Nine Key Trends in Technology Services

In my last entry, I provided a framework for classifying and tracking trends in the technology services industry. In this entry, I want to identify nine key trends that TSIA predicts will impact the industry. I also want to provide you an opportunity to voice your opinion regarding what trends you feel we should be tracking.

Performance Trends

These are trends that will impact the performance metrics and results of a technology services business.  

  • Cloud computing:  Impact of cloud computing on product-service revenue mix of hardware companies. I discussed this trend in the previous blog entry: Death of the 99.9999 Value Prop
  • Commoditization: Hardware companies are facing continued erosion of product margins. This erosion is putting more intense pressure on service organizations to deliver both revenues and margins. This trend was discussed in Product Provider Perils.  
  • Pricing pressure: Survey work this year tells us that a clear majority of support organizations are facing intense pressure regarding their maintenance pricing and value proposition.

Practice Trends

These are trends related to the business practices employed by technology service organizations to optimize their businesses.

  • Managed Services: Managed services have become one of the fastest growing service lines within product companies. How common will the practice become for product companies to offer managed services directly to customers?  
  • Convergence: Converging service organizations and offerings to maximize economies. Service organizations are under immense pressure to optimize expenses.
  • Globalization of the services delivery workforce: Well beyond support services, other service lines such as professional services have been forced to leverage global delivery models to optimize labor costs, scalability, and consistency.

Preference Trends

These trends related to buying preferences of customers consuming technology services.

  • Value Add Services: These are services to accelerate the value of a technology investment. How important are these types of offerings becoming to technology consumers?
  • Social Media: How strong is the preference of technology consumers to use social media platforms to resolve problems?  ? As social media applications continue to aggregate users, users are beginning to help each other. We discussed this trend of “crowdsourcing” to solve complex problems at our 2009 conference in Silicon Valley. How will technology service organizations adjust delivery practices to leverage these emerging user communities?
  • Willingness to buy services: Enterprise markets have stagnated in this global downturn. Will consumer and small business customers be willing to purchase technology services? What types of services at what price points?

The summary of these nine trends is shown in the image below.

Your Thoughts

Now, time for your input. Which of these trends do you personally feel will have the greatest impact on technology service organizations over the next five years? Are there other trends you feel will be more impactful? Then write them in. Take a moment and voice your opinion.

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4 Responses to “Nine Key Trends in Technology Services”

  1. Harry Zarek Says:

    I think your comment about commodization is a generalization that applies to products that are in the maturity curve of technology. Exceptions include products that are in the early stage of development; most recently I would position data de-dup that Data Domain popularized; those were good margin products for a period of time. Also, there will be technologies and products that are early enough in the product cycle that we can generate both good margins for the product and also enhanced PS revenues.

    • Thomas Lah Says:

      Harry:

      I agree there will always be product technologies in the earlier stages of adoption that command premium prices. However, there clearly seems to be an inverst relationship between Moore’s laws and the longevity of product margins. The more product companies can cram into a piece of hardware or software, the shorter the timeframe for them to charge premium pricing. How long did data de-dup solutions command premium prices compared to how long companies like EMC were able to charge premium pricing for basic enterprise class storage solutions?

  2. Ken Goessaert Says:

    In regard to product margin pressure:

    I think we need to be careful to define where this pressure on profit margin exists in the supply chain. While Brocade may have serious issues with competing against other manufactuers that does not conclude their products offer no margin of profit for a VAR. It may be true – but it does not follow as a given. There are many issues effecting manufacturers which do not effect their product value or margin opportunity to a VAR or customer.

    I agree many individual products commodotize quickly, but what you seem to be saying is that segments are commodotizing much more quickly. There is an element of the convergence of segments which follows a fairly “standard” view that the market will only support three “winners”. This in part, drives the value equation of products. So while the value of hard drives in storage solutions has dropped, the segment has continued to drive new, higher values at higher margins.

    So I suspect the question is – can we sustain a percentage of the market in a high value/high margin position over an extended period of time? That is, is there always a product available that provides value and margin?

  3. Jean Pommier Says:

    Thanks for launching this survery, Thomas. I was surprised to see cloud computing taking the first place (so far) in the poll. Of course this is a major trend for IT in general, but I’d think less from a service standpoint. Although that’s an easy bet and buzz word to vote for… 😉

    Anyway, the major trend I see coming is the need to show how our services are contributing to an acceleration of the business value realization (ROI). Many services have been focused on the IT side to date and, as we discussed at TS World in Vegas, many businesses feel they are not using much of the products they have licensed anyway. There is therefore a big responsibility and opportunity for Technology Services organizations to fill the gap, but it requires the appropriate mix of business and technical skills, as well as focus on short term and incremental business value delivery.

    To some extent that’s the idea behind the Value Add Services, although many standard/existing services concept are still applicable, and, to me, this concept of value realization through services was already the foundation of our Professional Services business.

    Bottom line, with Cloud Computing ranking at 24% and VAS at 3%, I feel we’ve a lot of education to do on the VAS concept… and many copies of JB’s book to distribute!! 😉

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