'Small' IT Market Attracts Big Companies | bryanpalmernovogen.com

By SARAH E. NEEDLEMAN

The small-business help desk is going corporate, with initiatives from companies like Apple Inc.

bringing new competition to independent consultants who typically handle the IT needs of U.S. start-ups and small companies.

The move comes as the use of external IT support among small businesses is exploding. Information-technology services can include setting up new computers, upgrading software, protecting against malware and troubleshooting.

U.S. businesses with less than 500 employees spent roughly $23.5 billion on IT services last year, and are projected to spend $27.2 billion on IT services by 2015, according to estimates by research firm IDC.

Best Buy Co.

sees ?significant, untapped potential? in small business IT, a company spokeswoman said. The national retail chain in December bought Mindshift Technologies Inc., a Waltham, Mass., provider of IT services to more than 5,400 small and midsize businesses nationwide.

Channing Johnson for The Wall Street Journal

Software engineers Guto DaSilva, left, and Srini Vasan at OnForce?s headquarters in Lexington, Mass. OnForce teamed up with Apple in June.

Apple in June formed a partnership with OnForce Services Inc., an eight-year-old IT services network based in Lexington, Mass., to provide small businesses with IT help on their own premises.

?Everyone?s talking small business right now. There?s a huge opportunity,? says Peter Cannone, chief executive of OnForce.

Apple stores already feature a ?Genius Bar,? where customers have their products serviced. A year ago Apple introduced ?JointVenture,? a program providing small businesses with limited tech support offered by Apple employees in Apple stores and over the phone. That program starts at $499 a year for those who buy a new Mac.

But in-store support isn?t ideal for many business owners who may need to carry multiple computers or devices from their office into an Apple store.

While many small businesses and start-ups are still reluctant to hire new employees, spending on technology and IT services is seen generally as smart if it can help a company operate more efficiently, or make it possible for an owner who travels to manage his or her business from a remote location.

?I don?t have an IT department,? says Kevin Kay, owner of an Easley, S.C., health-care company with just 53 employees. ?It?s not a luxury I can afford.?

Mr. Kay, who says he has been cautious in his overall spending in recent years due to the economy, sought Apple?s help in updating and transferring accounting software to three new iMac computers from older personal computers earlier this month.

Apple referred him to OnForce, which then dispatched a technician from its roster of more than 100,000 partners?independent IT-service providers nationwide who pay OnForce a referral fee of 10% of sales?to Mr. Kay?s business. Mr. Kay paid the technician $1,050, or $150 an hour, for seven hours of labor, an amount he describes as ?costly but necessary.? That?s on top of the $5,600 he shelled out for computers, iPads, software and data backup.

Thanks to the advent of cloud computing, the options now available to small businesses go well beyond what was typical for a help desk just a few years ago. They include analytics, software customization, disaster recovery and video conferencing, for instance. Such options and others only recently became feasible to dispense on a widespread scale?and at prices the average small business can afford.

Spending on IT services by U.S. companies of all sizes has been growing at a rate of about 3.2% annually over the past five years, and reached $304 billion last year. That total is about 55% more than their spending on computer hardware and software sales combined, according to research firm Gartner Inc.

About 71% of small and midsize U.S. companies said they planned to increase their IT budgets by an average of 5.2% over the next 12 months, according to a July survey of 602 companies with less than 500 employees by the Computing Technology Industry Association, a trade group.

The small-business IT market is alluring to many in part because no single player dominates it, even though some large corporations have been in the space for longer than Apple and Best Buy, including International Business Machines Corp., Staples Inc.

and AT&T Inc.

PlumChoice Inc., a midsize IT-services firm in Billerica, Mass., has signed partnerships with five large corporations in recent years to provide help-desk support to those outfits? small-business customers. ?When things don?t work, you can?t even run your business in many cases,? says Ted Werth, its founder.

There are roughly 300,000 independent IT consultants, and another 114,000 small IT companies, according to the trade group. Some independent consultants believe they can thrive despite potentially increased competition for mom-and-pop shops and other small-business clients.

?A college kid offers better pricing than I do but I?m able to give my clients the answers they need in ways they can understand,? says Allan Sabo, an IT consultant in Flushing, N.Y., who charges $100 an hour, or $500 a month, for service for clients who have one server and as many as five workstations.

Small-business owners ?want to work with local people,? says Jason Comstock, an independent consultant in Marysville, Ohio, who says he visits his clients on site at least once a month even though he can assist them remotely with many IT issues. ?They want to know who you are, where you go to church, are you a member of the local chamber of commerce, all those things. They?re really about the relationship.?

Best Buy so far isn?t planning to carve out dedicated space in its stores for Mindshift, as it currently does for Geek Squad, its tech-support service for consumers.

Rather, Mindshift will serve the businesses in most cases via remote access to a customer?s computer or over the phone.

?We can do 99% of the work remotely,? says Paul Chisholm, Mindshift CEO. ?More and more customers want to go to the cloud, and the independents and small regional providers don?t have the financial capital and expertise to develop scalable cloud offerings.?

Keeping a team of IT professionals can be too costly for a start-up.

?The minute you bring them in, unless you spend a tremendous amount on training and keeping them up to date, their skills deteriorate,? says Rick Rodgers, co-founder of Tesaro Inc.

The two-year-old biopharmaceutical company, based in Waltham, Mass., paid Mindshift about $40,000 for all of its 2011 IT needs.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

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