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A new IDC study reveals some fundamental changes in the outsourcing marketplace. The tenth annual IDC study of the top100 worldwide outsourcing deals uncovers an increase in deals with more global reach, an increase in the number of competitors, a rise in network and desktop outsourcing, and a reduction in combined deal value. These developments demonstrate increased competition and customer demand for greater provider capabilities, and create pressure for outsourcers to alter their business models in order to successfully compete and expand in the coming years.

The total contract value (TCV) of the 100 worldwide outsourcing deals decreased by 3.1% from USD 70.1 billion in 2004 to USD 67.9 billion in 2005. The study finds a reduction in the number of both mega deals and deals ranging from USD 500 million to less than USD 1 billion TCV. However, the number of deals with less than USD 250 million TCV has seen a dramatic increase from eight in 2004 to 23 in 2005. The study also finds that the number and value of business outsourcing deals declined in 2005, while the value and number of IT outsourcing deals increased. Within IT outsourcing, the share of network and desktop outsourcing deals climbed substantially from 14.6% of total IT outsourcing deal value in 2004 to 32.4% in 2005.

"The world of deal making for large outsourcing contracts in 2005 saw a slight decline in signings by total deal value, a reduced number of mega deals valued at USD 1 billion and higher, and an increase in the number of players competing in this segment," said David Tapper, director of Outsourcing, Utility, and Offshore Services research at IDC. "These shifts, along with other key trends in the market, such as customer need to lower costs and drive increased productivity, are creating fundamental changes in the outsourcing marketplace that will require players to radically alter their delivery models. They will now need to include more flexible and newer service capabilities along with globally based delivery, develop dynamically different ecosystems of partnerships, pursue 'non-IT' opportunities, and seek new customers in the SMB and consumer spaces as well as emerging markets with entirely new business models."

The study found that while six players captured 54% of the top 100 contract value in 2004, it took just five players to capture nearly the same amount (53.5%) in 2005, with IBM Global Services leading the way, followed by EDS, BT Group, CSC, and T-Systems.