How Free is (my) IT?

A couple of readers pointed out that I've sent mixed signals about how low information friction will (or should) become. Combining my last two posts, I believe that the accidental costs will continue to plummet towards zero, the essential costs will continue to decrease slowly, and therefore the total cost drop will continue to be disruptive and transformative. That feels qualitatively right, but a little too abstract and self-referential for comfort. So -- here is one concrete data point from a survey of the IT costs involved in setting up one new small business -- me.

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I actually had a lot of necessary infrastructure in place already, because the overlap between what my family 'needs' and what my business needs is pretty large. (Five people can't survive with less than five computers, can they?) Ignoring that, though, here's my inventory:

CAPITAL COSTS	Fine Print	Capital Cost	Useful Life	Annual Budget
Laptop	Dell Latitude D610, 2 GHz Pentium M 760, 1 GB RAM, 80 GB disk, 1.5 Megapixel display, spare battery for 8 hours unplugged, Win XP + MS Office + Acrobat installed	$2000	18-24 months	$1200
Paper I/O	Dell A960 printer/fax/scanner/copier; was $250 two years ago; new equivalent Dell A962 is $130	$130	2-3 years	$50
Network	DSL router/WAP downstairs; 10/100 switch + WAP upstairs; mixed brands	$200	3-4 years	$60
Cordless Phone	old Uniden 2-line with speakerphone and headset; new equivalent is probably TRU8866	$150	3-4 years	$45
Cell Phone	Blackberry 7105t	$250	1-2 years	$170
	TOTAL	$2670		$1525
ONGOING EXPENSES	Fine Print	Monthly Cost		Annual Budget
Cell Service	T-Mobile unlimited data + 1000 weekday voice minutes	$70		$840
DSL	SBC Yahoo DSL Pro - 3 Mbps down, 384 kbps up	$25		$300
Phone Service	SBC, 2 lines, caller id + call waiting + voicemail	$53		$620
Web Hosting	Verio 'virtual server' website, with 750 MB storage + 2 GB monthly traffic; includes a lot more apps and services than I currently use	$25		$300
Exchange Hosting	MailStreet Exchange mailbox w/100MB storage + Blackberry Enterprise Service	$23		$275
Domain Name	GoDaddy registration with anonymous whois	-		$10
	TOTAL			$2345
FREE STUFF	Fine Print	Annual Budget
Web Email	Gmail, with 2GB+ storage	0
Instant Messaging	Yahoo	0
VoIP	Yahoo + Google Talk + Skype	0
Desktop Search	Lookout + Google Desktop	0
Blog	Blogger	0
Security Patches	Microsoft Update, set to download but not install	0
Development Tools	JDK from Sun, Emacs from GNU, UltraEdit from IDM, Eclipse (and many other choices - see here for a good overview - I'm still picking my favorites)	~0
	TOTAL	~ $0
	GRAND TOTAL	~$4000

Based on those items, my annual IT budget is ~$4000. How accurate is that?

Here are some expenses that might add to the true costs:

• Labor: like many of us in the tech business, I'm used to selecting, configuring, and maintaining my own (and my family's) systems. I didn't account for the time that takes. (But - it's really not that much time. Outsourcing email and hosting outsources most of the pain, and the fact that so many of my vendors are set up to cater to consumers forces things to be relatively easy.)
• Backups: the biggest weak link I'm aware of in my current setup is that I don't have a great disaster recovery plan. (If anyone knows of a good cheap "backup toaster" that I can just drop on my LAN, please let me know.) But - almost all of my critical information is stored in email, and/or is on my website, and is therefore being professionally cared for. I might just decide to ensure that's true of all my critical data.
• Apps: there's no budget for standard apps (e.g. accounting, CRM) or custom apps (e.g. Flash doohickeys on my website). But - most of what I might need is available Open Source or cheap (e.g. QuickBooks, SugarCRM), and what isn't available can be commissioned on the global market (e.g. RentACoder).

And here are some ways I could trim some expenses without too much pain:

• I could spend less on phone/email if I weren't hooked on Blackberry's real-time sync of calendar, contacts, and email.
• I don't really need two phone lines - that's a habit from when faxes actually mattered.

Add that all up, and I think the $4000 is a little low, but not much -- $6-8000 is probably plenty. Add a few more employees, and the cost per employee would be even lower.

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What does that all mean? I think it means that IT isn't free, but it's getting cheaper, and it already can be a lot cheaper than is built in to many companies' business models. My one concrete data point above is obviously not proof, but it's consistent with anecdotal data I've been hearing. I believe there are fundamental changes leading to lower information handling costs, and those changes are slowly rippling through the economy.

According to a recent study of IT spending at 8000 companies, "On a per-employee basis, small companies ... [spend] ... $15,810 per employee, while midsized companies spend less at $13,100 per employee, and larger companies spend $11,580 per employee." As William Gibson once wrote, "the future is already here — it's just unevenly distributed." Small companies that realize they don't need economies of scale to be cost-efficient, and all companies that build their models around the new lower costs, will have a competitive advantage. And vendors that help companies take advantage of these changes to get more for their IT dollar will do well.