NEW SURVEY: Small Businesses Embrace Immersive Technologies, Feel Secure in the Cloud, Many Harmed by Termination of Immediate R&D Expensing

By SBE Council at 6 June, 2023, 2:44 pm

FOR IMMEDIATE RELEASE

Washington, D.C. – In a new SBE Council/TechnoMetrica survey released today – “Emerging Technology, Innovation and Small Business” – the use of and views on immersive technologies and the metaverse, the efficacy of cloud computing services, and the small business impact of ending immediate R&D expensing are all explored. With regard to the latter, the survey results reveal damage for the U.S. economy, local economies, investment, and to the small businesses who have utilized immediate R&D expensing, which expired at the end of 2022. As noted by Small Business & Entrepreneurship Council (SBE Council) president & CEO Karen Kerrigan about the survey’s findings, there’s good news mixed with a little bad news to report. Small business owners are embracing technology and are happy about how it is enhancing their businesses, yet incentives that have disappeared and aimed at encouraging investment and innovation are proving to be quite harmful for small businesses.

“In this survey, we find that the mindset of entrepreneurs and small business owners is quite positive and excited about the future of technology and how it will benefit their businesses. Entrepreneurs see opportunities to build their brands, explore innovative practices and models, identify new customers and revenue streams, and train employees through immersive technologies and the metaverse. Significantly, 42% of the small businesses surveyed are currently using immersive technologies.  While some small business owners express concerns about being left behind, the few that express this sentiment remain confident about their ability to adapt,” said Kerrigan.

On the negative side, regarding the effects of ending immediate R&D expensing for small businesses, Kerrigan observed:

“Longstanding bipartisan policy in support of encouraging innovation through immediate R&D expensing is fairly responsible for the innovations and the tools that are helping entrepreneurs compete and thrive. Moreover, small firms are responsible for the lion’s share of innovation, and now that immediate R&D expensing is no longer available, small businesses will take a big hit. This could be disastrous for the U.S. economy and the competitive advantage we are working to maintain in the global marketplace,” Kerrigan said.

As revealed in the survey, 29% of the small businesses surveyed used immediate R&D expensing. While 72% of those utilizing the incentive were aware that it had ended, 28% of small business owners were surprised to learn that it was no longer available, which was shocking news to these entrepreneurs.

According to the survey, the new tax hit that small businesses will face is quite significant, and many will be forced to borrow money and pare back their operations in order to absorb the financial damage: 35% of small business owners report they will need to borrow money to pay the new tax bill, and 19% report that their firm may go out of business. Other impacts include: holding off profit sharing for employees, less investment in future innovations, reduced hiring plans and employee benefits, laying off employees, and forgoing compensation for the owners or founder.

Not surprisingly, small business owners that have utilized immediate R&D expensing overwhelmingly support bipartisan legislation to restore and make it permanent. Approximately 86% of small enterprises support a bill that aims to make immediate expensing of R&D costs a permanent provision, with additional enhancements for small businesses. Only 6% oppose this legislation, while 8% remain unsure.

Kerrigan pointed out that bipartisan legislation has been introduced in the U.S. House and U.S. Senate to restore, make permanent and improve the R&D expensing provision. SBE Council is on record supporting the bipartisan “American Innovation and Jobs Act” introduced by Senators Maggie Hassan (D-NH) and Todd Young (R-IN) in the U.S. Senate, and the bipartisan “American Innovation and R&D Competitiveness Act” introduced by Representatives Ron Estes (R-KS) and John Larson (D-CT) in the U.S. House. Kerrigan said that the tax provision must be immediately restored and made permanent.

“Measures that stand behind and support the innovative practices and investments of American small businesses are especially important now – for boosting the economy, moving to full recovery, and reaffirming America’s role as an innovation powerhouse. Immediate R&D expensing must be restored, made permanent, and hopefully enhanced without delay,” said Kerrigan.

The U.S. House Small Business Committee, Subcommittee on Economic Growth, Tax and Capital Access” hosted a hearing on June 6 about this important issue. Kerrigan submitted a written statement for the record noting the challenges for small businesses and importance of restoring immediate R&D expensing, which can be accessed here.

IMMERSIVE TECH/METAVERSE KEY FINDINGS

● Business owners show varying levels of familiarity with immersive technologies (VR, AR) and the emergence of the metaverse: 25% of small business owners are very familiar with immersive technologies and the metaverse, and 46% are somewhat familiar.

● The adoption of immersive technologies is prevalent among small businesses, with 42% currently using them in their operations.

● Customer engagement is the primary area where immersive technologies and the metaverse will be most beneficial for small businesses and their industry, according to 57% of small businesses. Additional areas where immersive technologies and the metaverse will be beneficial include: employee training (48%), marketing and sales support (47%), building brands (43%), the development of new business models or innovative practices (40%), identifying new customers and revenue streams (38%). More beneficial uses are noted in the graph below:

● The adoption of metaverse/Web 3.0 technology is viewed as exciting by a significant 55% of small businesses, with many recognizing its growth opportunities. While 23% have concerns about being left behind, they remain confident in their adaptability. Only 5% harbor concerns that embracing Web 3.0 technology could potentially drive their firms out of business.

Kerrigan observed:

“As with each technological wave, a little apprehension among small business owners is quite normal. They are forced to navigate so many challenges on a daily basis and change can be overwhelming. Oftentimes the perception is that technological change will be expensive. This is especially the case for small businesses that have tighter budgets and fewer staff. Indeed, the pace of technological change is extraordinary, yet small business owners have become more tech savvy and grounded. Most are excited about these innovations and see opportunity and growth with immersive technologies and the metaverse. Very few are fearful, but even that can be a motivating factor in driving a small business to act, innovate and grow as they deploy new technology.”

CLOUD COMPUTING SERVICES KEY FINDINGS

● The survey shows that 93% of small businesses utilize cloud computing services, with cloud backup and email/web hosting being the most popular applications.

● When it comes to data security, 92% of small businesses express confidence in the security and protection provided by their cloud service providers. Among them, 44% are very confident; another 48% are somewhat confident, while only 7% lack confidence.

● Regarding the availability of cloud service providers, 81% of small businesses state that they have a sufficient number of providers to choose from.

● Satisfaction levels with the quality of cloud computing services are high, as 97% express satisfaction with services: 51% report being very satisfied with the quality of services received from their providers, 46% are somewhat satisfied.

● Small businesses are pleased with the value for money they receive from their cloud computing service providers: 93% are pleased overall with 41% very satisfied and 52% are somewhat satisfied with the value they receive. Dissatisfaction regarding value for money is limited to 6% of businesses.

Kerrigan observed:

“The satisfaction level and confidence among small business owners are quite impressive when it comes to cloud services. That says a lot about the cloud services ecosystem and its ability to serve millions of small businesses and consumers with great efficacy. As advocates for small business owners and entrepreneurs, we are very concerned about the Federal Trade Commission’s inappropriate meddling in an area – cloud computing – where no problem exists. But unfortunately, that is the current modus operandi of Lena Khan’s FTC – meddling across sectors and into business models that should be on the receiving end of praise and support, not new regulations. We will use these findings to make sure the FTC doesn’t mess up a good thing for millions of small businesses,” said Kerrigan.

To view the survey report in full visit SBE Council here.

Contact:  Karen Kerrigan, kkerrigan@sbecouncil.org

SBE Council is a nonpartisan advocacy, research and education organization dedicated to protecting small business and promoting entrepreneurship. For 28 years, SBE Council has worked on and advanced a range of private sector and public policy initiatives to strengthen the ecosystem for strong startup activity and small business growth. Visit www.sbecouncil.org for additional information. Twitter: @SBECouncil

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