Services Companies Will Be Asked to Take More Responsibility for Their Customers’ Business Strategies and to Deliver Value, IDC Says

FRAMINGHAM, MA – MAY 22, 2000 – As spending on worldwide IT services continues to increase, the industry is going through some major changes, including a significant change to the traditional business model. According to IDC, the model is moving from a highly customized process linked to IT results to a more standardized process tied to business results. In addition, service firms are playing an increasing role in helping organizations reinvent themselves using IT as a vital tool and helping create entirely new businesses.

"Now that the Y2K bug is behind us, and because we do not expect major repercussions on the economy, companies are faced with decisions that will impact the future of their business: rejuvenating if not reinventing their business models, benefiting from the Internet beyond having a marketing presence, tying their front offices with their back offices, executing on their Internet strategies, streamlining their supply chains, meeting customers needs, and so on," said Sophie Mayo, program manager for IDC's Worldwide Services research. "Increasingly, services companies will be asked to take

more responsibility for the business strategies of their customers and to deliver value."

Another major trend in the services market is systems integrators' transition to Internet services players. This trend is impacting service firms' fee structure. At first, IT services firms were swapping services for equity, but now they are going beyond that and moving closer to what traditional venture capitalist firms do. "Internet service firms are looking for the next goose that will lay the golden egg. They're investing cash, intellectual capital, and expertise, and they expect a significant return," Mayo said. "At the same time, they are using their association with the start- ups, often dot-coms, as a means to heighten their Internet profile and to gain exposure to cutting-edge business plans and technology."

While all this change is going on, the worldwide IT services market will sustain annual double-digit growth through at least 2004. IDC forecasts spending in this market will jump 11% compounded annually from almost $349 billion in 1999 to over $584.5 billion in 2004. The fastest-growing segment will be application outsourcing, which will grow twice as fast as the overall market. By 2004, the worldwide application outsourcing market will be well over $22 billion. In 1999, it wasn't even $9 billion. Infrastructure services aimed at supporting systems will also be among the hottest growth areas. Network infrastructure management, network consulting and integration, IS outsourcing, and systems integration will all grow faster than the overall market.

IDC expects the United States to remain the largest regional market for services. In 2004, it will account for 46% of worldwide services spending. Asia/Pacific (excluding Japan) and a region that IDC calls rest of the world, including Eastern Europe, the Middle East, and Africa, will be the fastest- growing areas. Spending in both these regions will increase at compound annual growth rates of 17%. IDC also believes the Western European market has strong potential.

"Europe is on the verge of becoming a driver of global Internet trading and a leader in implementing Web technology," Mayo said. "Although Americans have long thought that Europeans are falling behind, many signs indicate that European Internet activity is picking up. In addition, Europeans understand the hurdles of having to deal with multiple cultures, multiple languages, and multiple currencies — something American companies are struggling with."

IDC's recent report, Worldwide IT Services Industry Forecast and Analysis, 1997-2004 (IDC #B21827), analyzes the worldwide services market and reviews its 1999 performance. The report forecasts the market through 2004 segmented by seven regions (the United States, Canada, Western Europe, Japan, Latin America, Asia/Pacific, and ROW) and by 11 service categories (IS consulting, systems integration, custom application development and maintenance,

processing services, IS outsourcing, IT training and education, hardware support and installation, packaged software support and integration, application outsourcing, network consulting and integration, and network infrastructure management). Additionally, the report discusses major trends and key solutions. The report ends with recommendations for vendors wanting to increase their market share. To order a copy, contact Cheryl Toffel at 1-800- 343-4952, ext. 4389 or at

About IDC

IDC delivers dependable, high-impact insights and advice on the future of ebusiness, the Internet, and technology to help organizations make sound business decisions. IDC forecasts worldwide markets and trends and analyzes business strategies, technologies, and vendors, using a combination of rigorous primary research and in-depth competitive analysis. IDC provides global research with local content through more than 500 analysts in 43 countries worldwide. IDC's customers comprise the world's leading IT suppliers, IT organizations, ebusiness companies, and the financial community. Additional information can be found at

IDC is a division of IDG, the world's leading IT media, research and exposition company.

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