Newbies muscle into IT outsourcing arena

A growing number of companies are trying to relieve businesses of their IT chores, according to a new study.

The report, conducted by market research firm IDC, says a new crop of competitors are challenging computer service giants such as Electronic Data Systems (EDS) and IBM with low prices, specialised expertise, and advanced technology.

Up-and-comers in the IT outsourcing market include Dell, which specialises in desktop management, and Lucent Technologies, which focuses on network maintenance. Although the services of these equipment makers are relatively limited, each has inked big contracts based on their specialised expertise and low prices, IDC said.

Computer services companies in India, including Tata Consultancy Services, Wipro Technologies and Infosys Technologies, are also elbowing into the market with low prices.

Meanwhile, companies such as Salesforce.com, which offer off-site, subscription-style software, are providing a new twist on outsourcing by tapping the internet. As a hosted service, Salesforce.com maintains customer systems remotely.

IDC expects Amazon.com, AOL, eBay, Google, Travelocity and Yahoo! to move deeper into "on-demand" business services as well.

Despite all the new competition, the top three IT outsourcing companies in the world - IBM, EDS, and Computer Sciences Corp (CSC) - haven't budged from their positions, the IDC report said. Based on 2004 revenue, IBM occupied the top spot with 15.5 per cent of the global market last year, while EDS ranked number two with 11.7 per cent, according to IDC figures. Third ranking CDC's share was 5.5 per cent.

Among the world's 10 biggest companies in the market, HP services revenue grew the fastest, by 22 per cent, last year by IDC calculations. Capgemini, IBM and Northrup Grumman also logged double digit-growth.

IDC based its figures on broad outsourcing contracts for data centre management combined with desktop care, help-desk support, network operations, applications maintenance or disaster recovery services.

The global market for such services in 2004 hit $84.6bn, according to IDC. The research firm said it expects the market to grow nearly six per cent annually through the end of the decade, reaching $112.5bn in 2009. The $33.8bn US market will grow at 4.2 per cent, IDC predicted.

The moderate rate of growth combined with the increasing competition means more mergers are on the way, IDC analyst David Tapper said. "It's a stable set of players but there is going to have to be consolidation," he said.

Alorie Gilbert writes for CNET News.com