Outsourcing Is Over-Hyped

The promise of Business Process Outsourcing (BPO) as a one-stop, lower-cost answer for complex core business processes is a myth, analyst firm Forrester Research said in a report issued Tuesday.

No single vendor is equipped to handle the range of end-to-end complexities that accompany the largest BPO requests, including human resources, finance and administration, Forrester said.

While many firms do report significant initial cost savings from outsourcing initiatives, those savings ultimately may not match vendor projections or offset additional problems that result from vendor performance, Forrester said.

That hasn’t kept BPO vendors from making those big promises, both in terms of their capabilities and cost-savings derived from outsourcing, according to Forrester analyst John McCarthy.

“Although some firms show BPO savings, vendors overstate their current offerings,” McCarthy said in a statement.

McCarthy’s research, based on surveys with 82 senior executives from both business and IT showed that despite the problems, more than half of those surveyed anticipated spending at least $1 million on outsourced processes in 2004. Forrester suggested that those expenditures might best be made in more focused fashion, particularly as the market grows more segmented.

As a result of increased BPO expenditures, accompanied by better business understanding of what can and can’t be expected of vendors, Forrester projected the overall BPO market to swell to $146 billion by 2008, but to fragment into specialty segments as it does so.

The Forrester report, “BPO’s Fragmented Future,” picked four segments as best candidates for successful and effective outsourcing, and market growth, based on areas of proven vendor strength:

* Straightforward bulk transactions, including credit card and stock transaction processing will continue to be the largest and best-mastered of BPO segments, accounting for $57 billion of annual BPO market space by 2008. Forrester pegged ACS, Fidelity Investments, Unisys and State Street as the segment’s key players.

* Only slightly behind at $57 billion, though requiring high level of understanding from vendor employees, was broad shared services outsourcing. Including finance, administration, HR and indirect procurement, the segment was expected to see further vendor subdivision, with major systems integrators dominating finance and accounting, while specialty players such as ACS and Mellon HR Solutions would concentrate on human resources outsourcing.

* Policy administration, claims, loan applications and other high volume vertical processes were projected to become a $6 billion sector by 2008, with Accenture and CSC fighting to hold market share against offshore outsource vendors, Forrester said.

* More complex and specialized vertical applications such as monitoring chemical control processes and environmental data reporting were targeted to reach $5 billion in annual sales by 2006, but increasing customer confidence was expected to kick the segment into overdrive, with Forrester projecting a vertical app BPO market of $24 billion by 2008. Key player predictions included nods at Ingenero and RMSI.

Online music services cost US$700m in CD sales

A new report from Forrester Research claims the music industry lost nearly US$700 million in CD sales last year through the proliferation of online music download and subscriptions services.

The latest report, entitled ?From Discs to Downloads?, also concludes on-demand and fee-based media services, such as the iTunes music service launched by Apple earlier this year, will overtake piracy in the near future.

?Piracy and its cure – streaming and paid downloads – will drive people to connect to entertainment, not own it,? the report stated.

With the aim of monitoring how piracy, legitimate downloads and streaming services affects the consumption of CDs and video, the Forrester report predicts 33 per cent of music sales worldwide will come from downloads and online subscriptions by 2008, rather than hard media sales.

As a result, revenues from CDs will be down 19 per cent by 2008, while DVDs and tapes will drop 8 per cent, the report states.

Adding to this view, 49 per cent of the 12- to 22-year olds surveyed by Forrester in the US who downloaded music last month said they now buy fewer CDs.

The research firm derived its US$700 million figure using estimates on the total number of CDs which would be bought by the 23 million or so ?juvenile pirates? and ?retro rippers? identified in the US by the research firm if they did not download music files from file sharing services on the Web.

Content Delivery Services Expected to Grow at a Solid Pace

US content delivery services
revenues will grow about 20%, in 2003, from the estimated level of $186
million in 2002, according to In-Stat/MDR. The
high-tech market research firm reports that growth will come from both
existing customers expanding their use of content delivery services, and
from new customers subscribing to these services. “Content delivery
services are one of the key forces shaping the next-generation Internet
and corporate Intranets,” says Henry Goldberg, a Senior Analyst with
In-Stat/MDR. “They improve the speed of Web site delivery, provide
high-quality video/audio streaming, rapidly download files, and are
beginning to extend into distributed computing of Web-based

Recently, In-Stat/MDR conducted a survey of 485 end-user organizations
on the adoption of content delivery services or in-house CDNs (where
organizations purchase and manage a CDN themselves). About 23% currently
use a content delivery itself (either by itself or as a hybrid solution
with an in-house CDN), but almost twice as many currently use an
in-house CDN. According to Goldberg, “Converting in-house CDN users to
outsourced content delivery services should be a key goal of content
delivery service providers, because this would greatly increase the
market for these services”

IT budgets to grow 2% in 2004

Information technology budgets should grow 2 percent in 2004, with programs devoted to enterprise resource planning and supply chain management increasing their share of the software spending pie, a new report says.
A survey of 500 IT executives released Tuesday by AMR Research shows budding financial optimism on the part of the survey’s participants.

“We are seeing purse strings begin to loosen up with the growing demand to replace older systems and the belief that the economy is beginning to improve,” said Jim Shepherd, an AMR senior vice president, in a statement.

Enterprise resource planning applications are expected to increase their share–already the largest–of the IT software spending pie. ERP is expected to account for 27.2 percent of IT software spending next year, up from the 26.6 percent that’s anticipated for this year.

Supply chain management software, meanwhile, should increase its share of software spending by 16.3 percent next year, compared with the 13.6 percent expected for this year, according to the report.

Console market share

Make no mistake about it — Sony is currently the runaway winner in the console wars. Its PlayStation 2 has sold nearly twice as many units in the United States as Microsoft’s and Nintendo’s consoles combined — 18.7 million compared with 5.7 million and 4.4 million. Most observers believe it may be as many as three years before the next round of consoles are released.

Q2 2003 mobile phone sales up

Consumers around the world bought a total of 115 million mobile phones in the second quarter, putting the industry on a record path to sell between 450 and 460 million phones this year, a survey found on Tuesday.

Growth in emerging markets was the main reason why handset unit sales rose 11.9 percent year-on-year and two percent from the first quarter to a new high, despite the “unquestionable negative impact of the severe acute respiratory syndrome (SARS),” research group Gartner Dataquest said.

Demand in emerging markets was mostly for cheaper handsets. At the other end of the spectrum, sales also rose strongly in Japan as the first country in which consumers could buy handsets with very high-quality cameras built in.

“Sales in Japan, Latin America and the developing markets of central and eastern Europe and the Middle East and Africa far exceeded expectations during the quarter,” Gartner said.

Growth continued unabated in the first month of the third quarter, with India’s Reliance Infocomm signing up a million customers in just 10 days in July, which could well be a world record, said Gartner analyst Ben Wood.

Year-over-year, Finland’s Nokia, Japanese-Swedish joint venture Sony Ericsson and South Korea’s LG and Samsung grew above average, but sales fell at Motorola and Germany’s Siemens.

Gartner’s 2003 forecast, implying growth of nine percent after three years of stagnation, is in line with that of most mobile phone producers as well as of rival research firm Strategy Analytics, which published second-quarter statistics last month.

The difference between the two is that Gartner measures sales from distributors to real users, while Strategy Analytics only measures sales from handset manufacturers to distributors.

Compared with the first quarter, Nokia strengthened its No 1 position with a 35.9 percent market share from 35 percent in Q1. Economies of scale allowed it to cut prices for low-end products aggressively in emerging markets, Wood said.

Wood reiterated his expectation that Nokia could hit its 40 percent target later this year on the back of its new models, including handsets for Asian and American CDMA-standard networks, where until now it has trailed other vendors such as Samsung.

Motorola dropped to 14.6 percent from 14.7 percent in the first quarter, hurt by SARS and intense competition in the Chinese market where it used to be the largest vendor. Samsung fell to 9.9 percent from 10.5 percent due to SARS and lower handset subsidies.

Siemens declined to seven percent from 7.6 percent due to a lack of new models. Sony Ericsson rose to 5.5 percent from 4.8 percent as a result of new products in both Japan and Europe.

All vendors have vowed to grab market share in the all-important second half.

67% Steal Music

Data gathered from Pew Internet & American Life Project surveys fielded during March – May of 2003 show that a striking 67% of Internet users who download music say they do not care about whether the music they have downloaded is copyrighted. A little over a quarter of these music downloaders – 27% – say they do care, and 6% said they don?t have a position or know enough about the issue.

The number of downloaders who say they don?t care about copyright has increased since
July-August 2000, when 61% of a smaller number of downloaders said they didn?t care about the copyright status of their music files. Of those Internet users who share files online (such as music or video) with others, 65% say they do not care whether the files they share are copyrighted or n

E-mail click rates

Since the first quarter of this year open rates have declined from 39.2% in Q1 and click-through rates have fallen to 8.3% this past quarter from 8.9% in Q1. Nonetheless, it is important to note that legitimate e-mail marketers can carve a space for themselves over time.

DoubleClick’s report is based on aggregate data from hundereds of DoubleClick clients who sent 2 billion permission-based commercial e-mails using the company’s DARTmail delivery technology. DoubleClick notes that companies in certain industries fared better than others in Q2. For example, e-mails promoting retail companies and catalogs experienced delivery rates of 91.3% this past quarter — up from 85.4% in Q2 2002 — while click-through rates rose 9.8% over the year.

Linux, blades the high spots in server market

The worldwide server market was worth US$10.6 billion in the second quarter of 2003, a scant 0.2 percent higher than in the same quarter last year, according to revenue figures released Friday by IDC.

The market for servers based on standard Intel Corp. architecture has now overtaken the commercial Unix server market, growing 10.7 percent to reach revenue of $4.46 billion. Unix server sales dropped 5.2 percent from the year-earlier period for revenue of $4.3 billion, according to IDC.

The market for Linux-based servers grew at 39.5 percent year-on-year to reach $650 million, while blade server revenue reached $119 million, almost eight times more than in the second quarter of 2002.

The shifting market was reflected in the varying fortunes of the leading vendors. IBM Corp. took over from Hewlett-Packard Co. (HP) as the leading server vendor overall following 10.1 percent year-on-year revenue growth compared with HP’s 0.4 percent growth.

Although HP leads IBM in each of the three main Intel-standard, Unix and Linux markets, IBM still gains considerable sales from proprietary server hardware such as the iSeries, giving it overall market leadership.

Sun Microsystems Inc. saw sales fall by 18.7 percent over the year and is being challenged for its third position by Dell Inc., whose sales grew 10 percent over the year, according to IDC figures.
Table 1: Worldwide server revenue in millions of U.S. dollars, Q2 2003.
Q2 ’03 sales Q2 ’02 sales Q2 ’03 to Q2 ’02
IBM $3,228 $2,931 +10.1%
HP $2,946 $2,935 +0.4%
Sun $1,434 $1,763 -18.7%
Dell $980 $891 +10.0%
Others $2,028 $2,077 -2.4%
TOTAL $10,616 $10,594 +0.2%
Figures are in U.S. dollars, by millions.