Rabid competition shrinks IT services prices

With competition in the IT services market at its most aggressive point ever, providers are facing unprecedented pressure to lower prices, a double-edged sword for clients, according to Gartner's Dataquest unit.

When choosing an IT services provider, clients must consider other factors in addition to price. Providers that offer the lowest prices sometimes compromise on quality and fail to meet the clients' expectations, Dataquest said.

IT service providers, on the other hand, must adapt to the reality that the norm for annual revenue growth in this market going forward will be under 10 per cent.

For example, the IT services market is expected to grow merely 2.8 per cent in 2002 compared with 2001, reaching $US557 billion. Revenue growth should improve to about 7 per cent in 2003 over 2002. But years with double-digit revenue growth will be the exception rather than the rule in the future, Dataquest said.

The growth the IT services industry will experience in coming years will be fuelled primarily by companies' interest in using the Internet to achieve more "connnectedness", Dataquest said.

Dataquest predicts the following annual revenue for the IT services market:

-- 2003: $597 billion, or 7.2 percent over 2002 -- 2004: $644 billion, or 7.9 percent over 2003 -- 2005: $696 billion, or 8 percent over 2004.

The tepid growth forecast for 2002 can be blamed not only on pricing pressure from increased competition, but also on reduced IT spending, as companies cope with the economy's current slowdown.

The cut in spending this year is hurting all segments of the IT services market, which Dataquest breaks down into seven segments for its research purposes:

-- development and integration.

-- management services.

-- hardware maintenance and support.

-- business process and transaction management.

-- consulting.

-- software maintenance and support-- education and training.

Dataquest made the announcements at the Gartner IT Services and Sourcing Summit 2002 in Las Vegas, which ends Friday.

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