IDC Sees Consolidation at High End of Western European IT & Business Services Industry

According to a recent study published by IDC, the services market has seen more consolidation of service players during 2006. The market share of the top 10 service vendors in Western Europe increased slightly from 33.3% in 2005 to 33.5% in 2006. The growing consolidation of the market will keep the largest players in a strong position, and help them continue to win more of the midsize deals at the expense of smaller players.

During 2006, the top 10 fastest-growing companies in the European services market were all from different categories:

– LogicaCMG, a pan-European service player, entered the top 10 and climbed to eighth position with 52.8% growth in revenues during 2006. The firm’s acquisition of Unilog and WM-Data has strengthened its European presence and extended its range of offerings in areas such as healthcare and retail.

– Non-traditional services vendors such as Dell and Oracle. Oracle grew 23% due to organic growth in the consulting area and thanks to the acquisition of Siebel and other smaller firms in 2006. In the last few years, Dell has increased its focus on services as a consequence of the constant decrease in hardware prices and margin, reaching 21.4% growth in revenues.

– Telco players such as France Telecom grew 22% in CY06, reflecting the impact of the transfer to enterprise communication services of the enterprise’s switching activities that were previously attached to home communication services.

– Local players such as EDB and Ordina have been growing fast through acquisitions in their geographical areas (the Nordics and the Netherlands respectively). EDB, which was already the leading player in the Norwegian outsourcing market, significantly grew its Swedish presence in 2006, with the acquisition of Guide Konsult, Drop IT, and Datarutin helping it to double annual sales in the region.

– India-based Tata Consultancy Services (TCS) and Infosys continued their aggressive double-digit revenue growth, with rates of 41.7% and 37.9% respectively. TCS won a big IT outsourcing deal with global financial services Citigroup. These offshore companies continue to win in the application development and maintenance areas primarily, but have also won some more complex application management deals, and are beginning to be found in the infrastructure area as well.

“Indian-origin companies are very quickly gaining presence in the services landscape, while their acceptance in Western Europe is increasing,” said Laura Converso, senior analyst in the European Services Market and Competitive Insights program.