SMB Software and Services Spending on the Rise

Monday Jul 24th 2017 by Pedro Hernandez
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Over the next few years, SMB IT spending is increasingly shifting away from devices and toward digital transformation-enabling software and services offerings.

Individually, they may lack the sheer power and influence of large corporations, but collectively, small and midsized businesses (SMBs) pack a lot of technology purchasing power.

This year, the world's SMBs will spend estimated $568 billion in IT products and services, predicts technology research firm IDC. By 2021, that figure will grow by over $100 billion to $676 billion.

"SMB IT spending growth continues to track about two percentage points higher than GDP growth across regions," said Ray Boggs, vice president of SMB Research at IDC, in a statement. "But beneath that slowly rising tide are faster moving currents that reflect the changing ways SMBs are acquiring and deploying technology."

cloud computing, AWS

Those currents include a dramatic shift in the IT priorities of smaller organizations and therefore a change in their technology spending strategies.

Hardware, software and IT services currently account for more than 85 percent of technology spending by SMBs, with hardware ranking as the top category. It's a state of affairs, that will soon change. In 2019, both the software and IT services segments will surpass hardware in what will become a " watershed year," stated the analyst group.

The software category will expand at compound annual growth rate (CAGR) of 6.9 percent while IT services registers a CAGR of 3.7 percent during IDC's forecast period (2016 - 2021). Business services will lead the pack with a CAGR of 7.1 percent while hardware trails with a 1.8 percent CAGR.

Customer relationship management (CRM), enterprise resource management (ERM), and content applications will generate a third of all software sales to SMBs this year. PCs and peripherals will set the tone on the hardware front.

Regionally, the U.S. market will take first place this year, generating $171.3 billion in sales to SMBs. In the years ahead, a third of all IT spending by SMBs will occur in North America, followed by Western Europe and Asia-Pacific excluding Japan.

In Western Europe, where SMBs "can represent a difficult target market" because of the technology gap that typically exists between them and larger organizations, area startups are shaking things up, noted Angela Vacca, senior research manager of Customer Insights and Analysis at IDC.

She said the industry is witnessing "the rise of SMBs that were born in the digital era, that are very innovative and attracted by 3rd Platform and Innovation Accelerators (particularly cloud, mobility, and IoT). Even if these companies represent only a small percentage of the overall SMB market, they can set the scene and pave the way to a broader adoption of innovative IT solutions," in a statement.

Pedro Hernandez is a contributing editor at Datamation. Follow him on Twitter @ecoINSITE.

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