IT megadeals mean SMEs lose out

Small IT suppliers are losing business to the big boys as "megadeals" dominate the public sector, according to analyst Ovum.

Growth in the UK public sector software and IT services market during 2005 was mainly a result of major programmes, such as the NHS National Programme for IT, with only 3 percent of all growth coming from smaller deals, the research revealed.

Eric Woods, Ovum government practice director, said: "Dominance is to do with big investment." Without the capital or capabilities of major companies, small IT suppliers are left out in the cold as investors don't trust them with big contracts. Leaving big deals with smaller companies "has a lot of risk, and risk requires prime contractors", he said.

The SMEs are left working in a low growth market, fighting for the few small to mid-sized deals or forming partnerships with the larger companies and digging up business together.

But the future is looking brighter for small IT suppliers as Ovum predicts a shift away from megadeals. According to the analyst, the current very high level of IT investment will soon end, with government spending scaled down towards the end of the decade.

As public sector IT investment wavers, suppliers cannot afford to get complacent. They need to "get closer to the customer", Wood said, and build on their existing client bases to safeguard future business.

The nature of UK government is in part to blame for the megadeals. Because the country has a national infrastructure, IT must be rolled out to all 60 million citizens at once, instead of a state-by-state rollout, as can happen in the US.