The South African IT services market is expected to grow to R27.5 billion in 2009, showing a compound annual growth rate of 8.4% from 2004 until then, says research firm BMI-TechKnowledge.
Last year this market reached R18.4 billion showing year-on-year growth of 5.3%, and accounted for 40.9% of the total IT expenditure in the country (this includes software and hardware, but excludes telecommunications).
BMI-T expects to see market growth for 2006 and 2007 in the region of 7.8% and 8.1% respectively.
"IT services outsourcing (ISO), together with the deploy and support foundation markets, will continue to generate the largest amount of revenue over the forecast period, while the software as a service market will remain the fastest growing sector of the services market," says Natalie Bryden, senior analyst at BMI-T.
Raven Naidoo, CEO of ICT consultancy Radian, says the growth rates seem broadly correct and there is a tendency for the services side of the IT market to keep growing.
"In services, a company or organisation essentially pays for people`s time and that never decreases. Unlike hardware where prices have come under pressure," he says.
Bryden says the services market is also one of continuous innovation and education.
"Whenever new technologies are introduced there is a need to educate the end-user on how best to use them. There is also a need to simplify IT within the organisation."
Bryden adds that there is a possibility the services market will grow at a much faster rate towards the end of the forecast period as support for large events such as the 2010 Soccer World Cup kick in.
According to BMI-T`s South African IT Services Report and Forecast, 2004 - 2009, the key issues affecting this sector include:
* In 2004, most of the services spending growth came from cost-cutting initiatives; however, in 2005, more growth is expected from more optimistic initiatives around how to increase revenues.
* Consolidation continues in the IT industry. Mergers and acquisitions dotted the landscape in 2004 with companies such as EOH and KPMG merging and CS Holdings being bought out by Bytes Technology Group. This trend will continue in 2005.
* Vendors have had to consolidate and focus on internal issues over the past few years. Mid-tier players will be under the most competitive threat from their much larger competitors, and need to consider acquisitions of smaller firms or mergers with similar rivals in order to remain competitive. An increased rate of consolidation may reduce overall market growth as remaining vendors rationalise and further commoditise their offerings.
* There is a shift to shorter, smaller and best-of-breed deals. The number of mega deals as well as the average size of such arrangements has shrunk in the past couple of years. In 2005, for the purposes of risk management and spending control, enterprise decision-makers will continue to "chunk" projects into smaller pieces with defined outcomes that tie directly into appreciable results.
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