Two studies, one conclusion - Holway and Kew reveal changing IT industry landscape

Forthcoming reports identify growth and expenditure trends in IT.

Forthcoming reports identify growth and expenditure trends in IT.

Headlines about the fortunes of the IT sector have given IT directors little cause for cheer in the past few months. Talk of recession in the IT industry has been bandied about in the national press with the phrases "IT slowdown", "downturn" and "slump" regularly peppering the business pages.

But are the doommongers right to talk of a recession in IT spending, given that a recession is defined as two successive quarters of negative growth? That depends on who you ask and how they measure it.

Analyst firm Ovum Holway, which will release its latest report on the state of the industry this week, said we witnessed contraction of the software and services market of 4% last year and will see a fall of 3% in 2003. Anthony Miller, principal analyst and research manager at Ovum Holway, said, "We have a cautious view of the market for the next few years and beyond."

The picture of an IT industry recession is popular with the investor keen to know the fortunes of the top publicly listed IT companies in the UK market. But it may not reflect the total IT spending of all businesses in the UK.

Kew Associates, whose regular industry studies use a different methodology to Ovum Holway's research, said we are not seeing a recession - growth has simply slowed from the dizzying heights witnessed at the turn of the millennium.

Kew Associates' measurement of UK quarterly IT expenditure from 1997 to 2003 showed no negative growth at all - it rose from 10% to 17% in the late 1990s, partly because of Y2K, and then during IT's "recession" it settled to levels of growth that would be the envy of many other sectors.

At the same time, the Kew research suggested that faltering growth in one part of the IT industry may well mean a gain for another.

Measuring growth in the market for software and IT services between 1996 and 2002, the Kew figures and Ovum Holway research come up with radically different results.

Looking at the years 1996-1999, the two sets of results largely parallel each other. But in later years a major disparity became clear. In the years 2000, 2001 and 2002, Ovum's assessment of growth levels was significantly lower than Kew's - it dropped to 0% in 2002. In contrast, Kew's growth figure fell to only to 8%.

The reason for this lies in a difference of approach. Kew Associates questions IT users about their budgets in companies ranging from the smallest to the largest. Ovum Holway, on the other hand, uses a database of about 1,000 suppliers active in the UK and draws up twice-yearly reports based on the fortunes of the top 100.

Kew uses the databases of Computer Weekly subscription questionnaires, which quiz more than 60,000 IT budget holders a year on their spending plans, backed up with ongoing surveys of about 5,500 respondents.

Kris Wicka, principal at Kew Associates, said, "We go to all sizes of company, from firms with between one and 10 members of staff to those employing thousands."

Using this approach revealed, for example, that what appears as 0% growth in IT sales in the Ovum Holway figures masks a change in the shape of the market. Our graph shows that growth for larger suppliers measured by Ovum Holway fell from 6% to 3%. Meanwhile, suppliers with between 10 and 199 employees saw their growth drop from 28% to 18%, which suggests smaller suppliers are taking market share from their larger rivals.

So how do the different approaches benefit IT users?

Miller said, "I see the approaches as complementary, but we feel the Ovum Holway research gets closer to the real numbers because they are based on financial figures."

Although this is true, it is still a measure of the major suppliers in the IT market, and the studies may be neglecting the rapidly growing segment of smaller suppliers, of which there are thousands.

Ultimately, which figures you look at and the credence you place in them depends on what you want to use them for.

  • More on Ovum Holway study next week
  • Read the latest Kew Associates research in Computer Weekly next month

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