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Friday, June 15, 2012

IBISWorld Unveils Business Hosting Services

Businesses are increasingly outsourcing their information technology (IT) infrastructure needs, which has benefited the Data Processing and Hosting Services industry. This industry provides infrastructure for hosting or data processing services used for a variety of IT-related activities, ranging from web hosting to automated data entry services. The industry fared well during the past five years, with revenue growing at an annualized rate of 2.4% to $81.3 billion in 2012. In 2012, IBISWorld expects revenue to grow 5.9%, reflecting a stronger economy and an increase in the use of industry products by companies. “Growth was spurred by investment in outsourcing application hosting to specialized firms as an alternative to local hosting of enterprise software during the five years to 2012,” said IBISWorld industry analyst Andrew Krabeepetcharat. Because revenue depends on subscriptions, the pullback of IT spending during the recession slowed the rate of revenue growth. Spending has picked up since 2007, and it is expected to grow even faster in 2012 as firms increasingly outsource their IT needs to third parties.

Merger and acquisition (M&A) activity is anticipated to increase during the next five years as industry firms consolidate to reduce redundancies and increase the subscriber base over which they can allocate computing resources. Also, supply disruptions in the hardware space (e.g. the flooding of hard-drive manufacturing plants in Thailand during 2011) may push companies that managed their IT infrastructure needs in-house to opt for a third-party provider. Other factors will also play into growth in the coming years. Consolidation within other industries will push businesses to outsource their IT needs as systems become too complex to maintain in-house. At the same time, the exponential growth in complexity as scale grows, will increase the level of expertise needed to effectively manage large data centers. As firms begin capturing more data, they will increasingly require outside expertise to manage their data collection, hosting and processing. As a result, revenue is forecast to grow at an through 2017.

In 2012, IBISWorld estimates that the four largest operators in the Data Processing and Hosting Services industry will account for an estimated 33.6% of industry revenue. According to Krabeepetcharat, the level of concentration in the industry is low, primarily due to the range of services that data processing and hosting service companies can provide. In terms of the size of establishments according to staff levels, the industry is highly fragmented, with 56.9% of all establishments employing fewer than five people in 2012. Large establishments of 100 or more employees represent just 8.6% of the industry. These numbers may be skewed due to outsourcing; some firms may have more employees overseas that are not included in the data for this industry. For more information, visit IBISWorld’s Data Processing & Hosting Services in the US industry report page.


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