UK software and IT services market to shrink in real terms for three consecutive years with only modest recovery forecast in 2011

The first edition of MarketViews from TechMarketView LLP, with forecasts produced in partnership with PAC, finds that the UK software and IT services (SITS) sector shrank (in real terms) in 2008 – the first decline since 2003. The report also forecasts an even steeper decline in 2009. Although the market will show a third consecutive year of decline in 2010, TechMarketView forecasts that the recovery will only start in the second half of 2010 resulting in a return to modest growth in 2011. However even these bleak forecasts depend on economic conditions not deteriorating still further. Should things get worse, then the SITS recession could be deeper and longer than even we predict, particularly in the private sector. As ever, IT suppliers with a relatively high exposure to the public sector will be less impacted.
The slump is mainly due to businesses reining back ‘discretionary’ IT spending, driving down the demand for new software licences and related project services. It’s ‘make do and mend’ all over again. We expect spend in these segments – comprising 55% of the total UK SITS market – to shrink by some 3%-5% on average, with IT Training suffering the most. In contrast, the UK outsourcing market will grow – but not fast enough to mitigate the decline in software and project services. As in prior years, BPO is the fastest growing SITS segment – around 8% growth – though we expect application outsourcing (SaaS/ASP) will grow faster by 2011. Outsourcing provides the means for users to reduce IT spend in the short term and hence its current popularity

By the time the recession ends, we expect the SITS landscape to be much changed with many of today’s leading players – particularly software – seeing their positions eroded. Nonetheless, we remain broadly optimistic about the long term future of the UK SITS market. Recession usually anticipates ‘step’ technological change and we think this downturn will be no different. We expect the next phase of SITS growth to be mainly built around ‘the mobile user’ – where the distinction between the consumer and corporate user will be ever more blurred. The explosive growth of mobile internet devices (MIDs), from smartphones though to netbooks, will drive an insatiable demand for a huge variety of ‘rich’ content anytime, anywhere, on any device and at lightning speed. Cloud will be an increasingly important part of the equation. This will change the way that business solutions are delivered – with associated changes to the revenue and profit models of the main players.

But, far from being downbeat about the IT industry’s prospects, we think this is the most exciting time to be part of the scene!