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Duration of IT deals shortening: Datamonitor
Leslie D'Monte / Mumbai February 26, 2008
Enterprises, it appears, are showing an increased preference for shorter-duration deals with lower value.

SMALL DEALS ARE A BIGGER DEAL

  • Deal value in January 2008 declined 45% compared to January 2007
  • Asia-Pacific region seeing more volume and better value deals
  • Majority of the deals in January 2008 were small value, ranging between $10 million and $25 million
  • Country share for India is rising marginally every month

    • Data culled from a new report by consultancy and research firm Datamonitor reveal that of the 1,605 contracts signed globally between January 2007 and January 2008, 41 per cent were signed for three to five years and 36 per cent spanned five to 10 years.
     
    The report also noted that only five 10-year contracts were signed in January 2008. Besides, of the 144 contracts signed in January 2008, 52 per cent were signed for an average duration of three to five years, followed by contracts spanning five to 10 years. IBM, EDS, AT&T and Atos Origin won the most deals in January 2008.
     
    Cumulatively too, the total deal value recorded globally for January 2008 declined 45 per cent to stand at $10.41 billion compared to $19.21 billion recorded in January 2007. This was primarily on account of the drop in billion-dollar deals from seven to two in January 2008.
     
    The data also reveal that for the past three to four years, enterprises and governments have displayed a marked preference for signing multi-vendor contracts. However, in the last few months, single-sourcing deals have re-surfaced as the preferred mode of outsourcing giving further credibility to the single-sourcing model.
     
    Shorter durations and smaller-value transactions, analysts reason, allow businesses to spread operational risk and develop new relationships according to business demands.
     
    Moreover, the consultancy firm believes that IT services vendors will seek to strike a few multi-year deals in the coming months as contracts worth more than $335 million (around Rs 1,340 crore) expire in these service areas in the near future.
     
    Datamonitor has also observed a seasonal trend in the number of contracts signed during the year, which reaches its trough at the end of the year but then recovers in the first quarter of the following year.
     
    For instance, IT services deals gained momentum in January 2008 and the number of deals grew 43 per cent compared to the trailing month. The highest value deal signed in January 2008 was the $1.5 billion sub-contract awarded to Proactive Communications.
     
    The IT services deal volume in January 2008, the report indicates, was also significantly above the average deal volume for the last 12 months. The deal volume recorded in January 2008 was 13 per cent more than the deals signed in January 2007.

    However, in terms of deal value, 62 per cent of the contracts signed in January 2008 were valued below $25 million (around Rs 100 crore), 24 per cent of the contracts were valued between $10-25m (Rs 40-100 crore) and 22 per cent of the contracts were worth less than $10 million.

    “While there’s been a variance in the month-on-month performance and seasonality effect in the October-November-December data for the global IT services and BPO market deals, the country share for India remains steady and marginally rising on a month-on-month basis. This leads us to conclude the even if there’s a slowdown in the global IT services market in the light of possible ressesion — particularly in the US — Indian firms will escape the effects of it,” said a senior analyst from Datamonitor India.

    Meanwhile, the number of contracts secured by IT services companies in Asia-Pacific region in January 2008 grew 67 per cent from January 2007.

    While the absolute number of contracts signed in North America decreased from January 2007 to January 2008 due to limited activity in the IT services market, North America contributed a higher share of value in January 2008 than in January 2007, growing its share from 35 per cent to 41.5 per cent.

    Incidentally, in January 2007, the majority of high-value IT services contracts was driven by governments and telecoms services providers — these two verticals accounted for nine out of the top 10 deals during the month.

     
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