The fate of the Canadian IT market is grim and the light at the end of the economic tunnel is fainter than last year at this time. That light, however, according to a recent IDC Canada study, will get brighter over the next three years, and the services spectrum will be the primary beacon.
According to the analysis, After September 11: A Scenario Forecast of the IT Market in Canada, conducted by IDC Canada Group Vice-President Vito Mabrucco, hardware manufacturers will be the hardest hit in a market that is expected to see spending cut by $10 billion. On the flip side, service providers are predicted to see year-over-year growth rates of about eight per cent.
“The PC market is being hit because it is a mature market,” Mabrucco said. “Everyone in business that needs a PC has a PC and it is now becoming a replacement market. There is also a steep price decline. Combine those two and you have negative growth. On the server side it is more related to [return on investment (RoI)], (where the question is,) do they need to invest in more capacity if they don’t see a spike in business coming down the road?”
Mabrucco said that in terms of services, the non-discretionary variety – what he referred to as “keeping-the-lights-on” services – are contractual and are going to be paid for regardless of the state of the economy. Mabrucco said these non-discretionary services include anything that keeps a business up and running. He added that outsourcing will likely go up as well.
“In cost-cutting times, if you don’t have the capital to invest in running your data centre, you might outsource it and turn it into an operational cost,” he said.
Discretionary services, however, may experience a decline in spending. Mabrucco said that discretionary services, such as the consulting variety and those that centre around project integration and implementation, will feel the hit as new projects continue to be put on the back burner.
He offered that economic woes are not the only factor draining the market. He said that a lack of business confidence and a poor RoI outlook can also be held to blame for the state of Canada’s IT arena.
“The combination of the lack of business confidence and the fear that investing in IT won’t give them the return that it used to [has made] the buying slow down,” he said. “Every project gets much more scrutiny and there is much more detailed analysis, so it brings everything to a grinding halt. It doesn’t mean the money won’t be spent on IT. It probably will, but it is being evaluated more carefully now on an RoI basis.”
The analysis reported that, overall, the Canadian IT market is expected to grow at 3.5 per cent this year and five per cent next year, although earlier predictions were higher. This contrasts to the U.S. IT market, where growth is expected to be negative in 2001 and only two per cent in 2002.
However, one Managed service provider might not feel much of a hit if Mabrucco’s findings are true. Coradiant Inc. has experienced steady growth with its OutSmart and OutSite services. According to Thanos Moschopoulos, CFO of the Boston-based firm, OutSmart managed services are infrastructure services for customers who are collocated in data centres. The services in the OutSmart portfolio are centred around providing performance, high availability and security to these sites. OutSite, he said, is a network monitoring portal, which allows customers to get a 24×7 view of their sites, either as a whole or on a device-by-device level.
“Our pitch is basically twofold,” Moschopoulos said. “One is we are the experts in this and can basically do it a lot better and more securely to ensure higher uptime. Secondly is the fact that there is a huge cost savings to it.”
Moschopoulous said that infrastructure and monitoring services are seeing the most demand from customers because businesses have reached a point where outsourcing has become the best way to do more with less resources.
“I think when it comes to any kind of IT spending these days, customers are only going to spend for two reasons: either because it is something that is absolutely mission critical, or if you are selling something that is going to provide savings.”
Mabrucco remains optimistic. He said that what is going to drive IT investment is consumer confidence, and that will be driven by business confidence.
“We expect growth rates to return to their original eight to 10 per cent growth rate by the end of next year,” he said, but added that in the meantime, vendors must prove to their customers the value of investing in their technology.