IT services grow as romance reignites
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Plus: mega deals on the rise
The worldwide market for IT services grew by 6% during 2005, as organisations rediscovered their lost enthusiasm for major development projects and consultancy assignments, even as their love affair with outsourcing begins to cool.
According to industry analyst Gartner, the $624.4 billion market is going through a clear rebalancing. Outsourcing services, for long the boom segment in IT services, was overtaken last year by project-based services and software development as the market’s fastest growing areas – a pattern that has not been evident since 2000.
That is reflected in the market shares of the leading vendors. While IBM continued to dominate the market, its growth – at just 2.5% – trailed the sector’s overall pace. EDS fared even worse, with a drop in revenues year-on-year.
In contrast, consulting and project-focused services partners Accenture and CSC saw revenues rise 13.1% and 6.1%, respectively.
The financial services industry continues to be the largest vertical consumer of IT services, accounting for $141.3 billion of the market and growing at 7% in 2005. But the biggest growth in spending came in the healthcare industry where revenues rose by 8.7%.
• Outsourcing may not be as fashionable as it once was, but the size of so-called ‘mega-deals’ (multi-billion dollar contracts) jumped again in 2005. While the value of the top 100 contracts in Western Europe actually fell slightly during 2005 to $40.5 billion, the nine largest deals accounted for half of that figure.
Another trend was observed by sector watcher IDC: Deals have on average become shorter in length. Outsourcing contracts that might have run for eight or 10 years in previous times are now being set for just three to five years. That means services vendors must engineer cost savings within a much shorter period.
Certainly the competitive landscape is tough. Alongside the shorter deals, Western European organisations are becoming increasingly savvy at dictating sourcing strategies, negotiating contracts and selecting vendors. The market is also being radically reshaped by the offshore elements of contacts. Proof of the fluid nature of the market can be found in the fact that IBM is no longer the largest services provider in terms of aggregate value of deals. While it signed 14 deals, more than any other vendor, BT Global Services and EDS signed fewer, higher-value contracts in 2005, says IDC.
