ITO services mkt to touch $313.2 bn in 2011

BANGALORE, INDIA: The IT outsourcing service market to reach $313.2 billion in 2011, a growth of 6.9 per cent from 2010, and will reach 4.6 per cent compound annual growth rate through 2015, predicts Gartner, a provider of IT and advisory services.

According a recent survey report, 62 per cent of respondents identified growth as the top strategic goal this year, with aggressive marketing plans and investments in cloud, utility and "as a service" offerings, stated a release.

"It is clear that providers are optimistic despite considerable uncertainty in the global economies," said Rolf Jester, vice-president and distinguished analyst at Gartner.

50 p.c of respondents aim to spend 2-5 p.c of rev on marketing

Gartner conducted an online survey in the first quarter of 2011 among 47 ITO providers, accounting for 62 per cent of the total ITO market. The respondents represented the full range of providers, all major geographies and all types of ITO services, including infrastructure (data center, desktop, storage and network), applications and cloud services.

"Many ITO providers are intending to commit serious marketing funds and target new accounts to outgrow the market," said Bryan Britz, research director at Gartner.

"The survey found that at least 50 per cent of outsourcing providers said they'll be spending 2 to 5 per cent of revenue on marketing in 2011, which is higher than the historical norm for marketing expenditure as a per cent of revenue (which has tended to be 1 to 3 per cent)."

He added that at the same time, ITO providers continued to invest significantly more in sales than marketing, as demonstrated by two-thirds of providers indicating sales expenses are greater than 6 per cent of revenue.

With growth on the agenda, ITO providers are expected to prioritize the pursuit of new clients. Forty-five per cent of all ITO providers indicated that winning new clients is the top priority for 2011.

Cloud a top priority of investment in 2011

At the same time, they recognize that the bulk of this year's actual revenue growth will continue to come from existing accounts. Overall, between 66 per cent and 70 per cent of expected growth in 2011 will be generated by existing clients, added the release.

In terms of the ITO providers' strategy on delivery models, the survey found that broadly-defined "cloud" investments are top priorities for 2011 — especially investments in infrastructure utility or infrastructure as a service, but also private, community or government cloud services and software as a service.

Between 60 and 64 per cent of providers nominated cloud investments in the top-three ITO investment priorities for 2011.

Gartner also asked providers to identify the percentage of ITO deals that would include delivery models as part of the contract. Overall, ITO providers are realistic about their expectations for cloud deals this year and in 2012.

Data center deals to grow to 24 p.c in 2012

The average percentage of deals expected to include cloud services and utility services or "as a service" delivery models is 18 per cent for data center deals in 2011, growing to 24 per cent in 2012.

However, ITO providers are conservative in their views of how the cloud phenomenon would affect their ITO deals by 2015. Only 34 per cent of respondents said that their data center ITO deals would incorporate cloud/utility/as-a-service by 2015, but 26 per cent don't believe they would be involved in any of these deals.

Similarly, the growth implications from cloud-based services evoke mixed reactions among ITO providers. Fifty-six per cent of ITO providers expect these alternative delivery models would drive overall ITO revenue growth by 2015, while 29 per cent believe it would essentially cannibalize some ITO revenue.

"There is no going back to business-as-usual for ITO providers," said Allie Young, vice-president at Gartner.

"Traditional business models are being turned inside out: it has started with the new business models and cloud ecosystem, and these trends will continue to impact the outsourcing business."

"Providers that ignore those trends could find themselves stuck with yesterday's delivery models and high-cost structures, as the market moves on around them," observed Young.