GARTNER DATAQUEST: IT SERVICE PROVIDERS ARE SELLING MANY SERVICES TO OTHER PROVIDERS.

Providers Will Become a Predominant Buyer Segment by 2005

As businesses compete in a truly global marketplace, their increasingly dynamic demands have brought about a dramatic trend in IT services.

IT service providers are increasingly selling to, with and through other IT service providers to satisfy client demands, according to Dataquest Inc., a unit of Gartner, Inc. (NYSE: IT and ITB).

A recent survey among IT services providers found that in 2001, 21 percent of IT services revenue was sold to other IT service providers. By 2003, this IT services buying segment is expected to grow to 26 percent of IT services revenue. The survey also indicated that 73 percent of IT service providers believe it is likely that sales of services to other IT service providers will become the predominant buying pattern by 2005.

"The changing dynamics of customer demands is the major catalyst for this increased sales activity among companies that, on the surface, appear to be natural competitors," said Michael Haines, principal analyst for Gartner Dataquest's IT services worldwide group.

"The pressure on companies to improve performance in the current global business environment is enormous," Haines said. "This pressure results in customer requirements that are much more complex and urgent than just a few years ago and often require solutions from several IT service providers. In response, IT service providers are compelled to collaborate with other IT service providers to jointly contribute to the solutions needed by the end user."

Also spurring the trend of IT service providers working and selling to one another is the way clients are managing their relationships and interactions with their IT service providers. Clients have begun shifting toward giving permission to only a limited number of IT service companies to deal with directly instead of having to manage multiple IT service provider relationships.

"In the interest of time and resource constraints, customers are seeking direct relationships with IT service companies that can intermediate with other IT service companies on behalf of their interests," Haines said. "Therefore, IT service providers must concentrate on their ability as well as their business, relationship and management acumen to aggregate the necessary service components needed for specific client solutions and ultimately to continue winning buying power from clients."

According to the Gartner Dataquest survey, operational and support services, as well as project management and application development, tend to be the most common services sold by IT service providers to other IT service providers. Application development, IT consulting and outsourcing are expected to take the highest priority for these sales activities over the next year.

Additional information is available in the Gartner Dataquest Focus Report "Selling IT Services to Other IT Service Providers." This report examines to what degree IT service providers are selling services to other IT service providers, and it examines plans for these initiatives over the next 12 months.