The report, conducted by market research firm IDC, says a new crop of competitors are challenging computer service giants like IBM and Electronic Data Systems (EDS) with low prices, specialized expertise, and advanced technology.
Up-and-comers in the IT outsourcing market include Dell, which specializes in the desktop management, and Lucent Technologies, which focuses on network maintenance. Although the services of these equipment makers are relatively limited, each has inked big contracts based on their specialized expertise and low prices, IDC said.
Computer services firms in India, including Tata Consultancy Services, Wipro Technologies and Infosys Technologies, are also elbowing into the market with low prices.
Meanwhile, companies like Salesforce.com, which offer off-site, subscription-style software, are providing a new twist on outsourcing by tapping the Internet. As a hosted service, Salesforce.com maintains customer systems remotely.
IDC expects Amazon.com, eBay, Travelocity, Google, AOL and Yahoo, to move deeper into "on-demand" business services as well.
Despite all the new competition, the top three IT outsourcing firms in the world--IBM, EDS, and Computer Sciences Corp. (CSC)--haven?t budged from their positions, the IDC report said. Based on 2004 revenue, IBM occupied the top spot with 15.5 percent of the global market last year, while EDS ranked No. 2 with 11.7 percent, according to IDC figures. Third ranking CDC's share was 5.5 percent.
Among the world's 10 biggest firms in the market, Hewlett-Packard services revenue grew the fastest, by 22 percent, last year by IDC calculations. IBM, Capgemini and Northrup Grumman also logged double digit-growth.
IDC based its figures on broad outsourcing contracts for data center management combined with desktop care, help desk support, network operations, applications maintenance or disaster recovery services.
The global market for such services in 2004 hit $84.6 billion, according to IDC. The research firm said it expects the market to grow nearly 6 percent annually through the end of the decade, reaching $112.5 billion in 2009. The $33.8 billion U.S. market will grow at 4.2 percent, IDC predicted.
The moderate rate of growth combined with the increasing competition means more mergers are on the way, IDC analyst David Tapper said. "It's a stable set of players, but there is going to have to be consolidation," he said.