that translated into IT budget growth. Going into 2005, however, folks are not as optimistic," said Meredith Morris, an analyst at Forrester.
Rising interest rates and higher energy prices hit small businesses harder then medium-sized and large companies, Morris said. Also, small firms are more apt to think tactically, not strategically. That means SMBs simply stop spending once they become concerned about sales and revenues. "[Larger firms] see IT as a strategic need and know they need to invest in IT even if they're not comfortable with the economic climate," Morris said.
SMBs aren't slashing budgets like they did in 2001 and 2002, but they are keeping a tight lid on expenses. Small firms (six to 99 employees) plan to increase IT spending by just 4.1% in 2005, down from 7.4% in 2004, according to the survey. Midsized businesses (100 to 999 employees) will increase spending by 5.3%, only slightly less than the 6.1% increase they planned for 2004.
Only one in four small businesses expect to hire new IT staff, compared to 45% at the beginning of 2004. Among midsized firms, 41% plan to increase their IT headcounts this year, compared to 40% in 2004.
We're looking at more entry level salaried folks," said Wil Schroter, CEO at Swapalease.com, an online automotive leasing marketplace based in Columbus, Ohio.
"In the Midwest, we can get a solid developer for around $50,000. Five years ago I was paying that same kid $90,000 for the exact same skill set," Schroter said.
When they do spend technology dollars this year, SMBs will focus on security: 75% plan to buy security software –-- the same percentage as last year -- and they plan to purchase new servers, storage, networking and desktop hardware, although not as much as they did last year.
While 63% have plans to buy new server hardware, that number is down from the 74% in 2004. Likewise, the percentage of firms with plans to buy storage hardware declined from 65% to 56%.
Outsourcing is also a priority. According to the survey, 84% of SMBs expressed interest in outsourcing in 2005. Web site hosting and PC hardware support were top priorities for small firms -- and application maintenance/support and PC support for midsized firms.
When it comes to the open source movement, only 25% of SMBs reported an interest in Linux, according to the Forrester survey. But companies that ignore open source may be missing a good opportunity to save money, said Rebecca Wettemann, vice president of Nucleus Research Inc., an ROI research firm based in Wellesley, Mass.
"We see more and more business applications, such as SugarCRM, that are designed for that marketplace and offer significantly lower cost," she said. "If they're looking at new messaging applications, or sales force automation, there are Linux-based options they should be considering."
Sue Hildreth is a freelance writer and editor based in Waltham, Mass. Let us know what you think about this story; email email@example.com.