This
industry depends more on expensive (and rapidly depreciated) computers and
software than employees. In fact, its competitive advantage is largely derived
from its relatively minimal staffing needs. Measured as depreciation costs over
labor costs, this industry has a capital intensity ratio of 0.66; for every
dollar in wages spent by this industry, $0.66 go toward paying for the decrease
in value of capital investments. This capital consists of facilities, servers, and
software and office equipment. Industry wages are divided between computer and
mathematical operations and office and administrative support occupations. For
these reasons, industry research firm IBISWorld has added a report on the
Perfume & Fragrance Manufacturing industry to its growing industry report
collection.
Businesses are increasingly outsourcing their
information technology (IT) infrastructure needs, which have 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
a 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.
Source: virtual-strategy.com
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