Big Blue’s IT services division led the pack with revenue of $33 billion worldwide in 2000, but at the same time it lost ground to its chief competitors as the market remained fragmented and vendors scrambled to grab a piece of the services pie.

In a study released Monday by San Jose, Calif.-based Gartner Dataquest, IBM tops the list of service vendors with five per cent of the market, but no one vendor dominated the field. In many cases, some of the top 10 experienced growth above and beyond IBM, which actually lost ground compared to last year.

“What it shows is the demand for services, even in a tougher economy, is still very strong,” said Michael Palma, senior analyst, research operations with Gartner Dataquest.

Among those experiencing growth in the Canadian market was Hewlett-Packard (HP), which held just 1.1 per cent of the total market share in 2000 and sales of $179 million, but experienced a 20.4 per cent growth rate in this country over the year before. Nortel also grew its services division by almost 30 per cent over last year.

“We’re really focusing on keeping a keen eye on what’s going on with our customers in the market and making sure the services we’re delivering are exactly what they’re looking for,” said Steve Shaw, solutions and services marketing manager with HP Canada. “For example, a lot of purchasing of IT happened as we went into Y2K, but what we find now is that customers want to really utilize their current investments. So we are going to help them leverage what they already have and that is certainly a place where we are seeing some growth in the services business.”

HP services cover four key areas: consulting and integration, HP support services such as network implementation and design; mission critical support services; HP education which includes training customers on equipment and HP outsourcing.

In the next few years, Shaw says it is looking to three main areas as potential growth markets for services: wireless, printing and imaging and storage.

“The services that go along with the implementation of a storage area network — the whole design of a storage area network that must be available corporate-wide — those kind of services are playing a big part in our growth strategy,” he said.

In some cases services firms don’t always find themselves competing with each other, but working in tandem. Shaw says HP often collaborates with companies such as PricewaterhouseCoopers and Accenture.

“We really focus on infrastructure consulting, whereas PwC or Accenture are looking at business consulting. We tend to focus on the services we are offering and partner well with these other companies,” said Shaw.

Unlike HP and Nortel, however, other firms lost ground. Montreal-based CGI Group, for example, was down 6.4 per cent over last year. PricewaterhouseCoopers also saw business drop off by 14 per cent while IBM Canada ($1.3 billion in Canadian sales), fell by 4.4 per cent, while its main competitor, EDS, grew by 4.5 per cent.

Palma attributes declining numbers to completion of Y2K projects begun in the previous year and the fact many companies did not have their e-business services in full swing.

“The year 2000 it was a transitory period for IBM which saw them caught between one main trend or force in the market which was Y2K, and the other main one which was e-business deployment,” he said.

Palma says in some cases, vendors didn’t come out with the right e-business offering while others had problems with their sales force reaching the right level in customer organizations.

“There was also confusion in the marketplace about exactly how do you do e-business? Then a whole new set of competitors came out and grabbed a lot of headline attention. There was also the stock market which affected customer opinions and also I think customers got a little bit smarter and stopped the lemming effect of just rushing in and doing e-business because they think they have to do e-business,” says Palma.

But while services are being touted by most vendors as the place to be in the future, the 10 largest services firms together generated just $122 billion in revenue during 2000, which accounts for less than 20 per cent of the total market. That means many smaller companies are also cashing in and answering the needs of customers.

Palma predicts that as the economic downturn continues the larger vendors will be able to survive tough times better than others, but that doesn’t mean there will be any fewer companies offering services this time next year.

“I think we’ll continue to see a very large number of service companies come along and really no huge market share winners,” he said.

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