Study Points to SMB Pullback on IT Spending in Pandemic’s Wake

A new study from GoTo (the webinar folks) finds that the new hybrid work culture is straining IT teams. And this is especially true among smaller businesses. The study also suggests that after a flurry of IT spending during the pandemic, companies are looking to consolidate their tech stacks. And this will be especially true among smaller companies.

The study looked at how the workplace upheaval the pandemic caused has impacted business IT spending and staffing. it also looked at what we can expect as Covid recedes.

GoTo partnered with Frost & Sullivan to conduct the survey during February and March. The survey tapped into 1,000 companies with fewer than 1,000 “knowledge-based employees”. The companies were in the United States, the United Kingdom, Ireland, Australia, Germany, Italy, and India.

The Coming Rationalization

Perhaps the most interesting survey finding involved the coming consolidation of tools. The rush to add technology to adapt to a working model that changed virtually overnight from in-person to remote has led to a bit of an IT spending hangover.

IT budgets skyrocketed over the past two years in response to the shock. In fact, IT budgets increased in 77% of companies in 2021 (vs 2020). By comparison, budgets shrunk in only 4% of responding companies. These are not sustainable increases, particularly for smaller companies. So we can expect SMBs, in particular, to optimize their tech stacks now that life is settling back to normal.

“Two years after quickly adopting tools that made remote work possible, businesses are now evaluating service duplications within these tools and areas in which they can consolidate,” GoTo said in summarizing the survey findings. “The study found that 95% of companies have plans to consolidate their tools in 2022. Many are already in the process of evaluation.”

The Markets Respond

While perhaps not for all the same reasons, the markets are sensing this pullback. Of course, stocks have been taking a beating across the board lately. But it’s been a bloodbath among the so-called “pandemic stocks.”

“The share prices of stocks like Teladoc Health (TDOC), Robinhood Markets (HOOD), Zoom Video Communications (ZM), and Peloton Interactive (PTON) have declined 80% or more from their most recent highs,” financial reporter Farran Powell wrote in Forbes last week.

“It’s understandable why investors might be puzzled by the horrendous performance of these formerly high-flying companies that were considered darlings of the market less than two years ago. But these and other popular pandemic growth stocks have run into a perfect storm of market conditions that has completely taken the wind out of their sails.”

Among the conditions she cited was the fact that so many retail traders flooded into the markets. After all, many were bored and armed with stimulus checks they often didn’t need. Many invested in stocks seen as pandemic beneficiaries.

Now that the markets have cooled off, investors are scrutinizing these stocks. Part of that scrutiny involves asking whether the new normal will be as kind to stocks ranging from Peloton to Teladoc. And the mother of all pandemic stocks, Zoom, is also falling back to earth.

“Revenue growth has slowed dramatically from three consecutive quarters above 350% during the early stages of the pandemic to just 21% in the fourth quarter of 2021,” Powell wrote. “Zoom has guided for just 10.7% revenue growth in its current fiscal year.”

Many of these businesses will survive just fine in a hybrid world. Others will falter or get acquired. But it’s clear the days of triple digital quarterly growth are long gone. And if the GoTo survey is right, growth may be even more challenging in the near term for any company selling tools designed to help companies adapt to what we thought the “new normal” would be a year ago.

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