For those of you who don't get George O'Connor's (Panmure Gordon) excellent morning email, yesterday George and our Anthony Miller 'did lunch'. As a result George wrote this today:
"We had lunch with the estimable Anthony Miller, co-founder of industry analysts TechMarketView. The conversation quickly turned to the evolving ‘shape’ of the IT services market. As investors know our own market model follows the classic industry view of dividing the IT services market into two segments - People and infrastructure services – i.e. project services and the rest. Mr Miller argues that this is now out of tune with the evolving shape of the industry and argues that now in addition to the Plan, Implement, Maintain organisational pyramid IT Service companies are now evolving an ‘as a service’ model. In this an area like service provisioning (i.e. at the bottom end of ‘Plan’) takes on far greater importance. In addition the Implementation layer sees greater emphasis on service integration and that IT service firms are/will be developing integration modules which in time become sellable IP.
Mr Miller spends much time with the vendor community going through the implications of the new model. As to the workaday concerns: reading between the lines Mr Miller's view seemed to be that Logica ‘gets it’, in terms of the overall spending environment. Not even a good lunch could change Mr Miller’s view that the UK market remains tough and that spending forecasts are unlikely to be revised upwards for this year. While Mr Miller argues that cloud computing is structurally deflationary (it is), he is also comments that for many users the commercial side of the ‘as a service’ model – i.e. the deferred payments – is a driver as much as the technical benefits.
We recall that Mr Miller as the first UK analyst to understand ‘offshoring’ – even pre-dating the FI acquisition of IIS in 1997. While our own view is that, in the current market, offshore companies are politically untouchable for UK government contracts, Mr Miller can name check a several contract wins (Commonwealth Office and Cardiff in local authority) that suggest that they are still ‘in the game’. Our view is unchanged - offshore companies will need to acquire UK brands in order to make any kind of gains in the UK public sector."
"Good stuff" as they say!