Wednesday, July 26, 2017

Software and Services Drive New IT Spending at SMBs

Digital transformation projects have fueled the IT budgets of all business types. Total IT spending by small and medium-size businesses (SMBs) will approach $568 billion in 2017, and exceed $676 billion by 2021, according to the latest worldwide market study by International Data Corporation (IDC).

With a five-year compound annual growth rate (CAGR) of 4.5 percent, spending by businesses with fewer than 1,000 employees on IT hardware, software, and services, including business services, is expected to be slightly stronger than IDC's previous forecast.

SMB IT Market Development

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

SMBs will spread their IT investments about equally across the three major categories -- hardware, software, and IT services -- with these categories accounting for more than 85 percent of total SMB technology spending worldwide.

While hardware purchases currently represent the largest share, IDC expects software and IT services spending to surpass hardware spending in 2019. The smallest of the major categories -- business services -- will see the greatest spending growth of the four technology categories at 7.1 percent CAGR, followed closely by software at 6.9 percent CAGR.

Hardware spending will be led by purchases of PCs and peripherals, which accounted for almost half of SMB hardware spending in 2016 (49.6 percent) a share that will decline throughout the forecast period to 43.3 percent. SMB services spending is divided between IT services and business services.

While SMB spending on IT services will be more than twice that of business services throughout the forecast period, business services' share is growing, with spending growth roughly twice that of IT services (7.1 percent vs. 3.7 percent CAGR).

According to the IDC assessment, medium-sized businesses (100-499 employees) will be the largest market throughout the 2016-2021 forecast, with 38 percent of worldwide SMB IT products and services revenues coming from this group of companies.

The remaining revenues will be generated equally by large businesses (500-999 employees) and small businesses/small offices (1-99 employees). Medium and large firms will also experience the strongest spending growth with CAGRs of 4.6 percent and 4.5 percent respectively, slightly above small business spending growth of 4.4 percent.

Outlook for Regional Growth Trends

On a geographic basis, the United States represents the largest market with SMB IT spending expected to total $171.3 billion in 2017. North America in total will account for about one third of worldwide SMB IT spending throughout the forecast period.

Western Europe and Asia-Pacific (excluding Japan) are the second and third largest regions for SMB IT spending, with Asia-Pacific growing faster than the overall market. The region with the fastest growth over the five-year forecast will be Latin America (6.3 percent CAGR), although the U.S. and Asia-Pacific (excluding Japan) will not be far behind.