'Back to basics' for Asia's IT services market

The Asia-Pacific IT services market will heighten its focus on cost management and emphasis on corporate governance this year as the global recession continues to hang overhead, according to research firm IDC.

Released Monday, the study noted that growth for the region's IT services market, excluding Japan, will slow down in 2009 as organizations turn their attention on balancing cost savings and less on business transformation projects.

Lowering its previous growth forecast to a post-crisis projection of 9.6 percent, from 11.2 percent, IDC said this adjustment will slice off US$6.5 billion from the Asia-Pacific IT services market between 2008 and 2012.

However, the research house said, this market is still expected to expand to US$49.4 billion in 2009, primarily from continued demand for managed services and outsourcing.

The bleak economic climate will also force businesses in the region to "move back to basics", juggling the need to better manage their cost as well as improve corporate governance, in light of the recent Satyam accounting scandal.

The controversy underscores the need for low-cost delivery of services to be complemented by "impeccable corporate governance and financial transparency", IDC said.

Philip Carter, Asia-Pacific associate research director for services at IDC, said in the report: "The implication in terms of IT governance for clients dealing with services vendors, the offshore players in particular, highlights how clients have to maintain a constant balance between cost and value."

According to the research firm, this year will also see the revival of software-as-a-service (SaaS) as market focus shifts from capital expenditure (Capex) to operating expenditure (Opex). It noted that major vendors such as Cisco Systems, Hewlett-Packard and IBM, are already actively promoting the concept to their customers.

Highlights of IDC's predictions for the region's IT services sector in 2009:

• Economic slowdown to sustain outsourcing demand. Outsourcing and managed services will be more resilient against any ICT spending cuts because they are typically longer term in nature and driven largely by cost savings.
• Resurrection of SaaS. The software model suffered false starts due to several factors such as data security concerns, bandwidth availability for business applications and lack of support from major service providers. The economic downturn, however, has driven industry players to intensify their cost management agenda, driving the paradigm shift from Capex toward Opex as the market focuses its attention on low upfront capital outlay. This movement, IDC said, creates opportunity for a "SaaS resurrection".
• Platform-as-a-Service (PaaS). Part of the larger cloud computing phenomenon, The PaaS model will emerge as IT services evolve from solutions that are developed, applied and managed by the organization, into solutions that are built and deployed by the organization but managed by third-party service providers. According to IDC, this indicates a shift toward "greater industrialization of IT into predictable, dependable, professionally managed, plentiful and agile information resources" that can be delivered cost effectively.
• Data center transformation. Energy consumption and space constraints will continue to drive data center investments, in particular, virtualization and server consolidation. The primary objective is to reduce electricity costs, rather than the need to adopt "green IT" measures.
• Remote infrastructure management (RIM). Dubbing it the "new face of global delivery", IDC said RIM will emerge as a service opportunity to help organizations improve operational efficiency, specifically in data center and infrastructure management, and cut operational costs.
• Innovative pricing models. Clients will look to structure services contracts so that they pay only for what they use and to ensure vendors are more accountable for business outcomes. This focus will drive innovation in the way IT services are priced.
• Competition heats up. Traditional service providers such as CSC and IBM, telecommunication carriers and pure-hosting providers such as Equnix, are aiming to move up the value chain by expanding their service portfolio to include a whole spectrum of managed services. With the addition of "new age" players such as Amazon, Google and independent software vendors (ISVs), competition in the hosting service market will heat up dramatically.