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There's more than one way to get a handle on how small companies spend their tech dollars. Consulting firms such as AMI-Partners Inc. and IDC Inc. conduct massive surveys of decisionmakers, then slice and dice the results. Another view comes from those who actually provide technology to small business.
All Bases Covered, based in Redwood City, Calif., is an outsourcing company that installs and maintains information technology in nearly 2,000 businesses nationwide. The company's average client is a 20-person business that spends a total of $1,388 a month on hardware, software, and services for its 17.5 PCs. CEO Stephen J. Lewis says ABC keeps a close watch -- and a tidy database -- on where its clients' money goes. Lewis talked recently with Business Week Online Contributing Editor Alan Hall about how small-business technology spending is changing, what technologies small businesses require, and how to keep costs down. Edited excerpts follow:
Q: Small businesses are spending more and more on technology. What do you see as the fastest-growing area?
A: Services is clearly the fastest-growing segment. Small businesses are increasingly using their PC/LAN infrastructure for mission-critical applications, such as e-mail, and they realize they must be current, and their systems must be maintained at a high level of readiness.
Small-business owners are putting the technology on the desks of more and more of their employees. Today, nearly all our small-business client's employees have PCs. Even two years ago, most of our clients would have had only a handful of PCs.
Q: How can a small business control the rising costs of technology?
A: Outsource your IT infrastructure. Small businesses simply can not attract, train, and manage the types of resources that they will require. Very few small businesses should even contemplate hiring a full-time resource until they are 50 employees or greater. Today, only 32% of small businesses between 20 and 99 employees have full-time IT staff. Most of those are companies with greater than 50 employees.
Q: Should a small company hold onto its technology or upgrade?
A: Avoid riding the upgrade treadmill. What's critical for the small-business owner is to critically evaluate whether the latest technology adds any significant new value. If you have a typical three-year-old network -- Office 97 on Windows 95 with an NT 4 server -- you can leave it set up and running and it won't cost you much. But as soon as you decide you want to go to Office 2000, you need to replace all your hardware, because it needs more RAM and hard drive. So if you go to Windows 2000 because it's the latest, you end up with a big, ugly conversion project.
Q: Are there areas where costs are leveling off?
A: Hardware and software costs continue to decline. We don't anticipate this trend ending any time soon.
Q: What new technology will have an impact on costs?
A: Voice over Internet [IP telephony] should begin to make significant inroads. Today, most small businesses use dial-up -- that's clearly going to change. This growth will produce significant price pressure on conventional telephony providers and should produce significant savings to small businesses.
Q: Where is spending headed for small business?
A: Services continue to rise. We expect that these costs will continue to increase for some time, though on a gradually decreasing rate of growth. In addition, costs for Web-site construction, maintenance, and hosting will continue to climb. In the same vein, small businesses heading into e-commerce should be prepared for high costs. E-commerce isn't easy, and you can't do it halfway.
Q: How can a small company control its technology spending?
A: It's just Business 101. You start with an annual plan, make investments with a high level of business rigor, and adopt an approach to designing, maintaining, and upgrading the technology infrastructure. But lower spending is rarely the answer -- technology investments greatly extend the revenue reach and growth potential of small companies. Owners just need to spend in a controlled manner. And they usually need to spend more than they expected.
Q: Where should a small company be alert to hidden costs?
A: Our Web-site development costs were frankly quite a bit more than we expected. This was because our needs have evolved rapidly as we moved from the first version of our Web site to the latest incarnation. As we became more educated, we greatly expanded the functionality, along with the attendant expected results, of our site.
Q: What's next?
A: A trend which will cost small businesses money in the long run is wireless [and remote] technology. Everyone will want to get to their data from everywhere: Palms, Blackberrys, dial-in from home DSL lines, WANs between offices, etc.
But the cost of being remote is insidious: You have to pay for the accounts, the products, all the effort to keep them maintained and running, and the firewalls to protect the home data. And it's all more complex than a conventional, wired, small-office LAN, so recurring maintenance costs will be significantly higher.
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Copyright 2000, Bloomberg L.P.