The economic indicators all point in one direction: the U.S. is experiencing a downturn in the housing market, a weak dollar, soft consumer spending, a credit crisis in the banking industry, continued geopolitical uncertainty due to the wars and instability in the Middle East and its economic impact on the oil market, plus a contentious Presidential election. It's safe to say the economy is on very shaky ground right now and that may impact your technology spending in business in 2008.

“There are lots of signs the economy may be entering a rough period. We’ve learned in previous downturns that IT budgets are very vulnerable because they can be pulled back so quickly,” says Frank Scavo, president of Irvine, Calif.-based Computer Economics, an IT research and advisory firm.

Computer Economics recently completed its annual survey projecting shifts in IT spending, staffing, and technology trends in the coming year. Given the current climate in the world, there are no surprises here. IT spending for the small and mid-sized business market will be flat at best.

Slight spending rise forecast

Scavo finds the news is not as bad as one might think. IT spending at the small and mid-sized business level will actually be up again this year, although ever so slightly at a mere 3 percent. Ten percent of smaller companies expect to see budget cuts. About one quarter expect budgets to hold pat and the rest to get that slight increase.

Surprisingly, small and mid-sized business IT spending will be less impacted by the economic downturn than larger, enterprise-level corporations, which are forecast to increase spending by about 2 percent. “This is because smaller companies are still growing. They’re still building out their IT capabilities and infrastructure,” says Scavo.

Scavo says the areas of IT expected to spur those minor up ticks in spending include the following:

  • Software as a service (SaaS). “Look for more companies to move to SaaS outsourcing as a ways to cuts costs,” says Scavo.
  • Voice over Internet protocol (VoIP). Last year was a big year for VoIP adoption and that is expected to continue through next year. “It makes sense. Hardware costs are dropping, quality is improving. And there are savings to be had there,” says Scavo.
  • Open source solutions. It’s pennies on the dollar compared to traditional software development that usually means paying exorbitant amounts of time and money in development, plus that big, fat licensing fee for starters.
  • Virtualization management. It’s a hot skill set for IT professionals with an increasingly high demand coming on behalf of recruiters and headhunters. It’s also a way to reduce hardware expenses and maintenance and the in-house staff needed to do all of that. “Any technology that streamlines IT, like virtualization, is going to be hot among small to midsize businesses,” says Scavo.

It’s all about spending to save money.

Notice a trend in these areas? All the hot areas for IT spending next year are actually technologies known to actually reduce spending. IT budgets will be under tremendous pressure to become lean and mean.

What you don’t see are the usual things pushing spending, like big software upgrades. “There’s no perceived value that would come with upgrading to Microsoft Vista, for example,” says Gregory Nelson, a technology consultant that advises small businesses for SCORE out of Naples, FL.

In fact, a recent survey by the Computing Technology Information Association (CompTIA) found that today’s most pressing issue for IT managers from small to mid-sized businesses is keeping budget costs down. IT budgets reportedly are, in fact, the top concern for companies trying to keep expenses down overall, especially in very specific niche markets like finance and healthcare.

Other top-ranked concerns from that same survey put out by CompTIA included the following:

  • Using technologies that reduce costs elsewhere in the company.
  • Stretch the use of current systems to stay in place for a few more years if possible.
  • Unrelated to numbers, the other top ten concern of note for small to mid-sized business owners is finding vendors able to understand their company and tailor to their needs accordingly.

SIDEBAR: Other areas to watch -- wireless and security

Wireless: Dan Gookin, author of PC for Dummies, predicts wireless gear will continue to do well in 2008, although it has one big drawback. “Wireless is good, but unfortunately it usually involves a battery. Batteries run down and have to be charged constantly. The next big breakthrough that’s going to drive wireless is fuel cells or higher capacity batteries,” says Gookin.

Another factor that could help wireless spending is the formal adoption of 802.11n which is expected to happen later in 2008. 802.11 is the wireless industry standard. The new “n” version (which is already on the market as “pre-n’) is much faster and more secure than the previous “g” and “b” versions.

Security: For IT departments, security is the one area that is recession-proof. It’s just too essential to neglect. In another study, also put out by CompTIA, security spending has gone up every year since 2004 and is expected to go up again next year in 2008.

Security currently makes up about 20 percent of the average IT budget and it’s not just the gear. About half of the organizations surveyed said they planned to increase their spending on security-related technologies. But one-third of those companies said they plan to increase spending on security training, as well. The organizations that reported they’ll be increasing their security spending, regardless of area, indicated an average increase of 19-23 percent in dollars spent.