IDC predicts locus of power shift to services vendors  
ConvergenceAsia staff
20/01/2010

In its annual Top 10 Predictions of the IT services market, IDC predicts the Asia/Pacific excluding Japan (APEJ) IT services market to follow the upward incline of the recovery curve and grow at 9.3 per cent, compared to 6.5 per cent in 2009.

The market value, IDC says, is expected to grow to US$48.7 billion in 2010, driven by a continued demand for outsourcing, particularly since hosted and managed services are gaining prominence in a market where the enterprise continues to focus on remaining competitive.

"The financial turmoil in 2009 forced CIOs in the region to evaluate new service delivery and pricing models with a key focus on "de-capitalising" IT in the face of significant budget constraints," says Philip Carter, Associate Research Director for IT Services within IDC's Asia/Pacific Practice Group.

"As a result, the financial model of the cloud and 'everything-as-a-service' became more attractive. This has set the scene perfectly for the locus of power to shift from traditional enterprise hardware and software vendors to the services players, particularly in cloud services, in 2010. Organisations that can successfully integrate these new models into their existing technology architectures and road maps, and vendors that can develop mindshare with the CIO in this area, will be best placed to 'ride the recovery wave' in 2010," he added.

The following are the Top 10 key predictions that IDC believes will shape the IT services industry in APEJ in 2010:

1. Locus of Power Will Move from the Enterprise Customer to the Provider of Services
IDC predicts that private clouds will become increasing important to enterprises in 2010 and the next three years will see fundamental changes within the Information and Communications Technology (ICT) market as more users consistently adopt externally sourced services from cloud or managed service providers. Accordingly, as external services are purchased by the enterprise, vendors with these capabilities will dictate standards for applications, pricing, and sourcing of products and services that enable service delivery.

2. 'Chargeback' will “Charge Back” onto the CIO Agenda
The IT world has long been considering a Capex to Opex migration - even prior to the economic crisis. IDC believes 2010 will only see greater emphasis on the need to justify the “Business Value” of the demands on IT infrastructure for the organisation. This focus will accelerate the demand for (a) services to implement virtual infrastructure and (b) consulting services for managing change across the IT-Business.

3. Services 'Productisation' to Move Up the Value Chain
The economic slowdown has created a shift in the buying patterns for consulting and professional services. IDC foresees cost management to remain a focus for 2010. Service providers will look to adopt a template-based model for consulting services associated with business transformation, compliance, governance and risk management. An increased focus on the small and medium size business (SMB) market across APEJ will also help promote 'productisation' efforts.

4. System Integration 3.0: New Models = New Services
IDC predicts in 2010 the adoption of cloud solutions (private VS public), hosted delivery models (xaaS) and datacentre transformation (consolidation/virtualisation) will stage the need for a new system integration engagement model. While system integrators will need to include elements of risk assessment and build integration capabilities on select technology stacks, they must in parallel continue to showcase a strong level of understanding of the clients' business model and challenges at hand.

5. Emergence of Intelligent X: The Services Opportunity
Driven by a mix of government stimulus packages (focused on e-governance initiatives) environment sustainability (carbon footprint), intelligent infrastructure solutions will be the next big wave for public-private investment in 2010 and beyond. Consulting, Technology and Professional services firms will witness significant consulting and advisory opportunity while system integrators will have a large role to play in project implementation and maintenance of these intelligent infrastructure solution projects.

6. ‘To Sell or Not to Sell, That is the Question…’ - Business Process Outsourcing (BPO) Versus Knowledge Process Outsourcing (KPO)
The economic downturn has increased the focus on the operational costs for organisations and captives that are viewed as liability cost will be divested in 2010. The lack of growth opportunities, the need for a cash flow influx, the focus of management on strategic and core activities will act as drivers for divestiture for captive BPO's. KPO's on the other hand will continue to be retained by the parent as organisations continue to be wary of outsourcing intellectual property.

7. Business Analytics and Pricing Innovation Will Collide in the KPO Market
2010 will see analytics being incorporated into broader KPO engagements to drive down the cost of rolling out analytics solutions and such engagements will include a significantly higher proportion of business outcomes based type of pricing models. IDC sees early signs of a shift towards Intelligent Process Automation – enabling front-office employees with better decision-making power to direct increase revenue and cut costs.

8. The 'Mobius Strip' of Business Continuity Will Enter the Boardroom
Overall security concerns and business risk mitigation will drive investments toward Business Continuity and Disaster Recovery (BCDR) making it an integral part of business strategy planning. IDC expects the increasing need for information security and business resilience will lead to a mandate requiring companies identify and assess the consequences during an outage as well as being able to implement recovery solutions as a part of risk mitigation strategy.

9. Connectivity and Convergence: Growth in Next Generation Network (NGN) Services
Flexibility, customisation of services, enhanced quality of service and reliability are driving the transformation toward next generation “all-IP” based networks. Challenges arising from the provision and management of different applications, interconnecting different applications and services seamlessly while maintaining the level of services to ensure high level of "customer experience“ will ultimately drive NGN infrastructure services.

10. Infrastructure Vendors Will Make the Most of the Setting Sun
Infrastructure vendors will build out competitive strategies such as channel recruitment and target multi-vendor environments to capitalise on Sun’s decline in the market. Successful competitive replacement strategies will depend on being able to build out the right level of multi-vendor support capabilities in key markets, as well as the effective use of remote management and monitoring tools to drive down the cost of service delivery. Maintaining margins in what will likely be a very competitive space in the coming year will remain paramount.

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