COVID-19: the challenges and opportunities for NZ service providers

COVID-19: the challenges and opportunities for NZ service providers

Analyst firm IDC takes a close look at the New Zealand IT market amid the coronavirus pandemic

Credit: Photo by Pawel Janiak on Unsplash

The local cloud and infrastructure-as-a-service markets are expected to experience somewhat positive effects from the ongoing COVID-19 pandemic, but the managed services market as a whole is likely to take a hit.

This is according to a recent report by industry research firm IDC, which claims in its IDC Market Perspective report on the Zealand market that while the overall outcome of the economic disruption by COVID-19 in the country is uncertain, trends already indicate an overall decline in most IT markets, if not all.

“The New Zealand Government’s comprehensive lockdown on March 26, 2020 caught many businesses on the back-foot and almost overnight businesses had to reconfigure and adapt to a new way of working,” IDC said. 

“Technology is playing a big role in helping businesses operate, manage and survive, and while many of the ICT markets will experience a substantial drop in revenues, there will also be new areas of growth, unanticipated six months ago.”

Indeed, among the doom and gloom are a few bright points of hope, according to IDC, with cloud, specifically infrastructure-as-a-service (IaaS), expected to see a positive effect. 

Organisations are expected to increasingly turn to IaaS to help ensure business continuity. Hardware constraints and remote working will help to promote IaaS investment, the exhaustive report suggests.

However, IDC suggests that managed services will be negatively hit, with contracts coming up for renewal in 2020 set to undergo scrutiny, simplification and testing for resiliency. 

At the same time, customers under financial duress are likely to undertake emergency reviews and exit clauses triggered will drive down spending, IDC said. IDC claims that the pandemic disruptions are expected to “highly negatively” hit project-oriented IT services activity.

Such activity is expected to be hit hard as non-essential projects are put on hold. Later in 2020, however, the areas of growth will be in consulting, such as enabling business continuity and crisis management, integration, cloud migration and network consulting related services.

IDC also suggests that the disruptions arising from the pandemic will negatively impact IT support services, with supply chain constraints putting pressure on the hardware deploy and support market. However, this is likely to be tempered by a shift towards online education and training.

Broadly, while there has been, and continues to be, much uncertainty, indications of spending trends are already emerging as technology plays a role in the reaction to and economic recovery, according to IDC. 

"Digital devices, cloud computing, collaboration tools and new workplace models adopted prior to the outbreak have enabled the speed of change to remote working and education in a way that would have not been possible five or so years ago,” IDC New Zealand country manager and research director Louise Francis said. 

"One thing that is certain, is that the pandemic is forcing the local ICT industry to adapt and evolve at a pace that requires decisions to be made quickly and decisively,” he added. 

Taking a closer look at the impact to the IT services and public cloud market in New Zealand, IDC said that while it is already forecasting IT services spending will follow other markets into negative growth territory, many traditional IT services contracts are multi-year agreements.

Regardless, in a country dominated by SMBs, it will be the smaller IT services providers that are likely to be hurt the most, especially those that run a low-cost contract-based structure and do not have strong partner ecosystems.

In this context, IDC notes, unless a customer's existing contracts are up for review and renewal in 2020, the impact of the current disruptions could spread beyond 2021, effectively dampening some, if not all, of the impact on IT service providers and their partner ecosystem. 

With the extreme speed and impact of the lockdown, IDC said it also expects some businesses to seek urgent contract reviews to meet their new needs and, where businesses are facing severe financial consequences, exit strategies for all but essential services. 

“[IT service providers] must be prepared to work with customers to ensure their IT services portfolio is still the right fit,” IDC stated in the report. “They must help customers who are under financial stress. For example, by offering contract flexibility, 'pausing' the contract, or offering alternative payment terms and models.”

Globally, IDC said it has already started to observe larger organisations affected by COVID-19 begin to delay scheduled spending on IT services, a trend the analyst firm is also seeing happen in New Zealand. 

“For example, on March 30, the Ministry of Business, Innovation and Employment (MBIE) released a notice to its providers that agencies with active tenders would be reviewing existing plans and the likely impacts would be extension of time to respond to open tenders, reconsidering timing for approaching the market, and/or undertaking emergency procurements,” it stated. 

How public cloud, infrastructure-as-a-service will be impacted

As noted earlier, IDC expects the local New Zealand public cloud market to stand as a bright spot amid a broader landscape over which the disruptions are likely to cast a pall.

Read more on the next page...

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