Download the full study reports:
Qualitative report : Key issues, case studies,
conclusions
(July 2005, pdf, 2.1 MB)
Quantitative report
(Sept 2005, pdf, 2.1 MB)
This report explores the current state of ICT (Information and Communication Technologies) adoption and electronic business activity in the IT services sector. It provides empirical analyses that build extensively on the results of the e-Business Survey 2005 by the e-Business W@tch. By doing so, the report at hand complements the previous sector report (July 2005), which featured a qualitative assessment of current developments as well as case studies of e-business activity in individual enterprises.
The activities of the IT services sector can be summarised by the slogan of several IT service providers to “plan, build and run” IT systems. “Planning” comprises mainly software and hardware consultancy services encompassed by NACE 72.1 and, partly, 72.2. “Building” consists of writing software as well as integrating existing software components (both part of 72.2). “Running” constitutes the actual operation of the ICT infrastructure created and is often referred to as IT outsourcing. Related activities are typically subsumed under NACE 72.3.
The general picture
Information technology and e-business services are not only the output of the IT services sector. Rather, they influence crucially the way in which this output is produced, promoted and provided. In this specific way of using ICT does the IT services sector differ from the other industries analysed in the e-Business W@tch and lets one expect that companies in this sector are intensive users of ICT and e-business tools. The new statistical findings by the e-Business W@tch presented in this report support this hypothesis. The usage rates for all main e-business application areas discussed are above the weighted average of the 10 sectors covered by the e-Business Survey 2005. The IT services sector apparently sets benchmarks for the use of ICT infrastructure and customer facing e-business applications.
Studying the use of ICT in the IT services sector especially shows the potential of ICT and e-business technologies for SMEs, which account for about 99% of enterprises in this sector. In fact, in almost all e-business application areas discussed in this report, small IT services enterprises constitute a significant share of users. This holds true even for the use of more complex software that was initially designed for the needs of large companies, like ERP, CRM and knowledge management systems.
Statistical findings on e-business key issues
The statistical findings by the e-Business Survey 2005 provide additional background information on the three key issues discussed in the previous sector report (July 2005), namely the establishment of offshore IT services, the increased relevance of open source software and the supply of software as a service.
Use of offshore IT services: A large share of companies in this sector actually outsources IT services. However, this activity takes place mainly within national markets. Only a marginal share of IT services companies currently outsources IT services to offshore or near-shore regions like India or Eastern Europe. Business examples of offshore user companies presented in this report indicate that the establishment of offshore relationships is best be done step by step and therefore needs time. A major motivation of the users interviewed is to manage peak demands by outsourcing non-core tasks. Finally, it turned out that language skills are an important criterion for the selection of suppliers.
Relevance of Open Source Software (OSS): Open source operating systems, databases and Internet browsers are widely used in companies of this sector, regardless of the company size. In comparison, the use of OSS components by companies in other sectors seems to be relatively low. However, software vendors also have the opportunity to integrate OSS components into proprietary solutions and increasingly do so. Therefore, it might be the case that OS components are more widespread than this survey shows, as user companies do not know that some of the software they use includes OSS components.
Usage of software as a service: The discussion of success factors for providers of software as a service (SaaS) or application service providers (ASP) in the previous sector report (July 2005) has revealed that a major challenge in this field is to offer a better value proposition than locally installed software. The new statistical findings by the e-Business W@tch confirm this assessment. Companies supporting trading processes by specific IT solutions do it mainly via internally installed standard software and custom solutions. Functionalities provided via Internet based services like ASPs or B2B Internet trading platforms are, in comparison, of minor importance.
As one would expect, ICT and e-business technologies are of outstanding importance for enabling innovation activities of IT services companies. In fact, most product and process innovations in this sector are triggered by ICT. Modern ICT and e-business tools often build the basis for new technological trends like the establishment of OSS businesses. In addition, case studies and business examples (presented in both sector reports) revealed that ICT-triggered innovations also help to solve critical business issues.
Moreover, ICT and e-business developments have a strong impact on the competitive situation in the IT services sector – mainly by facilitating the market entry of new players and increasing rivalry in this sector. The opportunity to supply goods and services over the Internet, for example, facilitates the establishment of new businesses independent of size and origin. Moreover, all three e-business key issues discussed in the previous sector report – offshore outsourcing, open source software and software as a service – are likely to increase competition in the IT services market. However, the new statistical results indicate that these developments are still in an early stage.
The policy implications discussed in this report update assessments made in the previous report (July 2005), using the new statistical results of the e-Business W@tch. Two issues are highlighted: the promotion of a European offshore IT services market and potential problems for SMEs and open source developers from software patents.
There are several ways for the promotion of offshore businesses in Europe: First, a “handbook” or “guide” could support SMEs in overcoming critical challenges and could diminish fears related to using offshore services. Moreover, business events on a regional basis are efficient tools to establish personal relationships and are thus likely to accelerate offshore businesses. However, the design of appropriate policy measures should be based on good knowledge about the actual impact of offshore IT services on EU business. In this regard, the statistical findings presented in this report could be taken as a starting point for a more extensive quantitative and qualitative analysis.
The short discussion on software patents presents some arguments by opponents and supporters of software patentability. There will be a need for reliable information on future OSS-related investment risks and for continuous monitoring of industry practices related to the usage of software-related patents.
The sector was covered as part of the "ICT services sector" in sector studies of 2004.
