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 analyst firm suggests that the current COVID-19 situation will see organisations move quickly to ensure they can operate and deliver, from anywhere, at any time, while reducing business risk — with cloud technology providing solutions enabling businesses to achieve their goals in this respect. 

As such, IDC said it expects that local cloud services providers will proactively work with customers seeking to urgently migrate services to the cloud as IT departments are cut or delivery from offshore providers is no longer tenable. 

In the long-term, IDC also expects infrastructure-as-a-service (IaaS) spending to increase, thanks to a focus by business first on the quick reconfiguring and provisioning of platforms for technologies required for a longer period in which employees might work remotely, which is likely to continue into the foreseeable future. 

Once these areas are addressed, it is expected that businesses will move their focus to business continuity, resilience and addressing the potential risk presented to on-premises infrastructure.

COVID-19 is also expected to create infrastructure supply chain constraints that will put pressure on organisations with plans to deploy their own infrastructure or private cloud models, IDC said. 

So, what’s next?

Taking a step back to capture a broader view, IDC has broken down its near-term forecasts into three scenarios: pessimistic, probable and optimistic. 

The company claims that its ‘optimistic scenario’ modelling would see the COVID-19 pandemic limited to just the first half of 2020.

“During this period there is a reduction in spending on IT services, however, this reduction is constrained to 2020H1,” IDC said. “Throughout this period, critical IT services contracts continue to be executed with minimal disruptions. 

“Spending on public cloud services will accelerate strongly as businesses seek to reduce costs and deploy solutions quickly. While some may pause public cloud deployment, most will continue with deployment plans in 2020H1, further bolstered by a new wave of organisations rushing to adopt cloud services,” the report stated. 

And while IDC suggests that large scale projects may go into hibernation, few will be completely abandoned, resulting in a return to spending growth in the second half of 2020 and early into 2021. 

In this optimistic scenario, projects that were planned prior to the COVID-19 lockdown will undergo rigorous reviews, with many re-tendered or replaced with projects more relevant to the changed markets and opportunities for growth.

IDC’s probable scenario, however, sees the outbreak lasting through to the second half of 2020 and into early 2021. This could result in a much deeper reduction in spending on IT services spending, particularly around project-based services and deployment services, in all but the most critical areas. 

“As restrictions are relaxed, businesses will review their IT services portfolio and ecosystems, with the intention to rationalise and simplify IT environments for greater resiliency,” the report said.

“Once the New Zealand lockdown is lifted and the country returns to the Level 2 restrictions, businesses in a position to resume operations will cautiously return to public cloud deployment plans focusing on the core essential services and critical infrastructure. 

“Projects that go ahead will be challenged by periodic disruptions associated with onsite execution and continuing restrictions on workforce conditions,” IDC stated. 

At the same time, in this probable scenario, IDC expects IT services contract renewals to be deferred until early 2021, and many large-scale resource heavy projects leveraging external support potentially postponed indefinitely. 

“During this period, public cloud services continue to be adopted for specific functions,” IDC said. 

The analyst firm’s pessimistic scenario for New Zealand, meanwhile, proposes that the COVID-19 outbreak could continue into 2021, with most projects that were put on hold in 2020 either cancelled or drastically downsized. 

“New initiatives will also be put on hold as organisations redirect spending to internal rebuilds and employee retention programmes,” the report said. “IT services providers which are unable to recognise and adapt to their customers' rapidly changing needs will be faced with the decision of whether to downsize, form new partnerships or reduce their portfolio of offerings to focus on the most profitable service offerings. 

“Those [IT service providers] without an offering in areas customers will focus [on], such as collaboration services/integration, cloud migration/brokerage and business continuity and risk management, will likely cease trading by the end of 2020,” it stated. 

Opportunities and challenges

Despite the potential damage done to the industry in these three scenarios, as a result of the COVID-19 pandemic, IDC stresses that there are opportunities for organisations in the local New Zealand IT industry, along with some challenges.

Read more on the next page...

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