Get cheap or get out, IDC tells service providers

Get cheap or get out, IDC tells service providers

The global services and outsourcing industries may well ride a stunning growth curve over the next three years, but expect customers to jack up against rising costs after this period, a leading IDC services analyst warned last week.

Speaking at IDC Australia's Directions '99 conference, Michael Melonovsky, IDC's group vice president, Worldwide Services Industry Research, claimed that despite promising growth predictions for systems integration, outsourcing, network and desktop management, and business process re-engineering (BPO), a services "slowdown" is on the way.

According to worldwide IDC figures: the $US56 billion systems integration market is growing annually at 12.5 per cent; the $US45 billion outsourcing market is reporting similar annual growth rates of 12.2 per cent; while perhaps the biggest surprise is BPO, which at $US46 billion is registering annual growth of 23 per cent.

Melonovsky also predicted that network and desktop management would be the services market to watch in Australia as more customers battle to come to grips with their increasingly complex client/server environments.

"I expect there will be a slowdown in corporate adoption of new technologies," Melonovsky predicted. He said corporate buyers would, over time, baulk at the rising costs pinned to services, forcing these organisations to reassess their value propositions.

"The current high-cost services model will come tumbling down on itself.

"Customers are struggling to keep up with rapid technology advances and are being bombarded with increasingly complex, costly and time-consuming sales cycles."

Run out of town

Melonovsky added that the onus is now on Australia's service providers to deliver cheaper solutions "in months, not years" or they'll be "run out of town".

He suggested that it will be suicidal to ignore the impact of Web-based computing and the opportunities that will arise from hosting customer Web sites and outsourcing applications over the Net.

"Two years ago, application hosting didn't exist in the US," Melonovsky claimed. "In three years time, IDC expects this services segment to grow by an astounding 91 per cent and represent a $US2 billion market."

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