Datamonitor’s IT Services Contract Tracker tracks every new outsourcing, systems integration and consulting deal with a value greater than $1 million signed by major IT services vendors, and contains information on more than 6,500 contracts signed during the last five years.
According to Datamonitor, the value of outsourcing deals in 2004 grew 37%, reflecting a steady recovery in the IT services market. IBM Global Services captured the largest market share (10.7%), with deals signed in the central government sector growing 78% during 2004.
There were fewer mega billion-dollar deals in 2004 than in 2003 (25 versus 29). This seems to tally with the belief of many in the services sector that clients are adopting selective sourcing models, where they outsource specific IT and back office functions to specialist outsourcing vendors rather than hand over their entire IT department to a single supplier.
One striking feature of the services market in 2004 was that the deals were distributed among a larger number of vendors than in previous years. The ten vendors with the largest single market shares of the contracts tracked in 2004 by value accounted for 57% of the total. This compares to 68% in 2003 and 70% in 2002.
Michel Janssen, president of supplier solutions for Everest Group, commented: We are seeing increasing competition from a variety of firms like ACS, Hewitt, and Perot that are beginning to win deals that were traditionally won by those in the top ten vendors. Looking further down the road, we are also seeing the top tier offshore vendors such as TCS, Infosys, and Wipro compete, and win, in head-to-head deals against top tier Western vendors – and the wins are increasingly larger in size.
The Datamonitor research also found a 39.8% decrease in the average contract value for pure BPO deals. This drop in average value was being driven by a 51% increase in the total number of these deals in the $20 million – $200 million range. There were almost six times as many deals in the $20 million – $200 million range compared the $200 million+ range.
Mr Janssen also noted that for the first time, mid-to-large versus the large- to very large businesses dominated human resources outsourcing. 2005 will be the year that BPO goes mainstream, and it will be driven by mid-size client organizations. Mr Janssen says companies with between 5,000-25,000 workers did more of these broad scoped HRO deals. In the past, companies with more than 25,000 employees were the ones inking HR outsourcing deals.
