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STRATEGY

The Best Bang For Your Tech Buck

With new offerings hitting the market like a tsunami, entrepreneurs should spend their precious IT dollars with care.
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It's not that Rob Shoenfelt has too little to spend on technology. The CIO of Ohio-based Celina Insurance Group says his 2004 tech budget is between $1 million and $2 million, "healthy" for a company that has $60 million in annual revenue and 150 employees. He would like to replace Celina's 18-year-old PBX phone system. He also would like to increase the data storage capacity. Combined, the projects would eat up as much as 20% of Celina's total IT budget, so Shoenfelt doesn't think he can do both this year.

Such tech spending dilemmas are common these days. After several years of keeping their wallets closed, small companies are beginning to buy again. Surveys conducted by research firms Gartner and the SoundView Technology Group predict small-company demand will drive tech in 2004 as business owners move, en masse, from the "stall mode" to "controlled spending," in the words of SoundView's Arnie Berman.

The question is, what will they buy? Most spending will likely be earmarked for traditional line items--new hardware and software upgrades. But there are also several heavily advertised new technologies that will vie for your dollars. Linux and voice-over Internet protocol telephony are among those innovations being most aggressively promoted, on the grounds that they will help companies save money. Will the investments really pay off? Likewise, is new security technology really a must-have?

CIOs like Shoenfelt, who have joined the management teams of private companies in growing numbers according to a recent Gartner report, will surely advise business owners on pricey investments. But, as with most spending, the key decision maker at a private company remains, in many cases, the owner. Here are some points to consider before you go shopping.

Laptops versus Desktops

Time to face facts: Four-year-old PCs no longer cut it. Upgrade before the cost to support those machines saps your IT budget. The question then is: laptops or desktops? It used to be the latter were cheaper and easier to maintain. That's no longer the case. The reliability of notebooks has come so far that last year, according to NPD Techworld, dollar sales for portables surpassed desktops for the first time ever.

The new generation of laptops is as sturdy and boasts the same lifespan as the typical workhorse desktop, owing in part to the fact that they increasingly share the same components. Loss or theft is still a concern--and upfront and maintenance costs are calculated to be 25% more for laptops. But those expenses should be offset by productivity gains if, for example, every employee who gets a laptop works an extra two or three hours per week at home.

Mercury Instruments made the decision to ditch its desktops in favor of portables this year. The Cincinnati business designs and develops instrumentation for the gas industry. Now, the company's engineers can take their machines onto the plant floor to demonstrate exactly how a new device should be built. "With a laptop on our wireless network, we can respond to customer needs even if we're in a meeting," enthuses Javier Lopez, the international customer service manager.

Laptops' popularity also has grown as screens have become bigger and brighter. The viewing area on a 15-inch laptop screen is now comparable to that of a 17-inch monitor. Manufacturers have also put machines on a diet, so ungainly weight is no longer a deterrent to buying a portable. Frequent travelers should buy something in the three- to four-pound range, with a 12- to 13-inch screen.

A word on cost: PC prices are about as low as they're going to go. Manufacturers are offering deals on many machines, so you can find powerful PCs for as little as $1,000. Look for promotional campaigns that offer extra RAM or rebates--and if you do get a rebate, make sure you actually mail the thing in and collect the money.

Processor Smarts

Don't get woozy over the latest, most expensive Intel processor. It's overkill for all but heavy power users like graphic designers. In fact, you might be surprised at how much trading down in processing speed can save you.

Go to Dell's website, for example, click on the Dimension 4600 button, and you'll find a number of processors to choose from. The top of the line is a 3.2GHz Pentium 4, while the bottom is a 2.66GHz P4--slower but by no means slow. The 3.2GHz machine comes in at $1,497, while the one with the 2.66GHz processor, which is perfectly fine for most users, comes in at $1,217. Now further compare that with a Dimension 2400 with a 2.4GHz Celeron, Intel's budget-minded processor. The price plummets to $717, less than half the price of the high-end P4. The same is true for PCs made with AMD's Athlon processor. They're fine for the majority of users and cost far less than a high-end Pentium 4.

Office 2003

Great moments in work history do not necessarily include paying $399 to $499 for Microsoft's Office 2003 upgrade, no matter what the software maker's relentless ad campaign states. In short, if you're already running Office XP, it's tough to find compelling reasons to upgrade, particularly given Office 2003's price--and the fact that, um, it's already 2004.

The newest iteration of Office is designed for businesses that spend a great deal of time collaborating online. If you have facilities around the country and would like everyone to have access to the same files, then maybe the cost is justified. Bear in mind: Application upgrades can be purchased as standalones. Want the latest version of Outlook but not Word? It's only $109.

Linux

The cost of deploying Linux on the desktop is hard to quantify because there are so many factors to consider, but it's safe to say the upstart OS is anything but free. Sure, licensing fees from Red Hat and other providers can be far less than Microsoft's. But because Linux is open source, every company selling it has their own idea of what the desktop should be--there's no standardization. The differences from one provider to another could hamper processes as basic as managing files or burning a CD. And besides inconvenience, there's the opportunity cost. Your IT department may be kept busy answering questions that stem from Linux when they could be doing other things.

You'll also face difficulty exchanging files with the nonpenguin world. Linux programs, alas, are not fully compatible with Office. Open a Word, Excel, or PowerPoint file using OpenOffice for Linux and you'll probably have to reformat. Save it to return to Word users, and there's a chance they're going to have to do the same thing. What it comes down to is there's no equivalent of MS Office for Linux--and don't expect one to emerge anytime soon.

There are other problems, as well, particularly with websites built to handle Explorer's Java script. There's a very good chance they won't work with Linux browsers. And some of your basic hardware, such as printers and scanners, may not have Linux drivers. Unless you have a programmer on staff, you'll probably find yourself replacing a lot of equipment. All of the aforementioned can add up pretty quickly and take the shine off the word free that generally follows Linux.

I once spent two days putting Linux on a machine with Windows, sharing the hard drive. I spent most of that time on the phone with tech support, at about $200 an hour. I finally got it to mostly work, but my machine completely crashed two weeks later. That was two years ago, but there are still no standards among providers. It's both the benefit and the curse of open source.

VoIP

Know the old adage, if it sounds too good to be true, it probably is? Think VoIP. The idea of saving thousands a month by routing phone calls via the Internet is great. And if you listen to providers such as Cisco, Net2Phone, or Vonage, it's the best technology ever. But here's the wet blanket: Last November the FCC announced a yearlong investigation into whether VoIP should be regulated. If Congress were to tax VoIP, those dollars invested in infrastructure ($600 to $1,000 per station) may not result in the bonanza everyone had hoped for.

There are a few other things you should know about VoIP. Not only do you run the risk of being hit with fees down the road, you'll also be sacrificing bandwidth for data applications. And you'll have to worry about security.

The most problematic issue, though, is the effort it takes to deploy and maintain a system. It will take you five full days to install the phones, and three to six months to get the whole system in place. And you'll have to update software periodically. Then there's the compatibility issue. One system may not work with another. So if your vendor goes belly up (this is a relatively new technology, and there are lots of new players), you could be out of luck. Take the wait-and-see approach, and in the meantime try to negotiate a better deal on your current service. The telcos, eager to quash VoIP, may be happy to oblige.

The Yankee Group says 54% of U.S. companies plan to boost security spending. The average cost to buy software patches: $234 per machine.

Security

More businesses are coming to the conclusion that security has to be a top tech priority. According to the Yankee Group, a Boston-based research firm, 54% of U.S. companies plan to boost security budgets during the next three years, particularly with regard to firewalls and antivirus and anti-intrusion software. According to the study, most of that extra spending will go to updating previously installed products. About half will be spent on new software and IT staffing.

The best place to start is to make sure all your PCs' security patches are up-to-date. But that's not cheap. The Yankee Group found that the average cost to keep a machine up-to-date is $234. Companies with more to earmark for security should be audited by a specialist like Network Associates or Symantec. Those with little to spend can still take steps to minimize risk by moving servers behind locked doors and running cabling above the ceiling, which makes it more difficult to tap into. These measures may seem like overkill, but if your business has an online presence, keeping information secure is critical. Once customers sense that your data is not secure, they're gone.

Instant Messaging

There's no doubt that IM is fast and often cheaper than a phone call--perfect for instantaneous communication with a far-flung sales force or multiple retail operations. And the cost is pretty reasonable. IM plans from AOL, Yahoo, and Microsoft range from $25 to $40 per user per month, depending on the size of the company.

Problem No. 1: Users of AOL, Yahoo, and Microsoft can't yet connect to each other, and that's annoying.

Problem No. 2: Security, natch. Michael Osterman of Osterman Research in Black Diamond, Wash., claims that while 90% of companies have some instant messaging activity, only 30% have established IM standards. In other words, there's a whole lot of unregulated activity out there. And that should scare the wits out of you. Many IM services evade firewalls, so they can serve as the entry point for malicious codes or viruses. AOL, Yahoo, and Microsoft are doing their best to enhance encryption and security, but even so there's still a buyer-beware quality to these offerings.

For now, if you want IM done right contact a provider like Bantu or Jabber, which will tailor a service to your company's needs. Jabber can integrate an existing directory to maintain users' e-mail addresses. Even better, Jabber allows users to IM forms such as purchase orders or invoices, so you know who's seeing them and when they're being seen. The cost for this peace of mind: $30 per seat for up to 1,000 users, plus support and maintenance.

Postscript

So how did Rob Shoenfelt at Celina Insurance end up spending his 2004 budget? He's still undecided. He considers VoIP to be risky and investing in his company's data storage capability to be the pragmatic choice. Either project could cost up to $200,000, so Shoenfelt is taking his time to decide. That's a pretty smart way to go. At companies like Celina, IT dollars are precious.

Last updated: Mar 1, 2004




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