Solving a Problem from Industry: IT Services - Part 1
$1.08 trillion. Yes, that's the revenue the IT Services industry will generate in 2020. This is more than twice the revenue that enterprise software will generate in 2020. Time to disrupt a piece of this industry.
Peeling the Layers
A simple way to understand is to peel the layers:
Reasons for Disrupting
Why go after this industry?
In my technology career, I've sold products, intellectual property and services. IT Services is one industry that has mastered structuring the unstructured. Humongous opportunity to unravel some of these structures. And create new enterprise product companies.
Related Notes:
Peeling the Layers
A simple way to understand is to peel the layers:
- What is the offering? Human effort in the form of a services contract. There are three common types of services contracts. More variants exist based on how much risk the IT Services provider is willing to assume.
- Time & Materials. In most cases, this is the total billable hours.
- Fixed Price. Most providers bake the total estimated billable hours as a fixed-price quote. And manage the project well to avoid overruns.
- Managed Services. One-time setup and transition cost, followed by monthly consumption-based pricing.
- Who is the buyer? The target clients for IT Services and enterprise products are the same:
- Enterprises.
- Governments.
- Defense.
- How is it packaged? Typical services contracts address one of these areas:
- Point Projects
- New Implementations
- Ongoing Maintenance, Support & Testing
Reasons for Disrupting
Why go after this industry?
- Size and Growth:
- It is huge. And growing at a healthy rate for its size.
- Repetitive Manual Work:
- It is a process-based industry with similar tasks being performed across many engagements. Perfect for automation using software.
- Comfort with Stability:
- Most players are slow to change. They like the stability of legacy revenue streams. Five-to-ten year services contracts are quite common. IT Services providers have built their entire organization and processes around this.
- Influence for Enterprise Products
- IT Services providers can steer the client executives to choose specific enterprise products. Some IT Services providers have serious mind share at the executive level. Chief Information Officers, top executives and even the board of directors. They have been able to exercise significant influence for two reasons. First, the total spend on IT Services is higher than the license and hardware spend. And if you include the operating cost of the IT staff, then this amplifies the numbers even more. Second, they show a neutral understanding of competing enterprise products.
- Alternative to Enterprise Products
- IT Services providers derive significant revenue from custom software development. Often, this is a replacement for an existing enterprise product. What convinces the clients? Integrations with the existing applications, customized features and lower cost.
- High Fragmentation
- 50 IT Services players account for 40% of the revenue in the U.S. IT Services industry. The remaining 60% is a long and a fat tail. Lots of small and mid-size players. They specialize around a specific enterprise product, functional area, technology, industry or location.
In my technology career, I've sold products, intellectual property and services. IT Services is one industry that has mastered structuring the unstructured. Humongous opportunity to unravel some of these structures. And create new enterprise product companies.
Related Notes:
Let's Talk: If you have a true experience that resonates, please send me an email.
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