A tale of two very different IT markets

Posted by Mike Vizard on Feb 25, 2016 10:03:20 AM

IT_spending.jpgOne of the more interesting conundrums of our time is the disparity between IT spending in traditional enterprise IT and what’s occurring in the small-to-medium business (SMB) market served mainly by the IT channel.

Dragged down heavily by the slowdown in Asia, global IT spending year over year is down about 5 percent. While the downturn in Asian economies played a major role in the decline, the simple truth is that the shift to the cloud is starting to have an impact on the total amount of dollars that enterprise IT organizations need to spend. In fact, Gartner is predicting that total IT spending for 2016 will remain relatively flat.

The paradox is that in the face of that decline the IT channel continues to grow.

In its 2016 Channel Forecast Report released this week, the 2112 Group estimates the overall channel grew 6 percent and, based on a survey of solution providers, forecasts that it will grow another 6 to 10 percent in 2016. Those numbers come on the heels of a recent report from NPD Group estimating that in 2015 the IT channel in the U.S. grew just over 4 percent. NPD Group pegs the total size of the U.S. channel at $72 billion from a revenue perspective. For its part, CompTIA is forecasting that the IT channel will grow 4.7 percent in 2016.

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Driving all this growth is the simple fact that SMB organizations are finding that IT has become more accessible. Thanks to the rise of the cloud, for example, it’s much simpler for an SMB organization to absorb new technology, and the cost of initially acquiring that technology has been substantially reduced. Presented with the prospect of using IT to become more competitive, many of these organizations are spending more on IT than they traditionally have in the past. Obviously, that patterns plays out more in a U.S. economy that is growing, but even in struggling economies it’s apparent that what growth there is comes from the SMB sector.

The growing influence of SMBs

While there has always been some disparity in terms of how the enterprise and SMB sectors approach IT spending, there’s no getting away from the fact that fundamental shifts are under way. In fact, IT vendors such as SAP that have traditionally focused on enterprise IT accounts have made it clear that expanding their SMB footprints is critical to their future growth. This is due to both macroeconomic trends and the fact that the market disruption potential IT now offers SMB organizations tools they need to compete against much larger rivals using far fewer employees.

For IT service providers, this shift is driving growth opportunities in a sector that tends to depend more on them than traditional enterprise IT accounts that have larger internal IT organizations. It also means many more products and technologies are now being developed specifically with SMB customers in mind. In fact, whether those technologies reside in the cloud or on premise, the usage of IT across the entire SMB sector is much higher today than it was when the global economy collapsed at the start of the decade. For that reason alone, many IT service providers that focus on SMB customers are enjoying higher percentage growth gains than some of their larger rivals.

Of course, the role IT plays in driving economic growth is a hotly debated topic. But while there may be many economic factors at play, these days no one would deny that without IT there is no business to grow or decline.

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Photo Credit: Liz West via Flickr.com. Used under CC 2.0 License

Topics: IT Services Trends

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