Third Party Digital Cos Will Generate Over $31 Bn This Year
Creating and optimizing digital services has become a top priority for the enterprise, as a result of which third party digital service providers will generate over $31 billion in digital revenues in 2017, according to a Zinnov report.
Zinnov defines digital investments as spending on digital infrastructure, engineering of digital applications and products, investment in modern technologies, industrial and consumer IoT implementations, and digital managed services, to achieve better customer experience, derive higher operational efficiencies, and create newer digital products.
The study estimates that enterprises worldwide will spend over $470 Bn on digital in 2017 and digital spending is likely to increase at a CAGR of over 20% to reach $1.1-$1.2 Tn by 2022. Enterprises in Banking, Financial Services and Insurance, Retail, Manufacturing, Hi-Tech and Telecom continue to be the top spenders jointly contributing over 60% of the total global digital spending. Today, over 5.5 million people are employed in job roles as a result of digital investments of enterprises.
Startup investments in areas such as IoT, AI, Blockchain, and Robotic Automation have increased significantly in the last 24 months, with an estimated $25 Bn worth of funding across these technologies. This is in addition to over $30 Bn invested in acquisitions focused on AI and IOT competencies.
The report also provides a relative positioning of Service Providers across nine key digital service lines of Digital Consulting, Experience & Design, Digital Application Engineering, Digital Integration Services, Data Management & Analytics, Digital Infrastructure, Digital Risk & Security, Digital Operations, and Digital Workplaces.
The spend on externally-sourced digital services is estimated to be $31 Bn in 2017. The same is expected to surpass $75 Bn over the next 5 years. Digital Application Engineering, Data Management and Analytics, Digital Integration Services, and Experience & Design account for over 75% of the total services spend with such providers. Indian Service Providers currently hold an estimated 16% share in the total outsourced digital services.
The Zinnov Zones study noted the shift towards new age revenue models, with 8-10 % of Service Providers’ deals having outcome-linked components. The study also brings forth the focus of Service Providers in building design capabilities with about 25% of digital-oriented acquisitions occurring in this area. Organizational structures of Service Providers are witnessing a shift from traditional pyramid to a middle-heavy structure, catering to enterprise requirements of smaller teams with end-to-end capabilities.
Speaking about the report, Praveen Bhadada, Partner and Practice Head, Enterprise Digital Transformation at Zinnov, said, “Digital is coming out of being a hype to becoming a real spend area in 2017. True digital enterprises are investing collectively in Digital Technologies, Digital Business Models, Digital Infrastructure, and Digital Stakeholders as they plan their strategy. New age digital technologies such as Artificial Intelligence, Internet of Things, Robotic Automation, VR/AR, Blockchain, Drones, and 3D-Printing which saw minimum uptake in the year 2010, have started proliferating across industry verticals today.”
“This new way of looking at digital has significantly impacted how services companies build their digital capabilities and redefine their go-to-market businesses. Service Providers and enterprises are jointly creating digital technology solutions, exploring newer business models, investing in centres of excellence, and building a robust external ecosystem of startups and partners. Accordingly, deal sizes are slowly starting to increase with over 15% of digital deals exceeding $3 Mn in contract value,” he added.
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