With a weak economy and companies looking for ways to cut costs,
desktop outsourcing is set to take off
The market for desktop outsourcing services will grow by between
12% and 17% during 2002, driven primarily by enterprises seeking to
cut costs in a weak economic climate. Experienced first- and
second-tier outsourcing firms such as EDS, IBM Global Services,
Siemens Business Services and Hewlett-Packard will continue to
dominate this space, although third-tier providers such as
Centerbeam are likely to prosper in the midmarket.
The key drivers for this growth are:
1. Enterprises consolidating the number of service providers
they use. The economic downturn is driving companies to outsource
non-core IT services such as desktop management, but it also puts
pressure on managers to reduce the complexity and cost of
outsourcing relationships.
Firms are looking to consolidate management of similar non-core IT
services. Outsourcing desktop services allows them to reallocate IT
resources to focus on more critical issues and can also reduce
financial risk by shifting assets such as PCs off the balance sheet
and limiting up-front capital outlays for equipment and resources.
Consolidating similar services such as local area network (Lan)
server management with an experienced service provider can further
this goal.
2. Falling equipment prices continue to put pressure on
low-end services. Desktop outsourcers have seen significant
pressure on margins as hardware prices continue to fall, making
standard repair and maintenance services less important. To a
certain extent these were factors that drove large resellers such
as Inacom and Vanstar out of business. Increasingly, the value
proposition in outsourcing is based on services such as helpdesk
and asset management.
3. Outsourcers are focused on driving down costs to meet
customer expectations. In the current economic climate, customers
have become extremely cost-conscious.
As a result, service providers are looking for ways to drive down
costs and maintain or increase margins. The more successful
providers have focused on implementing rigorous processes for
managing client environments and have deployed remote management
tools or other automation tools that allow for greater
scalability.
4. The desktop has expanded to include laptops and mobile
devices. As user devices proliferate and IT departments find they
need to wrestle with supporting personal digital assistants (PDAs)
and even mobile phones, the demand for both management tools and
services in this area will grow. However, mobile management tools
are still a maturing technology and supply is expected to lag
behind demand.
5. Interest in IT asset management and software distribution
technology has increased. Security, disaster recovery and business
continuity are driving companies to look more closely at IT asset
management. Software distribution and management tools are also of
increasing interest as they give companies (or service providers)
greater control over the PC and help to maintain a common
platform.
6. Microsoft licensing changes will drive customers to
outsource the desktop. Microsoft's Licensing 6.0 programme will
lead many companies to upgrade most of their desktop hardware,
since it requires either Windows 2000 or XP. In a recent Giga
survey, 60% of enterprises said they would have to upgrade their
PCs.
The key trends in the desktop outsourcing market are:
1. Commoditisation at the low-end of the market - basic
desktop services offerings for deployments of fewer than 10,000
seats are quickly becoming commoditised. Suppliers such as Dell and
EDS have partnered to offer a standard desktop outsourcing package
priced at less than $100 (£67) per seat per month. As the suppliers
come under pressure to reduce costs some are shifting low-margin
processes to third parties. For example, specialist distributors
sometimes handle hardware procurement for outsourcers.
2. The continued demand for outsourcing services will drive
market growth of 12% to 17% in North America. Growth in Europe is
likely to be somewhat lower, due in part to differences in
corporate philosophy on outsourcing.
3. Enterprise desktop outsourcers will offer a broader range
of services. Because outsourcers are facing margin pressures at the
low-end and service provider consolidation within the enterprise,
desktop services offerings will increasingly include fully-bundled
solutions that include procurement; asset management; installation
move and add change; break-fix; helpdesk; disposal; security; and
software imaging and distribution. Along the same lines, management
services will be extended to handle PDAs and even phones. Lan
server management is likely to be bundled even with low-end
offerings (such as the one from Dell and EDS), as file-print and
application servers often represent a logical extension of the
desktop.
Other bundled services could include user training or IT staff
education. EDS recently announced a relationship with
Franklin-Covey for digital learning services that may allow EDS to
bundle education and training offerings with their desktop
outsourcing offerings.
4. More flexible user-targeted service level agreements
(SLAs) will emerge. Outsourcers are just beginning to offer
user-targeted SLAs that allow enterprises to provide different
tiers of service based on a department's requirements. A department
or group of knowledge workers may need 24x7 desktop support, while
data entry workers may only require basic office hours support.
These types of SLA will make it possible for IT departments to meet
user support expectations on a much more granular level.
5. Service providers will attempt to add desktop services -
they may begin to bundle desktop management services with their
offerings. But many of these companies are likely to fail, or will
be acquired during the next year. These services will largely be
targeted at the small- to medium-sized enterprise market, which is
under-served by the large outsourcers.
6. The proliferation of user support service offerings will
appeal to many IT managers. Although desktop outsourcing can result
in significant cost savings, clients should be careful to review
both the contracts and their motives for outsourcing. As managers
come under pressure to cut costs, it becomes too easy to leap in to
contracts without understanding the potential long-term
implications. Service providers with other lines of business that
are suffering are prone to mistakes as they rush to bring in new
business with desktop outsourcing offerings.
David Friedlander is a Giga Information Group analyst