The growth in cloud adoption and the plummeting cost of IT services will drive the software and IT services (SITS) market to slump in the coming years, at least in real terms, according to analyst TechMarketView.
According to TechMarketView's UK Software Market: Trends and Forecast and UK SITS Rankings report, the UK SITS market is set to hit £42.4bn in 2013, up 1.3 per cent on last year.
But that represents a 1.6 per cent drop in real terms once inflation has been factored in.
It will be a similar picture long term as well, the analyst said. By 2016, the SITS market will be worth £44.3bn. That may be up eight per cent up on 2011, but strip out inflation and it actually represents a five per cent slump.
According to IDC, global spending on public cloud alone is set to soar to $100bn (£65bn) by 2016, and TechMarketView's chairman Richard Holway said the popularity of cost-saving technology is driving the market slump.
"We have got to the stage where all the things we write about are deflationary. Offshoring saves money, the use of cloud undoubtedly [does too] as it is a deflationary product or service," he said.
"Even the cost of telecoms, broadband and hardware [is getting cheaper] as well as bring-your-own-technology. It's very exciting, but [they] are things which overall people save money on, rather than spend [on] and that is the single greatest reason for the decline in real terms."
Holway added that although market decline seems negative on the surface, it can become a golden opportunity for smaller, more agile firms for which the market is ripe. In its UK SITS Rankings research, TechMarketView claimed some of the biggest growth companies saw sales swell by 30 per cent or more, while established competitors declined by similar amounts.
"When we gave our 2020 prediction, we said the [deflation] trend would go on for the next decade, and here we are – I cannot ever see it stopping," Holway said.
"The marketplace will continue to give more and more [to customers] for less and less [money]. People think it is negative, but it gives a huge opportunity to new entrants who are more agile and capable of providing cost savings – they have grown dramatically, and there are so many examples of them."
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