IT and BPO Contract Sizes Decline

Outsourcing remains popular, but the average deal size of IT and BPO services contracts continues to shrink, according to research from Datamonitor and Everest Group. Datamonitor's "IT Services Contract Tracker" reports that the average size of IT and BPO contracts in Q2 2005 suffered a 47 percent decline, dropping from an average deal size of $106 million in the same period last year to $56 million. It marks four consecutive quarters of slumping average deal sizes. IT Services Contract Tracker, which serves as a guide for contracts in the global IT services market, tracks every new outsourcing, systems integration, and consulting deal of more than $1 billion signed by major IT services vendors. The service also has information on more than 7,500 contracts signed during the past five years. Focusing on Q2 2005 specifically, Datamonitor tracked 447 deals--representing a 7.5 percent increase over the 416 contracts logged during Q2 2004--but the value of deals dropped by 43 percent, from $44.1 billion to $25 billion. In Q2 2005, Datamonitor tracked just three deals with more than $1 billion in value (two for IBM and one for BT Group), half the number of Q2 2004's billion dollar deals. Those valued at more than $100 million also suffered a blow, decreasing from 70 in Q2 2004 to 49 in 2005. These results are in line with Datamonitor's IT Services Contract Tracker released in January, which reported that the global outsourcing market is increasingly being driven by midsize contracts, particularly in the BPO space. "Clients continue to take a more selective approach to outsourcing, which is reducing the number of megadeals that are up for grabs," Nick Mayes, lead analyst for global computing services at Datamonitor, said in a statement. "Another of the major trends that [are] elusive to see in the publicly reported deals is the impact that the offshore Indian suppliers are having on the market." Michel Janssen, president of supplier solutions at Everest Group, noted some bright spots. "We are seeing phenomenal growth of suppliers like TCS, Infosys, and Wipro," he said in a statement. "Their small projects wins are becoming larger, taking market share away from the traditional tier-one suppliers. While most of their deals are not publicly reported, we know by looking at their employee growth that they are continuing at a pace that is in the 30 percent to 40 percent range, and are threatening to become large enough to be classified as tier-one suppliers." Related articles: An Inside Look at Outsourcing Convergys Is Buying Deloitte's F&A BPO Business Midsize BPO Deals Are Stronger Than Ever