UK Software and IT Services industry reaching the nadir

Ovum Holway: Competitiveness is the watchword after worst year ever.

For immediate release 13 June 2003. The UK software and IT services (S/ITS) market is set to shrink for the second year in a row making competitiveness even more crucial, according to Ovum Holway, the UK’s leading S/ITS analyst.

In a new report, Market Trends 2003, the company forecasts total revenues in the UK S/ITS market will decline to £22 billion this year, down three percent from last year in real terms (excluding inflation). The market had shrunk by just over 4 percent in 2002 making it the worst year for the UK S/ITS market growth. Ovum Holway forecasts that the growth rate of S/ITS will remain below that of GPD until 2006 at least.

“These results are very much in line with a trend we identified last year,” says Anthony Miller, research director for Ovum Holway and lead author of the report. “Last year we warned the industry that it was in denial when talking about “when market conditions improve”, advised Miller. “For us, things will get better when they stop getting worse – and we think that won’t be until next year”.

Any money being earmarked for IT is now primarily to make existing systems (both hardware and software) work better together and last longer. Any business case to spend ‘new’ money on IT had to be able to demonstrate a sound return in the same financial year, else it would never get past first base.

This will continue to impact negatively on growth and with no new “big thing” in sight, things won’t radically change.

The following trends will shape the rest of the decade:

• Multisourcing: the era of the one-stop-shop ‘unisourcer’ is coming to an end, at least in the megadeal market. Consortium-style ‘multisourcing’ arrangements are becoming increasingly prevalent both in the public and private sector because, potentially at least, it serves the customer better, by banding together ‘best of breed’ suppliers, and serves the suppliers better, by spreading the risk.

• Offshore outsourcing: While the price gap between offshore and onshore is narrowing, it’s still big enough to be an enticing proposition, and we think it’s likely to remain so. The message for ‘onshore’ suppliers is clear; build, buy or partner offshore.

• Business Process Outsourcing (BPO): The best opportunities will be more likely found in industry-specific BPO, both in the public sector (local and central government) and in the private sector (especially insurance). Ovum Holway expect a number of partnerships between business services specialists with IT outsourcing specialists to take place, at least at a transactional, if not strategic level.

• Security: The review of companies’ disaster recovery plans and the increase in hacking, virus attacks, SPAM, e-commerce fraud, etc means that system security will remain prominent the CIO agenda.

“It’s not as bleak as it sounds, though,” Miller concluded. “Those suppliers that concentrate on gaining market share at the expense of their competitors are the ones that will grow. But first they must make sure they are profitable and generate cash else they won’t survive”.

Ends-

About the Research

The report Market Trends 2003, authored by Anthony Miller, is available now. For sales information, please contact Ovum at www.ovum.com, or call +44 (0) 20 7551 9228.

About Ovum

Ovum, the analyst and consulting company, is the largest European headquartered advisor on telecoms, software and IT services.

Resolutely independent, Ovum advises large corporates, IT and software vendors, IT service providers, telecoms operators, regulators, service providers and equipment suppliers. It analyses the commercial impact of technology and market changes and has a real strength in advising on the developments where telecoms, software and IT services interact.

Ovum takes a global perspective on leading-edge developments from our offices in Europe, North America and Asia Pacific. Its experts spot the short-term issues that will have an immediate impact on markets and organisations and advise on the longer-term 'visionary' aspects which form the basis of strategic planning.

More information on Ovum, its customers and its independence is available at http://www.ovum.com/about/

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