Businesses See Silver Lining In IT Spending
End users may be worried about the value of the dollar, inflation and the prospects of a long-term recession, but at the same time, nearly three-quarters of businesses either expect the business climate to remain steady for the next 12 months or they are adjusting their sales/earnings upward, according to a new Everything Channel IT Spending Forecast Survey.
The findings illustrate the sales situation many solution providers find themselves in: convincing customers that even in an unstable economy they should spend money on IT to help them reduce operating costs.
"I would say demand is steady and strong," said Audrey Levi, president of Altek Computing Group Inc., Miami. "I see it down in specific [vertical] markets like real estate, mortgage, construction. Those companies are not spending."
She added that more companies are "smart spending," that is, buying IT solutions that can help them become more efficient.
The survey also captured end users' IT spending priorities (backup and recovery, PC refreshes), what technologies they're looking at implementing for the first time (VoIP) and what capabilities they're looking for from solution providers (technical support).
Small businesses were the most optimistic on the economy. More than 80 percent expected their companies' business climates to remain steady or improve. In addition, 76.1 percent have either increased their earnings and sales projections or not adjusted them. Large companies were more pessimistic as 30.8 percent expected business conditions to improve while 23.1 percent expect conditions to worsen. More large companies adjusted their earnings/sales projections downward, 25.3 percent, than upward, 20.9 percent.
The results mirror what solution providers who gathered at this month's TechSelect Conference in Las Vegas said they see.
"IT is now a key business division. You have to justify what you're doing. You can't be spending money on your favorite vendor or a pet project. If it fails, then you have failed," Levi said.
Bob Dutkowsky, CEO of Clearwater, Fla.-based distributor Tech Data, believes businesses holding off on IT purchases because of economic concerns are creating a self-fulfilling prophecy.
"If you believe it's bad, it's bad. You can't be nave about it, but tech spending last year increased 6 percent. This year, even if it's up 2 [percent] to 4 percent, it's not going to be minus 5 percent. People still need to spend on technology," he said. "Demand for this stuff never goes away. It's about how businesses prioritize. They're still planning, they're still considering to implement. They may defer it. But some things you can't push off. You might need more storage to remain compliant, so you buy that."
For example, Tech Data recently brought in a consultant to analyze its high availability for online ordering systems, Dutkowsky said. The consultant determined that Tech Data needed to upgrade its storage infrastructure.
"It wasn't in our budget, but we did it. We had to do it. We can't get to the end of the quarter and have our sales systems not work. We reprioritized spending on something else," he said.
Tech Data, a $23 billion company, certainly qualifies as a large enterprise end user. For such companies, enterprise storage solutions were the No. 3 priority for the next 12 months, behind backup and recovery and business intelligence.
Meanwhile, small and midsize companies each chose new desktops, notebooks and entry-level servers as their top IT spending priority for the next 12 months.
Sam Ruggeri, president of Advanced Vision Technology Group, a Hauppauge, N.Y.-based solution provider, said IT spending is being helped by economic stimulus programs, including one by IBM Global Financing that offers short-term free financing and leasing options.
"For organizations that don't have the budget today, that can push the sale along," Ruggeri said.
Advanced Vision Technology Group now talks to customers to engage them in long-term IT spending strategies. The initiative is a success, Ruggeri said. "We're taking care of clients differently. We're preplanning projects. If a customer has 100 PCs, we'll phase out 40 this year, 40 the next year, maybe 20 the year after. We're trying to control whatever economics we can."
Next: 'A Smarter Spend'
Ramona Thibeault, vice president of SMB sales, Solution Partners Organization at Hewlett-Packard Co., agrees that it might take more work—or at least different work—to win a sale these days, but for solution providers willing to think outside the box, there is opportunity in any market.
"The spend is there. It's probably got to be a lot smarter spend. When you look at the S [in SMB], those guys are entrepreneurs, starting up a business," she said. "They're going from being CEO to mopping the floor. I'm saying that facetiously, but they're running the gamut. Our goal is to make IT simple for them. They need IT to run their company."
While PC refreshes might be a high priority for small and midsize businesses, VoIP solutions are the top technology that those companies are looking at for the first time. Midsize businesses are also looking at business intelligence applications and virtualization, while small companies are looking at wireless LANs, and backup and recovery as well.
VoIP solutions are more in demand because price points have come down to make them affordable to small businesses, and the cost savings of operating them is also a benefit, said Dave Sperry, president and CEO of MicroMenders, a San Francisco-based solution provider.
"There's been enough years that VoIP has been out there now. Small businesses typically don't [use] the same technology that midsize and enterprise has been using for a couple of years. I don't know if [the increase in VoIP demand] is being driven in the SMB world by feature awareness, or because it's time to refresh the technology, but it's clear to them that PBX isn't the way to go. VoIP does all sorts of great stuff. It makes more sense to go this route than to reinvest in old technology," Sperry said.
Altek's Levi noted that many businesses are now looking to upgrade their phone systems for the first time since Y2K.
"The maintenance costs are very high on PBXes. There's not even a lot of new PBXes out there. If you were going to do that you'd probably refresh on refurbished equipment anyway," she said.
As solution providers look to bring newer and more complex technologies, such as VoIP, to customers, they'll be encouraged to hear that the No. 1 factor that end users look for in a solution provider is exceptional technical support to help ensure that a new system or application runs correctly. Technical support was the top choice across the board with small, midsize and large customers.
Providing that technical expertise is something that all solution providers should strive for, said MicroMenders' Sperry.
"There's reactive and proactive technical support. I'd like to believe small business wants a proactive technical adviser. Of course, they want reactive: When something has gone wrong, we can help. But if someone can keep it from happening to begin with, that's a value," he said.
Building a trusted adviser relationship was also a highly valued factor in choosing a solution provider, but many VARs see that go hand-in-hand with technical support.
"We bill ourselves as the trusted adviser. We want to be the first phone call they make," said Stephen Ale, COO of Richards Computer, Fairfax, Va.
Summed up Mark Steiger, CEO of DLP Technologies Inc., Cincinnati, "The reason we have technical expertise is to become the trusted adviser. That's the value-add in value added reseller."