Today’s services automation apps market is intensely competitive, peppered with failures, and under pressure to consolidate. In a new report, “Sizing Services Automation Apps,” Forrester Research (Nasdaq: FORR) asserts that the global services automation app market will grow from $470 million in 2003 to $820 million in 2008. Crucially, Forrester advises vendors to grab market share before market maturity hits in 2008.
“Services automation applications improve the ability of an internal services organization, such as the IT department, or an external services organization to profitably manage projects and people,” said Forrester Senior Analyst George Lawrie. “The software comprises modules to manage resources and projects, prioritize investments, and charge users.
“Over the past three years, the rapid downturn in the core markets of management consulting and IT services firms has rocked the services automation industry. Shrinking revenues, dramatic head count reductions, and tight budgets have hurt services automation apps vendors. In 2003, new license revenues totaled just $270 million globally. This will hit $309 million in 2004, and will rise to $391 million in 2008. When combined with maintenance revenues, this produces a market worth $820 million.”
Forrester forecasts three phases of growth: rapid growth from 2003 to 2005; slower growth from 2006; and market maturity in 2008. The number of users will increase from 1.6 million in 2003 to more than 2 million in 2004 — a growth rate of 25 percent — and will hit 2.5 million in 2005. New license revenues will grow by 14 percent from $270 million in 2003 to $309 million in 2004, due to the anticipated 5 percent price attrition.
Professional services organizations (PSOs) like Boston Consulting Group or McKinsey & Company will be the dominant segment in this rapid growth phase; their new license revenues will grow by 32 percent from $124 million in 2003 to $164 million in 2005. In the same period, initial license revenues from captive services organizations (CSOs), such as the services organization within large firms like BT or Cisco, will grow by 22 percent. Revenues from internal IT departments will grow by nearly 20 percent and from R&D organizations by 33 percent. But in 2005, new license revenues from PSOs will still be more than seven times the value of those from R&D.
“Even though the number of active users will increase in 2006 and 2007 by more than 20 percent year-on-year, price attrition and growing market penetration will reduce overall revenue growth to single digits in the PSO, CSO, and IT segments,” Lawrie added. “Only the R&D segment will exceed 10 percent new license growth in 2006, 2007, and 2008. By this stage, increases in services organizations’ employee numbers will largely drive market growth. Nevertheless, we forecast that there will be 4.4 million services automation users in 2008. Vendors consider a market to be mature when software maintenance revenues overtake new license revenues. The services automation apps market will reach this point of maturity in 2008, when maintenance revenues hit $429 million and new license revenues languish just below $392 million. The PSO segment will reach maturity in 2008, with new license revenues of $183 million accounting for 47 percent of the total market.”