Is the market for IT services and solutions shrinking or growing?

Here’s an interesting and topical question: is the market for enterprise IT services (SI, BPO, advisory et al) growing or shrinking? I’m doing the rounds at the moment to see where the market is going (a side effect of moving on), and different folk seems to have quite different views.

  • It’s shrinking as the new normal is squeezing budgets and OPEX is the new CAPEX.
  • It’s growing as companies are externalising more functions than ever before as they attempt to create a laser like focus on their core business.
  • It’s shrinking as the transition from on-premsis applications to SaaS implies a dramatic reduction (some folk are saying around 80-90%) in the effort required to deploy and maintain a solution.
  • It’s growing as the mid market is becoming a lot more sophisticated and starting to spend a lot more on enterprise software (witness Microsoft Dynamics huge market share).
  • It’s shrinking as SaaS is replacing BPO, in effect replacing people with cheaper software solutions? (Remember when TrueAdvantage, and Indian BPO, laid off all 150 of its workers after being purchased by InsideView?)
  • It’s growing as the need for more mobility solutions, and the massive growth in the mobile web, is driving us to create a new generation of enterprise solutions.
  • It’s shrinking as cloud computing and netbooks remove what little margin was left in infrastructure services.
  • It’s growing as investment in IT is a bit like gas, and tends to expand until it consumes all available funds. (Remember integration? As the cost of integration went down, we just found more integration projects to fill the gap.)

Like of a lot of these questions, it depends.

Update: Gartner finds that the worldwide IT services declined 5.3% last year, while Computer World UK tells us to expect another year of decline. How much of this is cyclic, and how much is due to a definition of “services” which could be more inclusive?

Updated: It appears that some organisations are not happy with the size and dominance of the IT services industry.

2 thoughts on “Is the market for IT services and solutions shrinking or growing?

  1. Total spend volume is less interesting than its breakdown. Unfortunately I don't have the access to the Gartner report but my immediate question was what are those 630bn in the Other category made up from.

    My guess is that the biggest risk is to everyone (including myself) in a traditional IT role is that the traditional IT department may get relegated into a role of being responsible for managing down the cost of the legacy 'big' IT with most of the new, smaller and more fragmented opportunities driven directly by the business.

    Structure of the IT spend (especially the proportion of the old, big IT and the new cloud/SaaS stuff) may give a clearer indication as to whether this is a really threat.

    In regards to the UK revenues, I spoke with few of my friends and they reckon that the IT services business has been slowly picking up. But I am not holding my breath though as the growth in private sector spending is likely to be offset by the drop in the 'big IT' government spending after the general election. I suspect this will be country specific and may not apply to AUS.

  2. I had a similar discussion at lunch (an excellent baguette at Rue Bebelons) today with a friend. It seems too early to tell if IT services as a whole is up or down in the long term, but it does seem that traditional IT (i.e. boxes running applications in you premises) is definitely on a roller coaster going over a hump before a major drop. Investment is back as we recover from the financial crisis, and this has unleash a lot of pent up demand, but business attitudes to IT have changed. Future efforts will be smaller and more focused, OPEX rather than CAPEX. Check out the articles linked above from CBA and Victorian Government, which I've just added.

    IT revenue, to use an extremely inclusive definition, could be going up or down. What is becoming obvious though, is that IT as a profession and business is being radically reconfigured.

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