Since 2016 we’ve charted the rise and fall of a subset of high-value IT service providers—those with the highest revenue and market share in the space. Over the last two years, the market has changed considerably. Some of these notable industry players combined to create leviathan firms, born-in-the-cloud disruptors appeared, and some industry giants’ empires crumbled. But in many ways, 2018 was a period of relative calm. The providers with the biggest market share held their positions, even in the face of continuing revenue decline.
The pushiest trend at play is the cumulative effect of the digital tipping point—some firms have reported positive results from developing stronger digital capabilities and building a vision that resonates with enterprises. The merger and acquisition environment has been hotter so far in 2018. The most substantial combination is the Syntel Atos tie up at a whopping $3.4 billion, but there have also been several smaller acquisitions resulting from firms working tirelessly to plug capability gaps and gain access to clients.
But what does this mean for these global IT service providers? For some, their sheer size has secured their position, even with shrinking revenues. For others, a successful business model and tenacity have won the day. An opportunistic few have something that the market wants and that nobody else has provided. Let’s dig into the list of the top 25 high-value IT services providers in Exhibit 1 to find out who the winners and losers are.
Exhibit 1: The HFS top 25 high value IT services providers
Source: HFS Research, 2018
What to look out for in the high-value top 10
Even with a brief period of revenue growth, IBM’s revenues took a tumble of 2.8% overall since we last took a look at the top 25 high-value IT services grid. Nevertheless, the firm's enormous revenues have absorbed the decline, and it maintains its first position, but Accenture's steady growth threatens to move the company out of IBM’s shadow. Accenture’s steady revenue growth of 7.3%, supported by a healthy obsession with inorganic growth, pushed its revenues well over $30 billion in high-value IT services, only $6 billion away from first place.
Ultimately, the players holding the first four spots in the IT services top 25 have remained unchanged—IBM, Accenture, Fujitsu, and DXC have held their respective positions—even though only Accenture has reported revenue growth. Fujitsu is still struggling to find its place outside of traditional IT services work, although demand for the firm hasn’t decreased because heavy-lifting global delivery is still very much on leading enterprises’ wish lists. Meanwhile, DXC seems to be floundering, barely keeping its head above water since its component parts CSS and HP Services put down their weapons and joined together instead. Since the 2017 report, DXC’s revenues have declined steeply. There is general confusion among stakeholders and customers, and there has been a string of high-profile executive departures. The firm's high value IT services revenue dropped below $20 billion for the first time since the merger.
The real action on the list starts below the first four spots. NTT DATA leapfrogged TCS into fifth place thanks to a considerable revenue injection that resulted in 26.4% growth—the tail-end of acquiring the sizeable Dell Services. TCS did not, however, remain seated quietly. The firm drove revenue growth of 6.5%, a notable feat given the highly competitive atmosphere and its strategic focus on organic growth.
But here's the fascinating development: This time last year we welcomed AWS entry into the top 10—but the firm's drive and capacity to meet the hypercloud services demand boosted revenues by 42.9% and pushed it up to seventh place in 2018. AWS has developed a powerful reputation and has become a household name for most IT and business executives, but in the fight for hypercloud superiority, AWS can’t count on having it all in the bag. There are other players on the pitch, including Google, which has yet to make an entrance on the top 25; Microsoft, which is building a strong reputation with Azure; and IBM, the oft-forgotten king of high-value IT.
Below this mayhem, we have reliable Cognizant which, with stable revenues just under 10%, has managed to keep its position at number eight for another year. Cognizant's concerted marketing effort to meaningfully articulate digital to enterprises has helped it have another good year. Capgemini's fortunes are somewhat different; the firm's weak revenue growth caused it to lose ground to competitors, and it dropped from seventh place to ninth place. Similarly, Atos has fallen back to tenth place, although the firm's new partnership with Google and a more focused digital strategy may help it claw back to its 2017 position. As European-based providers, both Capgemini and Atos are uniquely positioned to support enterprises facing geopolitical and regulatory challenges such as Brexit and GDPR.
Who are the movers and shakers in the rest of the top 25?
There are other interest-piquing moves on the list outside of the top 10. While Infosys managed to hold onto its position—even with a leadership crisis and an increasingly challenging offshore market—some of its competitors are fighting furiously for their positions a few ranks below. Wipro had a decent year with growth of over 5%, which helped it jump two places to 14th on the list. HCL is climbing rapidly behind Wipro; it reported over 8% growth and jumped up to 17th this year. HCL also posted results in 2018 that could help it potentially overtake its old rival Wipro this year.
There’s also a tense battle playing out between old consulting rivals Booz and Deloitte. Booz’s stable revenues have held its position, but Deloitte’s double-digit growth pushed it to within spitting distance of Booz, in 16th place and nipping at Booz’s 15th place heels. Consulting firms are investing more into IT and digital as traditional low-margin forms of work, particularly tax and audit, are driving the firms to look for greener pastures.
Finally, we have two new entrants to the top 25, CACI and Tech Mahindra, which have moved into 23rd and 25th place respectively thanks to strong growth. They also benefited from weak performances from firms clustered around the $3 billion revenue point. At this level, the gaps between firms are tight, and in a competitive market, it doesn’t take a lot of movement for winners and losers to swap places.
Bottom line: The digital tipping point could see mighty incumbents fall and disruptors stake a new claim in the top 25
There are a few incumbents holding position at the top of the list simply due to their size—but if these leaders’ revenues continue to decline while more agile firms further down the list grow market share, the incumbents could lose traction and slip down the list. At the rate born-in-the-cloud AWS is growing, it’s highly possible it could start biting into the positions of the Old Guard. Even Accenture isn’t safe from a firm that can offer a capability at a price point and business model that makes sense to enterprises.
Ultimately, in the high-value IT services game, it’s all about digital—helping enterprises build the right technological foundations to drive a new business model. For those that can meet this demand, the top 25 list is their oyster.