NZ IT services growth falls short of IDC forecasts

IDC says New Zealand’s IT services revenue has grown 1.9 percent annually since 2017 to reach $3.43b in 2018, a figure lower than IDC’s five year annual growth forecast for 2018-2023 of 2.8 percent issued in January this year, and below its five year forecast issued in January 2017 of 2.7 percent CAGR.

IDC says managed services revenue made up the largest portion, accounting for $1.6b, followed by project oriented services at $1.4b.

However, the project oriented market achieved the highest YoY revenue growth (4.2 percent) compared to the 1.2 percent growth in managed services revenue. The biggest revenue generator in the project oriented market in 2018 was system integration followed by custom application development.

According to IDC, the growth in SI services was driven organisations transitioning from on-premise software deployments towards cloud-based SaaS models.

Chayse Gorton, A/NZ market analyst for IT services, said many organisations were using service providers' SI skills to integrate SaaS applications, or their custom application development skills to modernise existing applications rather than developing new applications from scratch.

Gorton said: "organisations that implement SaaS solutions often have investments in on-premise software, hence it is imperative that cloud data can integrate with these on-premise applications."

In its New Zealand IT Services Forecast and Analysis, 2018-2023" report, published in January, IDC said organisations use of cloud was evolving from business and system optimisation towards using cloud technology to create competitive advantages in conjunction with other innovation accelerators, such as IoT and AI.

However in that report it also warned IT services providers they would need differentiate themselves to secure a share of this growth as cloud services become increasingly commoditised.

In its forecast report this week, IDC said many New Zealand organisations had taken a ‘lift and shift’ approach to cloud software deployments, and one of the critical priorities for organisations that had taken this approach would be to engage with vendors for custom application development services to modernise shifted applications.

“[Lift and shift] can provide benefits associated with reducing on-premise infrastructure costs but without rearchitecting the application the full cost benefits of the cloud may not be realised, or performance issues associated with the application may arise,” it said.

IDC expects the trend of modernising existing applications will continue throughout 2019. “However, when an existing application comes to the end of its life, organisations will, in many cases, be inclined to shift to a SaaS model,” it said.

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Copyright © 2019 IDG Communications, Inc.

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