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Optimism down as priorities shift in mid-market IT

You can't postpone mission critical

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With a sharply declining server market this year and relative stagnation expected for the few, according to a long range forecast released by IDC and a shorter-term one from Gartner, you can bet server resellers are trying to get a bead on what things midrange shops want and need to spend money on.

Which is the main reason why the Enterprise Computing Solutions division of master IT distributor Arrow Electronics has just done its second annual mid-market end user survey.

Robert Spee, director of marketing for the midmarket and IBM groups at Arrow ECS, shared some insights from the most recent survey that the company commissioned Echo Research to do to case the midrange. This data is usually reserved for resellers only, but Arrow ECS was kind enough to share.

Spee says that Arrow ECS' MPower marketing programs for the midrange focus on companies with between 100 and 5,000 employees, and that in the US there are some 110,000 such firms, depending on who you ask.

According to Spee, there are around six million businesses in the US and obviously only a few thousand enterprise-class firms. So it is a big, relatively flat pyramid by customer size. But, I would guess, probably looks like a tall rectangle with three horizontal stripes when you look by aggregate revenues per business size.

To chase these SMB and enterprise customers, Arrow ECS has more than 18,000 partners - including value-added resellers, solution providers, independent software vendors, and system integrators. In April of last year, Arrow ECS launched the MPower program, which does very targeted marketing and sales for partners who agree to make a commitment to training and marketing for high-growth areas for Power Systems and other platforms. The MPower program already had 185 partners, and Arrow ECS obviously wants that number to continue to grow.

While the sweet spot for Arrow's channel partners might be companies with between 500 and 1,000 employees, Arrow wanted to take the pulse on the upper part of the midrange. Here, IT infrastructure has a certain sophistication and budgets presumably can't just be turned off, as they can be for small businesses.

The company asked Echo to talk to 200 IT executives based in the US with between 1,000 and 5,000 employees, engaged in the financial services, manufacturing, wholesale distribution, healthcare, and retail sectors. While Arrow didn't explicitly look for shops running Power Systems iron, based on the customer profiles of i and AIX shops, many of these customers are almost certainly using an IBM platform in some capacity with one or both operating systems. The mid-market business at Arrow ECS also encompasses a variety of x64 gear as well.

So what did Arrow find out from midrange customers? "We learned that this mid-market continues to be strong," says Spee. "But there is a little less optimism about IT budget growth." And, some priorities have understandably changed.

In last year's mid-market survey, which was done in the spring like this one, 61 per cent of the shops surveyed said they expected their IT budgets would be going up, with 30 per cent being flat and eight per cent expecting them to go down. One per cent were unsure what was going on budget-wise in 2008. This year, only 29 per cent of the midrange shops polled by Echo on behalf of Arrow ECS said they would go up, 40 per cent said they would be flat, and 29 per cent said they would go down, with two per cent unsure.

If you average the amount of the increases in IT budgets for 2009 for the midrange shops saying they expect an increase, the maths works out to an average of 16 per cent. If you do the same sums on the declining budgets, it works out to an average 18 per cent decline. These seem like pretty big swings to me, but I am used to thinking about the entire market swinging up or down by a few per cent - usually nothing close to 10 per cent one way or the other.

As you might expect, the number-one priority this year was to reduce IT costs - cited by 77 per cent of respondents - followed up by improving customer service, meaning how well or poorly IT serves end users and business units. Access to capital has also moved up on the list after being fairly low down last year, and improving security and reducing risk has also moved up in priorities.

The thing to remember about the midrange, particularly the upper end of it where Arrow ECS was doing its polling, is that it simply is not possible to absolutely lock down spending in the data centre. Business units have long-term application and infrastructure plans and budgets that match the scale and term. "People can defer buying new PCs," says Spee. "But they can't put off mission-critical applications."

And not just back-end ERP systems and CRM and SCM extensions, either. Security, business intelligence, online collaboration, server and storage virtualisation and consolidation are key areas where midrange companies are willing to pony up some cash.

Interestingly, Arrow ESC found that 38 per cent of those polled said their company's managers require some sort of mathematical return-on-investment calculation for IT purchases - meaning a greater justification for purchases than "this is really cool technology, we should get it."

Only 12 per cent of the midrange companies polled said they required a one-year payback for an investment, while 31 per cent said that they are allowed to justify the acquisition on the basis of total cost of ownership over multiple years. Another 13 per cent said they make their IT buying decisions based on the total acquisition cost within one year or less.

Presumably the distinction between ROI and TCO is one that favours upgrades to Power Systems i iron on steady-state, mission-critical workloads, while ROI calculations come into play on new projects, like setting up a data warehouse or a CRM system. ®

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