Huge Unaddressed IT Market for Service Providers

In a world where sales for IT services have been decelerating, we believe there is a $400 billion unaddressed market for IT services. A huge, attractive prize for service providers. But it requires a different business model. This blog post describes the situation.

The Market is Shadow IT

The unaddressed market is enterprise shadow IT. By shadow IT, I mean spending on IT that doesn’t go through the enterprise IT shared services function.

Why? Because IT is too slow in responding business users’ demands for new functionalities and capabilities and is not aligned with the business needs.

Shadow IT exists not only because business users are taking the matter into their own hands but also because there are companies that are successfully serving business users’ need for quick access to functionality and capability. Who is successfully serving shadow IT? AWS is one of them, and it’s a $17.5 billion business. Rackspace also serves the shadow IT market. So do Google and Microsoft Azure along with all SaaS companies. And many small local contractors are brought in to run quick app development or maintenance projects and PC support. These are just a few examples to illustrate that there’s a big, alternative shadow ecosystem operating in parallel to enterprise IT.

What is the basis for my assessment of the market size? Let’s do the math:

• The overall IT services market it about $1 trillion
• Gartner studies size shadow IT as 40 percent of total IT spend

This results in a $400 billion shadow IT marketplace that is currently largely unaddressed by service providers. The market may be even larger, as our Everest Group research finds shadow IT is at least 50 percent of enterprise total IT spend.

How Can Service Providers Address the Shadow IT Market?

Currently, providers sell infrastructure or apps services into the enterprise IT group. That model won’t work in addressing shadow IT. Can it be done? Yes. AWS is doing it. SaaS companies are doing it. Service providers can do it, but they must deploy a different business model than they currently use. In service providers’ current model, value is associated with IT functions and delivering the lowest cost per unit for those functions. It’s the same problem enterprise IT has, as value for business users is now speed in acquiring functionalities and capabilities that meet business needs.

My advice is to deploy a DevOps model and create an integrated pod with a cloud stack and cross-functional teams that are placed into the various business departments to address their needs. Third-party service providers leveraging the DevOps model and cross-functional teams in business departments will be well positioned to capture a significant share of the huge shadow IT market.