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Wednesday
- May 31, 2000
Service Companies in Need
of More Value and Customer Service
As spending on worldwide IT services continues to increase,
the industry is going through some major changes, including
a significant change to the traditional business model. According
to IDC, the model is moving from a highly customized process
linked to IT results to a more standardized process
tied to business results. In addition, service firms
are playing an increasing role in helping organizations reinvent
themselves using IT as a vital tool and helping create entirely
new businesses.
"Now that the Y2K bug is
behind us, and because we do not expect major repercussions
on the economy, companies are faced with decisions that
will impact the future of their business: rejuvenating
if not reinventing their business models, benefiting from
the Internet beyond having a marketing presence, tying
their front offices with their back offices, executing
on their Internet strategies, streamlining their supply
chains, meeting customers needs, and so on," said
Sophie Mayo, program manager for IDC's Worldwide Services
research. "Increasingly, services companies will be
asked to take more responsibility for the business strategies
of their customers and to deliver value."
Another major trend in the services
market is systems integrators' transition to Internet services
players. This trend is impacting service firms' fee structure.
At first, IT services firms were swapping services for
equity, but now they are going beyond that and moving closer
to what traditional venture capitalist firms do. "Internet
service firms are looking for the next goose that will
lay the golden egg. They're investing cash, intellectual
capital, and expertise, and they expect a significant return," Mayo
said. "At the same time, they are using their association
with the start-ups, often dot-coms, as a means to heighten
their Internet profile and to gain exposure to cutting-edge
business plans and technology."
While all this change is going
on, the worldwide IT services market will sustain annual
double-digit growth through at least 2004. IDC forecasts
spending in this market will jump 11% compounded annually
from almost $349 billion in 1999 to over $584.5 billion
in 2004. The fastest-growing segment will be application
outsourcing, which will grow twice as fast as the overall
market. By 2004, the worldwide application outsourcing
market will be well over $22 billion. In 1999, it wasn't
even $9 billion. Infrastructure services aimed at supporting
systems will also be among the hottest growth areas. Network
infrastructure management, network consulting and integration,
IS outsourcing, and systems integration will all grow faster
than the overall market.
IDC expects the United States
to remain the largest regional market for services. In
2004, it will account for 46% of worldwide services spending.
Asia/Pacific (excluding Japan) and a region that IDC calls
rest of the world, including Eastern Europe, the Middle
East, and Africa, will be the fastest-growing areas. Spending
in both these regions will increase at compound annual
growth rates of 17%. IDC also believes the Western European
market has strong potential.
"Europe is on the verge
of becoming a driver of global Internet trading and a leader
in implementing Web technology," Mayo said. "Although
Americans have long thought that Europeans are falling
behind, many signs indicate that European Internet activity
is picking up. In addition, Europeans understand the hurdles
of having to deal with multiple cultures, multiple languages,
and multiple currencies -- something American companies
are struggling with."
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