Selling technology to Australia’s small and medium businesses can be a difficult proposition. Limited revenues mean smaller budgets for acquiring new technology.
A lack of technical resources can translate to limited understanding of technology’s benefits, or scarcity or skills to implement and maintain them. Technology is often seen as a necessary evil that can do as much to hinder the business’ operations as help them.
But small business has shown its willingness to invest in new technology where there is a clear and swift return — such as the rapid adoption of mobile phones. Most small business want technology that does the job with the minimum of fuss — a goal that the IT industry has often struggled to match.
Australia’s SMBs make up 97 percent of all private sector businesses, with 1.3 million of them in existence as reported by the Australian Bureau of Statistics for 2004. It is a growing component of business — the 2004 figure is double that reported 20 years earlier.
Research company IDC Australia estimates that total spending on technology by businesses with fewer than 500 employees will hit $9.7 billion for 2005, representing 38 percent of the commercial IT market in Australia. SMB spending is expected to contract by 0.9 percent in 2006 however, before returning to growth in 2007 and 2008.
IDC’s research manager for IT spending in Australia, Jean-Marc Annonier, says that slowdown comes from natural purchasing cycles — specifically, a lag following the technology refresh process that took place across 2004 and 2005.
"We don’t anticipate a lot of hardware purchasing and servers in 2006, which means basically the market is going to shrink," Annonier says. "There is also a price effect, because prices are always going down. So in a sense the whole market is going to be very stagnant."
One area that is expected to grow substantially, however, is networking, with a growth rate between 15 percent and 20 percent in 2006 within small businesses. Annonier says the bulk of that growth will be in local area network equipment and internet-telephony applications.
"Internet telephony is actually driving LAN equipment sales, as companies’ existing switches just can’t handle the job," Annonier says. "We are looking at a lot of Gigabit equipment in the workplace, as well as replacement of older hubs."
And despite the large volumes of attention being given to Linux and other open source technologies, Annonier says there will be little activity among SMEs in 2006. One of the key inhibitors is standards, with issues such as compatibility between open source applications and Microsoft’s formats still a concern. He says that while there is a price argument that appeals to SMBs, if they are unable to exchange documents with partners and suppliers and customers, it becomes more expensive.
"These things are very high on the radar of SMBs, but they are not migrating to them. They remain very alert about it, and if there is a significant change in ease of use it might happen, but at this stage it is not going to."
Within the figures lie a myriad of other trends. Declining prices for enterprise-grade products such as storage area networks is seeing that technology make its way into the hands of medium businesses. The increasing penetration of broadband into all parts of the SMB marketplace is leading companies to think more seriously about security, and also about how being permanently connected to the online world can reshape their business.
That point is leading to a swelling of interest in so-called on-demand computing options, such as the internet-delivered applications from NetSuite and Salesforce.com, as well as other hosted applications.
IDC breaks the SMB sector down into two groupings — companies with up to 100 employees, and those with between 100 employees and 500 employees. In the latter group, IDC believes that most of the growth in the next few years will come from outsourcing services and enterprise-type software (including for supply chain management and customer relationship management). These companies are usually served by the smaller end of the systems integration and value-added resellers, and their technology resources are generally limited.
The services industry is also showing good potential within companies with more than 100 users. Annonier says in this segment customisation and managed services and desktop outsourcing become possible, and is a more realistic domain for enterprise technology suppliers. This services market is predicted to grow to be a $2.4 billion industry this year, with future growth of between 7 percent and 8 percent.
The smaller end is dominated by hardware sales, particularly portable computers, printers and networking equipment. When they buy software, it tends to be packaged solutions, such as Microsoft Office, and their primary channel is through smaller resellers and retailers such as Harris Technology and Harvey Norman.
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