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