For a business built on the backbone of wires and chips, the IT services market is a painstakingly personal affair.
With consulting, deployment and outsourcing all functioning through face-to-face customer interaction, it is no surprise this will be one of the technology industry’s hardest-hit segments of the COVID-19 pandemic.
Ever since Australia entered Stage 2 lock down on 23 March, imposing strict social distancing measures, thousands of organisations rushed to cut their outgoings and expenditure in the face of shrinking cash flow.
According to IDC’s Impact of COVID-19 on Australia's ICT Market Update report, service providers and their associated channel partners that have project-based contracts will see the rug pulled out on them as organisations pause or cull IT projects, standing down contractors.
Australia Post and National Australia Bank (NAB) have both carried out such suspensions, while the Digital Transformation Agency (DTA) also delayed the launch of its new Cloud Marketplace panel until “at least” June 2020.
“The human-centric nature of IT services will compel Australian IT service providers, and by extension their partner ecosystem, to make tough decisions quickly as the impact of COVID-19 hits business operations,” the industry analyst firm's report said.
“Business models, particularly those associated with consulting, deployment, and traditional outsourcing, will need to be rapidly revised and changes made to some areas almost overnight.”
For IT partners whose customers stem from transportation, retail, and hospitality industries, those hardest hit by the current restrictions, the effects are being felt immediately.
Service providers of these will be under heavy pressure to increase contract flexibility to alleviate their customers’ financial pressures.
However, this is not the time for these partners to panic. As IDC stressed, providers with multi-year managed, and support services contracts will still be obligated to carry these out.
In addition, the impact of COVID-19 should be more short-lived in the IT services market compared to software and hardware segments.
From an optimistic standpoint, if the COVID-19 outbreak is limited to the first half of 2020, most projects will be put on hold, rather than cancelled, while some IT services contracts continue execution with minimal disruptions. Spending on public cloud continues, especially on managed cloud services to aid business recovery, along with collaboration tools.
At an optimistic level, IT services spending is only suspended until the second half of the year, and spending returns to pre-pandemic levels in the first half of 2021.
However, the more probable situation put by IDC sees the outbreak last through to the end of 2020 and the reduction in spending on IT services spend continuing during this period.
Under this scenario, the Australian economy will face major disruption, dipping quickly into a recession, before a late recovery towards the end of 2020 or 2021.
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