Hardware vendors to do it tough as SMB spending declines

Stan Beer
Tuesday, 30 May 2006 19:33

IT Industry - Market

A new study predicts that the next five years will see hardware vendors market shrink in the SMB space with spending declining at an alarming rate.

IT research group IDC has recently completed a study of the local SMB market titled "Australia Small and Medium-Sized Business Infrastructure Market 2006", which  examined the current and future state of the SMB infrastructure market.

Small and medium-sized businesses (SMBs) represent 99.8% of Australian businesses, 63% of revenue, and 70% of employees in the private sector. SMBs however, represent only 31% of IT spending as their IT budgets are mostly spent on infrastructure hardware and software, whereas larger companies spend more on services.

In the study, IDC looked at the predominance of infrastructure components in the IT spending of SMBs in Australia. This can be explained by the fact that to date no vendor has been able to unlock the code to significantly enter the SMB services market. As a result, SMBs have been left to spend money mostly on hardware and software. They are struggling to find a decent midsize service provider to help them manage their growing and aging infrastructure, according to IDC.

"The SMB infrastructure market value will decline steadily at a -2.1% Compound Annual Growth Rate (CAGR) over the next five years, putting hardware vendors in a very difficult financial position. Competition will be intense and to maintain revenue, hardware vendors will look at increasing their services activity in the SMB space. This transition will be made even more difficult by the entry of large services firms or telecommunication companies in this  untouched space," says Jean-Marc Annonier, research director for SMB, IDC Australia.

"The key to survival for many players will be the ability to design and market software and services specifically for the SMB space. Financial strength and careful risk management will be critical to the success of this transition. Channel strategy will be an essential factor for all vendors due to the high fragmentation of the SMB market. All vendors will need to carefully design their go-to-market strategy in order to compete efficiently."  added Mr Annonier.