The key to success in the information technology business is seeing market opportunities early in order to ride the growth wave. So as the new year dawns, technology vendors, resellers and integrators are anxiously searching to find 2005’s emerging markets.
In talking to the industry, we found
five: Financial services, health and life sciences, RFID, managed services and SMB hardware.
“”It’s vitally important,”” Dave Frederickson, Hewlett-Packard Canada’s vice-president of channel sales and marketing, says of the hunt for those golden eggs. “”We need to grow our channel business and hit our targets, and that means either stealing share from our competitors or growing the whole pie.””
Vendors, like their channel partners, spend a lot of time watching market trends and listening closely to customers and partners. “”Anticipating demand is only part of the equation,”” says Denis Vance, IDC Canada research director. “”It’s also very important to fine-tune solutions so they speak to the specific demands of a given opportunity segment or emerging market.””
Having said that, some opportunities are bigger than others. The first place to look is where IT spending is ramping up to grow faster than the gross national product.
“”What we think of as a good growth rate for a market looks like a pretty boring number if you’re used to double-digits,”” says Robert Goodwin, managing vice-president of Gartner Inc. “”But it’s important to keep in mind that three to eight per cent is your growth band.””
The financial services industry’s IT spending growth fits comfortably into that zone. “”Financial services is in the middle of the growth band,”” he points out. “”But the market is so big that the dollar opportunities are there.””
Vance notes that financial services “”represents about 18 per cent of IT spending in Canada. But from 2003 to 2008, the banking industry itself is going to grow at about 4.4 per cent annually, and insurance will be at 5.5 per cent. If you want to find big opportunities, that’s where you should start.””
Health care and life sciences are also poised for a major growth spurt, notes Don Bryant, director of advanced technology and solutions consulting at Xwave Solutions. “”I don’t see a particular vertical adoption rate accelerating except in health care,”” he says. “”With federal programs coming in 2005 and, particularly with consolidation of boards of health, there will be particular traction there.””
The health care market is also being driven by real technological need on both sides of the border, Goodwin says. “”The driver is the growing requirement for an integrated view of the patient,”” he says. “”Because medical technology has come so far and can do so much, there’s a push to integrate all of the data. There’s now a need for an integrated view of the patient, and that means keeping all the information in one place, and making it available everywhere in the hospital. The need is there, but the technology to deliver on it is only just being implemented.””
The consumer products industry — both manufacturers and distributors — will be just as eager. The big driver there will be radio frequency identification (RFID) technologies in logistics and distribution. Retail has been a technologically conservative market for years, but that is changing, notes Goodwin. “”Retail has always lagged behind,”” he says. “”But they’ve got the message, and POS and back-end systems are catching up.””
The cascade effect will be particularly dramatic among the companies supplying consumer goods to newly technologized retailers. Wal-Mart, the world’s largest retail company, has mandated RFID adoption among its suppliers, a good number of which are Canadian companies, and other retailing giants are sure to follow.
A Wireless Data Research Group study recently found that the global market for RFID hardware, software and services will grow with a 23 per cent compound annual growth rate up to 2007.
Manufacturers of packaged goods are going to be swept along in the rush to RFID, and that’s going to require process re-engineering, applications and the hardware to run them. “”RFID is nothing stand alone,”” says John Parsons, vice-president of business development at Markham, Ont.-based Application Solutions Inc. “”You have to have the process. It will drive applications because you have to have the applications on your servers. Companies are going to have to redesign application front-ends.””
More broadly, Vance expects the small to mid-sized market segment to really take off in 2005. In fact, that’s a pretty broad segment to target in Canada, where the vast majority of businesses are SMBs. However, if you had to put money on it a good bet would be on IT services.
“”Where does the spend occur?”” Vance asks. “”Is it services, or is it hardware? Overall, it’s services that are going to drive the market.””
That reality was a wake-up call for Majestic Laser, a Montreal-based computer dealer that has long focused on small and mid-sized enterprises. Company president Ron Feinberg saw the writing on the wall this year and reorganized the company to take advantage of the opportunity.
“”Our corporate clients aren’t buying PCs like they used to,”” he says. “”But they do need services, so that’s where we’re focusing.””
Bryant agrees that the SMB managed services market will be one of the big stories of 2005. “”The SMB segment is growing hugely,”” he says. “”SMB customers have the same needs as enterprises, but they don’t have the deep pockets. But managed services can offer the same functionality with lower operating costs.””
Indeed, with pressures to provide advanced customer services, to integrate with larger partners and to streamline operations, SMBs have to wring the most out of generally flat IT budgets. “”If you have 25 employees, you can hire a dedicated IT guy, or you can outsource management, exchange and terminal services to a services company,”” Feinberg says. “”That’s where the real market opportunities are.””
Others see openings in SMB hardware sales. According to Gary Isaacs, IBM Canada’s director of business partners, the popularity of wireless networking as an easily deployed and scalable alternative to wired infrastructures among SMBs promises a big boom in security appliances and solutions. Frederickson expects colour imaging and do-it-yourself large run digital printing to have a major impact, driving sales in this market.
Ultimately, however, it is Microsoft and the promised early-2006 launch of the next version of Windows (internally called Longhorn) that will turn the SMB hardware business into a re-emerging market. “”That’s going to be the big opportunity,”” Feinberg says. “”Longhorn’s performance requirements are going to be huge, and every time Microsoft introduces a new version of Windows, everyone has to buy a new PC. That’s a market worth waiting for.””
Specialization is becoming increasingly important, but over-specialization can be almost as bad as a lack of focus. The smart money is saying that hardware spending remains flat, while services are driving the market.
The good news is that Canadian enterprises are gearing up to spend on IT in 2005. IDC Canada re-visited 500 large Canadian companies and found that 40 per cent planned to increase spending at the end of 2004. According to Vance, that spending reflects a growing need by Canadian enterprises to improve their organizational infrastructure and to serve customers more effectively. However, he cautions that neither resellers nor vendors should see these needs solely in terms of specific technologies and applications.
“”The customer service issue is an opportunity for CRM (customer relationship management)”” applications, Vance says. “”But when you start talking about CRM and data warehousing, that