Value for money still key driver for UK IT services

Despite supplier confidence that IT spending is recovering, ‘value for money’ will remain the key driver for the UK IT services market, according to the latest TechMarketView report published today.

The new report, UK IT Services Market Trends and Forecasts 2010, highlights four key customer trends driving suppliers’ services strategies: Value for money; Rapid response; Business exploitation; and Business control. Value for money – which the report describes as being a polite way of saying ‘more for less’ – remains the top challenge for CIOs, and is driving keener pricing and smaller deals. This is the proverbial ‘double-whammy’ for IT services suppliers. Not only does it depress revenues but, more insidiously, it resets customer expectations as to how much ‘flesh’ they can pare from their IT budgets before ‘hitting bone’.

As such, TechMarketView is forecasting another year of decline for the UK IT services market, with spend shrinking by 2% in real terms in 2010. Growth is not expected to return till 2011. Project services – the so-called discretionary side of the IT services market – will not return to growth until 2012, with recent signs that spending on consulting – a lead indicator for the project services market – is only just starting to recover. Outsourcing remains the most resilient service line, with business process outsourcing (BPO) performing strongly and application outsourcing (including SaaS) heading for double-digit growth.

The report also points to four ‘elephants in the room’ which are fundamentally reshaping the UK IT services market: cloud computing; mobile internet; social media; and consumer IT. According to TechMarketView, these trends are yet to affect the market in material terms, although suppliers have been quick to jump on the cloud bandwagon. TechMarketView sees current supplier cloud initiatives mainly as a repackaging of existing services under a ‘flag of convenience’, but says this will change as the market matures.

The report also comments on the current wave of industry consolidation as suppliers use acquisitions to supplement top-line growth. While TechMarketView questions the strategy of some recent mega-acquisitions, such as that recently announced between HP and Palm (see HP to buy Palm. But why?),  many other players are taking advantage of lower valuations to fill in the gaps in their services portfolio.

UK IT Services Market Trends and Forecasts 2010 complements TechMarketView’s recently published review of the UK software market, UK Software MarketViews. TechMarketView Foundation Service clients can download these reports (and indeed all our in-depth UK SITS research) from our website.

Posted by HotViews Editor at '07:35'