IT Services Outlook Improves

"The sale of software and related consulting services is expected to lead IT spending back into positive territory," said Stephen Minton, research director at Framingham, Mass.-based IDC, during a recent technology conference in Santa Clara, Calif. "The pent-up demand to move on to more sophisticated IT solutions will benefit consultants and service providers alike."

IDC predicts that while IT services spending in the United States declined 0.3 percent in 2002, the rate of spending is expected to reach 9 percent by 2004. The research firm also expects the "influencer" component of the software market to grow,and our own research finds that as well. According to VARBusiness' 2003 State of the Market survey, when solution providers act as influencers,guiding technology-buying decisions, rather than reselling products,software, including custom, third-party and storage management, ranks No. 1 among the product segments being influenced (64 percent). Moreover, a majority of VARBusiness' survey respondents (53 percent) report that this influencing activity is on the rise.

Emphasis on services may, nonetheless, be a VAR's ticket to riding out the bend in technology spending. Amid corporate cost-cutting, the lion's share of a solution provider's revenue and gross profits in 2002 were derived from services and consulting (42 percent and 48 percent, respectively), according to our research.

Fueling this growth is end-users' sharpened focus on their core competencies amid uncertain times. To make that happen, many will outsource business services to get things done more quickly and efficiently than their competitors. When we asked what IT services are being deployed, solution providers singled out integration of hardware and software (69 percent), customer-needs analysis (68 percent), hardware maintenance and upgrades (60 percent) and strategic technical consulting (58 percent).

Keep in mind, service providers must offer fast, intuitive solutions for signing up low-risk, high-value customers. One trend that's not slowing down is the need to form partnerships with other solution providers and integrators. In fact, 75 percent of providers partnered with other VARs in 2002. As solution providers watched customers increase their focus on bottom-line accountability, the inclination to share both knowledge and resources grew 17 percent from 2001, according to VARBusiness' research.

Albeit, IT services' expansion may hinge on a recovering economy, one leaving corporate layoffs, bankruptcies and ailing stock prices behind. Your role may be to recommend the right people and technologies to service clients better, faster and more efficiently than other providers in your market. Let me know your experiences at [email protected].