IT and Services and BPO Contract Sizes Fall 47 per cent in Q2 2005

London: Research by market analyst firm Datamonitor (DTM.L), and leading outsourcing advisory firm Everest Group has found that the average size of IT and BPO services contracts almost halved in the second quarter of 2005.

Based on figures from its IT Services Contracts Tracker, a comprehensive and up-to-date guide for contracts within the global IT services market, Datamonitor says the average size of contracts announced by IT and BPO services vendors in the second quarter of 2005 fell to $56m compared to $106m in the same period a year ago. This means that average deal size has now declined for four consecutive quarters.

The service tracks every new outsourcing, systems integration and consulting deal with a value greater than $1m signed by major IT services vendors, and contains information on more than 7,500 contracts signed during the last five years.

Datamonitor tracked a total of 447 deals during the second quarter of 2005, which represented a 7.5 per cent rise over the 416 contracts logged during the year-ago period. However the value of deals fell by 43 per cent from $44.1 billion to $25 billion.

This decline in average deal size was largely due to a fall in the number of mega-deals signed during the quarter. Datamonitor tracked three deals with a value greater than $1 billion — two for IBM and one for BT Group, compared to six in the second quarter of 2004. The number of deals with a value greater than $100 million also fell to 49 from 70 over the same period.

Nick Mayes, lead analyst for Global Computing Services, Datamonitor, explains, "Clients continue to take a more selective approach to outsourcing which is reducing the number of mega-deals that are up for grabs. Another of the major trends that while elusive to see in the publicly reported deals is the impact that the offshore Indian suppliers are having on the market."

"We are seeing phenomenal growth of suppliers like TCS, Infosys, and Wipro," says Michel Janssen, president of Supplier Solutions at outsourcing advisory firm Everest Group. "Their small projects wins are becoming larger, taking market share away from the traditional tier one suppliers. While most of their deals are not publicly reported we know by looking at their employee growth that they are continuing at a pace that is in the 30 per cent to 40 per cent range, and are threatening to become large enough to be classified as Tier one suppliers."