Tide turns for smaller players

IDC has released its NZ IT Services Top 10 Predictions report that, in lieu of a crystal ball, provides the clearest direction the market will take this year.

Jenna Griffin, IDC market analyst, says a multitude of factors will instigate and drive the evolution of the services market and its players; separating the men from the boys in terms of competitive environment and winner and losers in terms of technology. Griffin predicts a showdown between local and multinational service providers (SPs) and believes tier two players will get a turn in the spotlight.“Changing dynamics will see local and multinational service providers facing off.  Small and large players alike will converge on the mid-market, generating fierce competition for share within this lucrative market.  IDC believes that the competitive environment will favour tier two and local SPs and this change in dynamics is likely to result in renewed focus on consolidation. “she says.Trends over the last two years show smaller contracts being tendered in the market, allowing smaller SPs to gain a foothold in large organisations. As Griffin points out, high-end market saturation has caused revenue streams to dry up for many large players and, in order to remain profitable, the midmarket and SME sectors must be addressed. However, as the large players seek additional revenue streams and small players look to grow in the midmarket, Griffin says the advantage is with tier two and local providers who are already servicing this market. “Competing in this market will require a sea of change in perceptions, processes andgo-to-market strategies for most large vendors in an attempt to attain the agility and, ultimately, the client base of smaller providers.”Griffin highlights the increasing influence of emerging technologies on the local market, the importance of SMEs in shaping the dynamics in the evolving market and the evolution of outsourcing services from localised single-discipline services to a framework for higher-value service delivery. “There’s been a lot of discussions about new technology – such as open source software, SaaS and SOA in the past few years but not a lot of action has been seen. However IDC believes end user demand will drive considerable changes and new technologies will have a strong impact on conventional business models.”In particular, says Griffin, vendors will have to rethink their partnering strategies. “Partner ecosystems will play a major role for service vendors addressing the market with new technologies. SPs are expected to create close working relationships with hardware and software players. Moreover, software vendors have expressed their interest in expanding their capabilities in the field of services where they have been relying on service partners in the past.”This shift may see SaaS vendors cutting out the channel completely however Griffin says the vendors’ main focus is on new products.“The existing channel should be reasonably safe although it could be a different story in the future and the channel may need to evolve to provide these services.” Griffin believes the phrase “more for less” will become synonymous with the tender process, forcing vendors to provide value-added services and drive down costs in other areas of the business, thereby limiting the commoditisation of the IT services market in the near future. However, while Griffin believes it’s a good time for SPs to take advantage of opportunities, she warns it’s not without risks.In particular SPs that are slow to embrace the SME space could lose out on market share and there will be intense competition for outsourcing contracts. “2007 will be a year renowned for the emergence of disruptive technologies and delivery models. Vendors that aren’t willing to step out of their comfort zones will find it a tough year.”

The top 10

1. David Versus Goliath2. Spring-Cleaning the IT Market3. Destination New Zealand4. The Good, the Bad, and the Ugly5. A Deficit of IT Specialists6. Wanted7. Lowering the Bar8. Contract and Expand9. The Pressure Comes On10. The Changing Face of Outsourcing

To obtain a copy of this report contact Amit Gupta at IDC;(09) 374 6682  agupta@idc.com