SMBs Are Upping Tech Spending

Recent studies by leading analyst firms point to a bigger year for the small and medium business (SMB) market for CRM and IT software providers. With vendors saturating enterprise customers with solutions, suddenly the smaller companies have become the battleground for potentially big sales. AMI-Partners released two reports in May indicating an increase in technology adoption, one focusing on midmarket retailers increasing their IT investments, the other on SMBs shopping for ERP and CRM solutions. The research found that 19 percent of small businesses (those with fewer than 100 employees) plan to deploy an ERP application in 2005, compared to just 4 percent in 2004. Twenty-four percent intend to implement a CRM solution, surging 20 percentage points from 2004. Additionally, IT expenditures with SMB retailers will expand from $22 billion in 2004 to $30.97 billion in 2009. Frost and Sullivan found that the computer telephony integration (CTI) market, which reached sales of $5.14 billion in 2004, will continue to grow through 2010 and be largely driven by the SMB market's demand for basic CTI. The firm expects the North American CTI market to climb to $7.86 billion by the end of the decade. Deepinder Sahni, senior vice president at AMI-Partners and author of "The Global Model," which studied the adoption and spending patterns among SMB retailers spanning 28 IT sectors, attributes the recent focus on SMBs to increased attention by smaller companies on ERP/supply chain management. "SMB retailers need to scale up and meet the explosion in consumer buying capacity by focusing on supply chain automation," he says. "There is an explosion of retail outlets in these emerging markets that's going to drive demand for point of sale, bar coding, and related customer automation solutions." A separate report, "2004-2005 U.S. SMB Business and Applications Software Market Overview and Assessment," found SMB companies are willing to spend more money for ERP than CRM solutions. Laurie McCabe, vice president of SMB insight and solutions at AMI-Partners and the report's author, says this distinction can be attributed to SMB companies "looking at ERP solutions more comprehensively, whereas with CRM solutions it may be more of a point product." McCabe says a number of factors are paving the way for the adoption of CRM/ERP products by the SMB market. Smaller companies are becoming more comfortable with using technology-based business solutions while increased access and use of high-speed Internet connections by SMBs, either to communicate or to maintain business Web sites, is expanding their knowledge of IT solutions. Another reason is the mere concept of CRM."I think the whole idea of keeping customers happy, maximizing sales, closing more business, etc., is a lot like motherhood and apple pie," she says. "It's not hard to convince a business, no matter what size, that these are all good things. The idea of CRM is starting to filter its way down." The rising number of hosted vendors has also increased SMBs' options. Many of the newer hosted software providers have taken aim at this market, and their ability to deliver their products without having to install or maintain anything makes them popular with the smaller, lower-budgeted companies, according to McCabe. "While Salesforce.com gets all the publicity, there are a lot of software-as-a-service applications for different point areas of CRM. From Marqui to Five9, a lot of these newer companies have designed their solutions for SMBs. They've designed their applications to be very intuitive and easy to use. "Open source, such as SugarCRM, could have the same effect on the SMB market that hosted applications did, for certain SMB customers. In the past, many times you had to get a license and install something just to demo it. Now most demos are free. That makes it easier for smaller companies to get their feet wet." McCabe warns that while the initial signs are all there, vendors and industry pundits will need to wait until the end of the year before evaluating their success. "All of these things have perked [SMBs'] attention," she says. "Buying is different than planning."