Small IT suppliers are losing business to the big boys as "megadeals" dominate the public sector, according to analyst Ovum.
Growth in the UK public sector software and IT services market during 2005 was mainly a result of major programmes, such as the NHS National Programme for IT, with only 3 percent of all growth coming from smaller deals, the research revealed.
Eric Woods, Ovum government practice director, said: "Dominance is to do with big investment." Without the capital or capabilities of major companies, small IT suppliers are left out in the cold as investors don't trust them with big contracts. Leaving big deals with smaller companies "has a lot of risk, and risk requires prime contractors", he said.
The SMEs are left working in a low growth market, fighting for the few small to mid-sized deals or forming partnerships with the larger companies and digging up business together.
But the future is looking brighter for small IT suppliers as Ovum predicts a shift away from megadeals. According to the analyst, the current very high level of IT investment will soon end, with government spending scaled down towards the end of the decade.
As public sector IT investment wavers, suppliers cannot afford to get complacent. They need to "get closer to the customer", Wood said, and build on their existing client bases to safeguard future business.
The nature of UK government is in part to blame for the megadeals. Because the country has a national infrastructure, IT must be rolled out to all 60 million citizens at once, instead of a state-by-state rollout, as can happen in the US.
Talkback
I find this research hard to believe, and one reason could be that smaller companies who partner with the big names chosen for the mega-deals are being overlooked in such research, even though they have such an important part to play.
We, ourselves are having a bumper year, particularly with our network monitoring and data transfer software, which are both targeted at small to medium business, and are popular in the education sector who’s demands are very similar to others in the wider public sector.
Therefore, if Ipswitch can achieve in excess of 30% growth in the UK across the board, then I find it hard to believe that the public sector is only contributing 3% to this
I find this research VERY easy to believe. With respect, I am not sure that Ipswich really fits into the SME IT services supplier bracket. Ipswitch supply products that are then picked up by the big IT supply people as part of their offering. The article suggested that the only way for SMEs to get in on this market was to club together to form a pseudo-big company, which Chris confirms in his comment.
The core problem is that the government seems to think it will get a better deal by creating mega-contracts and limiting themselves to the small number of big IT supply companies that have the resources to answer the call. In many cases there is no good reason why the jobs can't be dished out on a local level to small suppliers. There is far more competition at this level and far more scope for the contract to be moved in the event of a supplier not coming up to par. Bear in mind that as the job is spread out, others will be doing the same job in other areas so they can take over straight away.
Bigger is anything but better.