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The UK computer market generated revenues of
£48.85bn in 1999 -- an increase of 12.6 percent in that year and 70 percent between
1994 and 1999. The industry`s annual growth has exceeded 10 percent since 1996. The UK
now represents almost 20 percent of the European (West and East combined) information
technology (IT) market and almost 6 percent of the world IT market.
The largest
sector of the market (38.5 percent of industry sales) is computer services, followed
by hardware (27.1 percent), personnel costs, and then software and network
charges.
Since 1994, the fastest-growing sectors of the market have
been:
* network charges
* services.
The key drivers of growth in the market have been:
* Year 2000 and European Monetary Union (EMU)
work
* strong and steady UK economic growth
* the rise of networking and
Internet working, which are increasing the complexity of corporate IT
structures.
The UK computer hardware market was worth £13.22bn in 1999 -- a rise of 54.7 percent since 1994. Growth slowed in 1998 and 1999 because of:
* corporate spending on Year 2000 and EMU
work
* intense price competition.
Data processing equipment (i.e. computers) is the main category of equipment purchased in the UK. In 1999, data processing equipment accounted for 63 percent of spending on computer hardware in the UK, with peripheral equipment taking a growing share of the market since 1996, owing to rapidly declining prices for data processing equipment and rising demand for peripherals such as printers and data storage devices.
In 1999, Key Note estimates that UK business and
individuals spent £5.54bn on computer software, of which £2.39bn
was spent on systems software and £3.16bn was spent on applications.
Between 1994 and 1999, sales grew by 56.7 percent.
The rise of distributed network
architectures and the development of the Internet, intranets and extranets are
increasing the complexity of running, co-ordinating and securing modern IT
computer systems. Consequently, the demand for network management, middleware
and security software has increased, which is encouraging market growth and
development.
The UK computer services market reached
£18.83bn in 1999, having grown by 20.1 percent between 1998 and 1999 and by
138.7 percent between 1994 and 1999. The key drivers of growth have been work
associated with the Year 2000 problem and EMU, relatively good UK economic
growth, the rise of networking and Internet working, and changing business
practices which favour the use of outside services (e.g. for outsourcing,
systems development and training).
At £7.25bn, operational services is
the largest sector of the market, followed by professional services, systems
and solutions, and maintenance and support.
The key issues impacting on the computer market as a whole are as follows:
* The development of modern, distributed computer
architectures is calling for new hardware, software and services, such as
network management skills, middleware and integration skills.
* With the
development of the information-centric approach to computing, businesses are
now focusing on the acquisition, storage and dissemination of information, and
on their customer relations. This is shaping the demand for software products,
computer hardware (especially storage) and associated services.
* The growth
of the Internet and electronic commerce (e-commerce) is changing the ways in
which businesses operate and are structured.
* The failure of the Millennium
`bug` to cause widespread disruption has caused many commentators to argue that
the `Y2K` problem was a marketing ploy invented by the IT industry. Most
serious commentators, however, realise that without spending on Y2K, many
businesses would have been severely affected.
* EMU is still a significant
factor driving forward spending on UK IT products and services.
Trends affecting the various individual sectors of the market are discussed under the following headings.
* Increased efforts are being made to improve
server scalability, in order to handle growing network demands (e.g. massively
parallel processing [MPP], symmetric multiprocessing [SMP], non-uniform memory
access [NUMA] and clustering).
* Efforts are being made to make personal
computer (PC) usage simple (e.g. the Easy PC) and to lower the cost of PC
ownership. As a consequence, the Industry Standard Architecture (ISA) is being
replaced by newer technologies such as the Universal Serial Bus (USB). These
moves are designed to protect PC sales from the threat from network computers
and other Internet-enabled consumer devices.
* To meet the growing demand
for data storage, efforts are being put into increasing the capacity of hard
disks. Similarly, PCs are now being shipped with a range of new storage
devices, such as DVD (digital versatile disc) and CD-R (recordable compact
disc) drives.
* Increased efforts are being made to link home computers and
business computers to networks. At one extreme, the efforts are designed to
allow consumers and businesses to use any device (not just a PC) to access the
network, and at the other extreme to make the PC the key access device to such
a network.
* The Year 2000 problem led major players in the
computer industry to upgrade their key software products and to revise their
internal software systems. It could also potentially leave some companies open
to lawsuits in case of software failure in the year 2000.
* Moves are being
made to stamp out `stiffing` (i.e. when a software supplier waits for a
customer to do something that it can argue takes it outside the licence terms)
by introducing a new code of conduct.
* Clients are concerned that new US
legislation, which would certainly be encoded into global software licences,
could give publishers power to enforce all aspects of their software licences
(even those which have previously been regarded as unenforceable), disable
systems without establishing legal grounds and obtain immunity from liability
even if their products damage a client`s business.
* Moves are being made by
the US-based Software Publishers Association to simplify licences. This would
both aid clients and make software distribution over the Internet simpler.
*
The Government and the software industry are trying to help small and medium
enterprises (SMEs) understand and comply with software licences.
* There is
rapid growth in middleware (i.e. the `glue` which cements corporate networks
together) and a growing competitive battle between Microsoft`s component object
model (COM) technology and the common object request broker architecture
(CORBA) -- and Enterprise JavaBeans -- technology.
* There is a growing need
for software which integrates diverse systems (mainly UNIX and Microsoft
Windows NT) on corporate networks.
* The rise of Open Source Software, such
as Linux, Apache and now Java, could be a competitive threat to Microsoft.
*
The current debate in the industry on the role of Java (a programming
environment or a language?) has moved onto new ground now that Hewlett-Packard
and Microsoft have formed the Embedded Java Development Group. This has
weakened Sun Microsystems` control of the language and has helped to move Java
to an Open Source Software model.
* The legal battles facing Microsoft could
potentially undermine its strong position in the desktop, Internet and low-end
server markets.
* Large outsourcing contracts returned in 1999,
after a decline in average size. In general, however, outsourcing contracts are
becoming smaller for individual players, as partnership teams tend to replace
single contractors. The nature of outsourcing is also changing as business
process outsourcing deals rise in importance.
* There are growing concerns
about the role of outsourcing in the public sector, following highly publicised
problems with major projects. This is leading to a major reappraisal of the way
in which these contracts should be organised and run.
* There is an ongoing
trend towards industry consolidation, with the larger players taking a growing
share of the market and takeovers continuing.
* The slowdown in the IT jobs
market will hit the systems development sector directly, but it could help
service companies to recruit staff.
* New tax rules could make it less
attractive to become an IT contractor, which could increase job shortages in
key areas.
The following key factors will shape the computer industry over the coming 4 years:
* IT budgets will change, owing to the ending of
most Year 2000 work, but there will be continued spending on EMU-related
work.
* There will be a continued shift in corporate IT architectures
towards networks and, specifically, Internet-working technologies, including
Intranets, extranets, e-commerce/e-business, mobile computing and teleworking.
This will result in a growing demand for people with networking and
Internet-related skills.
* The convergence of computing, telecommunications
and broadcasting will lead to greater consolidation between computer service
and software companies, between service companies and telecommunications
companies, and between content providers and service companies (especially
online information providers).
* There will be a growth in outsourcing and
process-based outsourcing.
* There will be increased competition and
consolidation -- especially in computer services and those areas of the market
subject to commoditisation.
Between 1999 and 2003, the UK computer market will
grow by 32.5 percent, with the rate of market growth below 8 percent per annum between 2000
and 2003. By 2003, the market will be valued at £64.74bn.
Overall,
spending growth will be relatively slow, but areas such as spending on
Internet/e-business activities, information collection, storage and
dissemination, and business-to-customer supply chain management will grow in
importance.
The computer services sector will be the fastest-growing sector
of the market in the future. By 2003, computer services are forecast to have
sales of £27.69bn, representing 42.8 percent of the total UK computer market.
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