Information Technology

Industry Overview

The IT industry includes 35,000 companies that generate about $150 billion in annual revenue. Large companies include EDS, Accenture, CSC, and the technology consulting arms of IBM and Hewlett-Packard. The facilities outsourcing segment of the industry is highly concentrated: the 50 largest companies hold more than 80 percent of the market. The rest of the industry is fairly fragmented: the 50 largest companies hold less than half the market.

Some components of IT include manufacturers of hardware and software, providers of telecommunications devices and services, and Internet companies. These industries are reviewed in separate profiles.

Competitive Landscape

Demand for IT services is driven by rapid technological advances, but spending for these expensive products depends on the health of the US economy. The profitability of companies in the industry depends on maintaining technical expertise and on good marketing. Small companies can compete effectively by specializing in market niches or by partnering with larger companies that want to offer a broad array of services. Only the large companies can provide outsourcing services to big corporate customers. Average annual revenue per employee is close to $200,000.

Products, Operations & Technology

IT companies mainly provide consulting, data processing, technology outsourcing, and systems integration services to business customers. They help clients use computers, software, and communications systems more efficiently. In addition to providing advice on using computer systems, IT companies frequently recommend hardware and software systems to their customers. Firms provide a variety of associated services, including business function outsourcing, data warehousing, systems planning, enterprise resource planning, and training.

Companies may be pure consulting operations, such as Accenture, or also operate outsourcing and data processing functions, such as EDS. About 60 percent of industry revenue comes from consulting and systems integration activities. The types of contracts firms have with customers depend on the service being rendered. Data processing and outsourcing contracts typically last for many years because of the substantial initial cost. In a typical outsourcing contract, the IT company operates (and may own) the computer systems of a client, either operating them at the customer's location or at a centralized data center that serves multiple clients. Consulting contracts are shorter, usually lasting less than a year, and typically specify either a fixed project cost or services billed at hourly rates.

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