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While IT spending at the top end of the market has stalled in the last four years as enterprises attempt to drive greater efficiencies out of the infrastructure they acquired in the late 1990s, SMEs have continued to invest in technology and related services at a steady rate.

The small and medium-sized enterprise sector has been largely ignored by the technology sector's big-hitting vendors. Software giants such as SAP and Siebel and IT services giants such as EDS and CSC are geared towards winning a relatively small number of high-value deals with Global 2,000 corporations.

IT spending from SME companies is on the rise. The largest area of investment is expected to be in IT services but spending on networking, security and storage technology is also expected to show strong growth.

Telecoms incumbent BT Group and PC giant Dell are repackaging their managed services in order to gain recurring revenue from their smaller clients, and to extend their relationship beyond basic product reselling.

IBM chief Sam Palmisano announced last year that Big Blue would invest $100m in new programs to attack the SME space, and introduced scaled-down versions of its DB2 database, WebSphere, Domino, and Tivoli products geared to enabling smaller companies to build more flexible computing environments.

BT Group has modularized its service offerings into pre-packaged components. The idea is that mid-market companies without the ability to invest in complicated contract negotiations and systems design can simply pick and choose the services they want.

BT was one of a number of major vendors in the late 1990s that failed with application service provider initiatives designed to rent enterprise-level applications to smaller companies using hosted access. SMEs did not warm to these advances as a result of concerns about pricing, security and reliability.

The IT supplier community targeting the SME sector remains hugely fragmented, particularly in areas such as IT services where local resellers and solutions VARs continue to play an important role.

Major vendors such as IBM, Dell and BT might have strong brand names and large client bases for their products among the SME sector, but selling broader range of services on top of these products will not be easy. The sales organizations at many big vendors are not geared towards selling large numbers of small deals with shorter cycles, and the packaging and pricing of their services will have to be made more flexible.

As part of its revamped strategy to target SMEs, IBM is working with its team of reseller partners to push its utility computing technology and services, and this may prove a sensible strategy. Many SME companies have strong relationships with their local VAR, and going after SME business in partnership with these companies could prove to be the best way for the big vendors to expand the client base.

Source: ComputerWire/Datamonitor

Related research: Datamonitor, "MarketWatch: Technology Annual Subscription"

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