The huge pressure on large software providers to win market share among medium-sized businesses is likely to keep prices low this year, despite evidence of a long-awaited upturn in IT spend.
Finance directors will reap the benefits of competition and keep costs down while extracting more value from their software providers, according to analysts working in the sector.
The forecasts come after a new survey of over 500 technology decision-makers across Europe revealed that medium-sized businesses are set to increase their IT spend by more than 4% in 2005.
More than a third of respondents are looking to invest in a finance application during the same period.
But while an increase in IT spend would appear to suit the providers of businesses software, the intense competition between larger software providers will suit many finance directors looking to invest in IT.
Manuel Mendez, an analyst at Forrester, the maturity of the enterprise-level software market was forcing suppliers to target medium-sized businesses to boost flagging sales.
‘Large software providers are looking at medium-sized businesses so they can avoid dealing only with software licence renewals among their large enterprise customers.’
Microsoft Business Solutions and SAP have both offered migration paths to PeopleSoft clients that have become unsettled as a result of the Oracle takeover.
‘There are already price battles for the custom of large enterprises,’ Mendez continued.
Observers expect medium-sized businesses to see increasing diversity among the number of IT suppliers.
Mendez said: ‘They will get more offerings. Some medium-sized businesses will go to software resellers and then to the direct supplier.
‘(Medium-sized businesses) will still be able to look for functionality and good service support.’
Dave Turner, marketing manager at business software provider Coda, said that while the mid-market is an opportunity it is also ‘highly competitive’.
‘They tend to want software companies to be even more value-added. Smaller and medium-sized companies can’t make big investments upfront. Many want the applications managed for them so that their IT investment is flatter and more predictable.’
An Access Accounting spokesman said that the only thing to mitigate price pressures is the quality of product and service from an IT supplier.
He added that spending among medium-sized companies is still ‘wary’. ‘Some will still be cautious.’
The report found that the IT spending outlook ‘appears healthy’ across Europe in 2005, and that medium-sized businesses will be looking to increase IT spend by 2.4% on average and by as much as 4.3% at the top end.
UK buyers are as optimistic about growth in IT budgets as other European countries. Some 77% of UK respondents expect their IT budget to stay constant or increase in the next 12 months. This compares to 80% in Germany, Austria and Switzerland and 77% in the Nordic region.
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