A major shift has taken place in the network services market during 2003, with depressed demand for new consulting and integration projects forcing service providers to build up their managed services operations.
South Africa-based network services company Dimension Data Plc [DDT.L] announced a 4% drop in total revenue to $2.01 billion in its latest financial year, but highlighted a 41% increase in sales of managed services to $499.5 million. In contrast, Dimension Data’s revenue from professional services such as network integration and consulting, fell 21% to $356 million.
It makes 60% of its revenue from reselling networking equipment – particularly from Cisco Systems [CSCO]. But it is increasingly trying to tie its clients to long-term contracts for services ranging from LAN management and monitoring, communications applications management, and call center operation.
In recent months, it has won a $10 million WAN management deal with the Administrative Office of the US Courts and call center management deals (via its Merchants division) with Unilever [UL] and Edexcel.
Didata’s rival network reseller and integration firm Datatec Ltd [DTCJ.F] recently claimed that it is also scaling up its managed services activities through Logical, its IT and professional services division.
The company claims that it can generate margins of 30% on a managed services project such as network monitoring, performance management, security services, systems, applications and storage management, once the high initial investment in infrastructure is in place. IP network integrator and former Siemens [SI] division Omnetica has also highlighted managed network services as a key area for expansion.
Didata is not the only vendor to enjoy success in winning long-term network management business in 2003. So far this year, there have been 15 contracts whose major component is network management with a value greater than $100 million; their combined value is $5.64 billion.
The big winner is BT Group [BTY], which has won eight of those 15 deals, with a combined value of $2.92 billion, giving it a share of 52%. BT’s three largest deals are with Honeywell [HON] (estimated at $1 billion), a $450 million subcontracted deal with the UK Royal Mail, and a $326 million contract with the Bavarian State Government in Germany.
Despite BT’s strong run, the network services market remains fragmented, with specialists such as Dimension Data competing against IT services generalists and the services arms of telecoms operators and network equipment suppliers. IBM [IBM] GS, EDS [EDS], and Hewlett-Packard [HPQ] have all taken responsibility for network management and monitoring as part of mega outsourcing deals with Diageo [DEO], York International [YRK], and Procter & Gamble [PG] respectively.
IBM is reckoned to be the largest network integration and consulting provider in the world, based on network services revenue of $1.68 billion in 2002. This gives it a market share of 8.3% and ranks it ahead of EDS Corp, which has a share of 7.2%, and Hewlett-Packard Co with 4.2%.
It is anticipated the global network integration and consulting market will grow 4.9% to $21.3 billion in 2003.
This article was based on material originally published by ComputerWire.