A Market Primer: How Cloud Computing, the Rise of India and the Consumerization of IT are Changing the IT Services Business The market for technology services is changing dramatically, driven by macro forces of cloud computing, virtualization, mobility and data growth. In addition there are ten major trends impacting services organizations, including: The shift to cloud-based opex-oriented spending is pressuring services organizations to shift business models and capitalize on cloud-based offerings -- either directly or through partnerships and acquisitions. Large outsourcing deals are drying up, projects are getting smaller and more tactical; favoring services companies with greater speed, good cost structures and the ability to pivot off of emerging trends. Services organizations are specifically gearing up to provide services designed to accelerate the adoption of emerging technology, especially those that are driving the macro trends of the industry (cloud, big data, mobile, etc). New entrants including Amazon, Google, Apple and smaller specialized players (e.g. Dropbox, Carbonite, etc) are bringing consumerization to enterprise IT; forcing a trend toward simplification, speed and flexibility. IT Services companies are innovating, adopting new technologies to better organizations and resolve problems more quickly -- these include the use of chat and big data analytics to provide more proactive service. Consulting and strategic alignment is an increasingly important area for services companies and many are beefing up their consultative staff and capabilities. The rise of India. Services firms based in India are outpacing the growth of traditional services companies. This trend, combined with the shift to cloud computing is forcing traditional services companies to re-think business models and find new sources of innovation and growth. High profile security hacks and some prominent cloud failures have CIOs rightly concerned. This is both an opportunity and threat for services companies and IT organizations. The mobile enterprise. Demand for mobility in the post-iPad introduction era is spawning new demand on services organizations to architect mobility into the enterprise. We are seeing the transition from a PC-era to a mobile device era, dramatically pressuring IT infrastructure and organizational tensions. Big data analytics. Quantitative geeks are becoming more important as data and information become the new source of competitive value. Services organizations are increasingly becoming focused on exploiting big, fast data architectures for competitive advantage. ServicesAngle: The market is in transition, with new entrants forcing changes to competitive models on established players. IT buyers will be required to determine if existing suppliers can navigate through the change and will be forced to pick winners and losers. How Large is the Business Technology Services Market? The worldwide IT services market is huge, estimated by Gartner at $821B in 2010. This compares with spending on worldwide hardware ($353B) and worldwide software ($232B). Growth is comparable to the technology markets (~5% YoY 2009-10) although historically a bit slower due to its large size. Importantly, the marginal economics of the services business is challenging. Specifically, as volume increases, marginal costs increase. Unlike software, which is a 90% gross margin business, many services businesses have diseconomies at volume of due to complexity at scale. ServicesAngle: Growth will follow the hot trends. The key for services players will be to navigate the decline of traditional business while investing adequately in new capabilities. Taxonomy: How is the Market Segmented? The services market is highly fragmented with the leader IBM generating approximately $50B in services revenue worldwide, or less than 10% of the overall market. As such, the market is notoriously difficult to segment. Traditionally, the services industry refers to "professional services" (consulting, integration, outsourcing) and "maintenance" (technical support, field service) which comprise the sector.