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Issue of February 2007
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IDC Market Predictions for 2007

India continues to soar.

The Indian economy posted a strong 8.5 percent real GDP growth and even this could have been a percentage point higher had it not been for rising oil prices, felt the Indian finance minister. What is required to abate this is a continuous stream of foreign direct investment (FDI), sustained domestic demand, growth across all major sectors, notably agriculture and exports, as well as a strong supportive infrastructure. The Indian government recognizes the drawbacks, and is committing funds to reduce these logistical challenges. Better connectivity among major cities and from important ports, improvement of international airports through privatization, and greater outlay to make India more attractive for foreign investments are all steps in that direction.

In addition to China, the world is paying more attention to India because of its rapid growth. The Brazil, Russia, India, and China (BRIC) phenomena has forced most multinational companies (MNCs) and leading governments to explore what business opportunities can be availed from being present in these markets. This has led to the entry of many global giants in different industries, putting immense pressure on the domestic enterprises to stay competitive. One major challenge right away is the IT infrastructure of the incumbent companies, which lags behind these foreign entities

Virtualisation and SOA

2007 will witness Indian enterprises graduate to the second level of dynamic IT infrastructure, where IT infrastructure would be able to effect changes instantaneously and dynamically in response to the changing business scenario. The key components that may come to the fore to attain this state would be virtualisation, SOA and application integration.

Virtualisation will be adopted by enterprises at all layers to achieve the true Return or benefit of consolidation that they have already undertaken. Virtualisation across multiple hardware platforms will provide additional capacity to enterprise CIOs, which would provide a better RoI on their IT investments. On the other hand, virtualisation will also help enterprises to attain better utilisation of the multi-core, multi-processor servers that are going to become mainstream in 2007.

The move to SOA infrastructure will gather much-needed momentum in 2007. Application integration will continue in 2007 with enterprises reducing the number of applications wherever possible and rolling out applications on a centralised architecture, reducing the computing at peripherals to minimum. Data warehousing will witness multiple implementations in 2007.

New delivery and usage models will evolve

2007 will mark the beginning of an aggressive focus from all major vendors to broaden and deepen their coverage of the SMB sector. We have already witnessed the launch of SMB specific products and micro-verticalised solutions for SMBs with special delivery through specialised partners. SMB offerings will witness further micro vertical customisation.

Vendors will experiment with new models like on-premise hosted applications, hardware on lease and Software as a Service (SaaS). In the application software world, 2007 will be a period of continuing radical change, with major expansion of SaaS as a way to accelerate SMB penetration.

The one-to-many hosting model put forth by Hosted Application Management (HAM) vendors would create a new profitable delivery model for application outsourcing services to mid-market customers. HAM will grow at a CAGR of 38 percent over the period 2005-2010, with a year-on-year growth rate of 33 percent in 2007.

Connectivity, Content and Convergence will run parallel

According to the Telecom Regulatory Authority of India (TRAI), the overall Internet subscriber base has grown at around 45 per cent over the previous year and stood at nearly 7.7 million in June 2006. Around 20 per cent of this number was broadband subscribers.

Even though bandwidth tariffs have come down significantly and the availability of bandwidth in the access part of the network is improving, the high Total Cost of ownership (TCO) for a broadband subscription will not permit the 9 million Internet subscriber-mark to be reached in 2007.

Productised Services’

To standardize or to achieve 75 percent repeatability of services deliverables has always been a sought after objective for IT services vendors. The major pain point of SI vendors remains consistent and quality delivery of IT services across diverse customer sets and in line with the distinct nature of their businesses.

‘Productisation’ leading to emergence of a new services delivery model. The next level of maturity would come from the conversion of services into standalone standard products or modules. Vendors will be able to replicate the services products across multiple clients, which traditionally had been highly customised for specific clients. Delivery of these ‘productised services’ will continue to be based on fixed service level agreements (SLAs) between the primary vendor and the end customer.

The market spending on SI services in India for 2007 is expected to be around US$

872 million growing at 19 percent and contributing to 21 percent of the total IT Services market. This change in the delivery model will not have a huge impact on spending, but will definitely improve vendor earnings and client confidence from the standardised services deliverables.

Internal security will drive enterprise security

Security is no longer a discrete function and is slowly moving towards the concept of ‘end-to-end security’, closely and intimately integrated to the business processes of an organisation.

With changing nature of threats being faced, organisations need to lay equally strong emphasis on all the three critical elements of business, such as people, process and technology, to achieve the state of a truly resilient enterprise. 2007 will witness enterprises defining their internal processes in detail and having proper policies in place to protect the core business operation.

The identity and access management (IAM) market will continue to grow at 31 percent in 2007. Security solution vendors will focus on management and optimisation of their offerings and developing an ecosystem of partners to provide deeper services and help their customers manage their security environment.

Build-outs than rollouts for 3G and WiMAX

India is expected to add around 85 million new mobile subscribers in 2007. For the first time, India is expected to beat China in mobile subscriber additions for a full year. China is likely to add around 75 million subscribers in 2007

This sharp growth in subscriber additions would call for a huge network expansion drive, which is expected to result in investments of the order of $ 10 billion or more. Around $ 8.5 billion of this would be investments flowing into mobile service networks alone. Broadband, IP VPN and others would account for another US$ 2 billion of investments.

Operators will test 3G and WiMAX on a much wider scale, but may have to delay their commercial rollouts until early 2008, when the spectrum-availability issues are ironed out. The Department of Telecom (DoT) is engaged in separate dialogues with the Ministry of Defence and the Department of Space for freeing up spectrum for 3G and WiMAX, respectively.

Optical fibre cable links may replace some of the existing Defence wireless links with an objective to release additional spectrum in the relevant frequency bands. This means that wireless frequency will not be available in all telecom circles simultaneously, but rather in phases. Consequently, a pan-India mega rollout of 3G is quite unlikely.

IT retailing to gain momentum

. Experimentations will be seen in retail formats, in-store and on-site promotions, product bundling, and alternative payment options. This will require efforts on the parts of vendors for backward and forward integration with other vendors, retailers and service providers within or outside the organisation.

2007 will witness a variety of in-store and on-site promotions for IT products. While not all of these experiments are expected to be successful, these promotions would be the harbingers of future trends.

Emerging Asia approaches BRIC-like performance

While Asia is home to India and China, two of the dynamic BRIC economies, the region contains a number of other countries with potential to outpace the BRIC economies in the coming years. These Emerging Asian Countries (EACs) include Pakistan, Sri Lanka, Bangladesh, Thailand, Malaysia, Vietnam, Indonesia, and the Philippines. The GDP of this massive region contains almost 800 million people and is expected to reach US$ 912 billion in full-year 2006.

As GDP growth levels off through 2010, IT spending will expand dramatically, with a Market-wide compound annual growth rate (CAGR) of 12.5 percent over the same period, or 80 per cent growth over the market size in 2005. In addition, the higher growth in Pakistan, Sri Lanka, Bangladesh, and Vietnam are expected to account for a combined 16.1 per cent of the $ 15.6-billion IT market in 2007. IDC predicts that EAC markets will grow a very strong at 12 percent in 2007.

Worldwide IT spending will be marginally higher in 2007

Worldwide IT spending will grow 6.6 per cent in 2007, up from 6.3 per cent in 2006. IDC predictions for spending in the three major product and service categories are as follows:

  • Software will lead growth again, with 8 percent spending growth in 2007. Among the major software categories, infrastructure software will stand out with continued strength (over 9 percent).
  • Services will remain stable, with 6 percent growth.
  • Hardware will bounce back in 2007, where prediction states 6.5 percent growth, up from about 6 percent growth in 2006. Networking equipment (almost 7 percent and volume servers (6.5 percent)
 
     
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