Analysis of the Brazilian Internet Technology (IT) Infrastructure Outsourcing Services Market

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  • 1. Analysis of the Brazilian Internet Technology (IT) Infrastructure Outsourcing Services Market Mature and New Business Models are Driving Data Center Service Investments NCB6–72 November 2013
  • 2. 2NCB6-72 Contents Section Slide Number Executive Summary 4 Market Overview 8 IT Infrastructure Outsourcing Services Market - • External Challenges: Drivers and Restraints 11 • Forecasts and Trends 17 • Market Share and Competitive Analysis 27 The Last Word 31 Appendix 34
  • 3. 3NCB6-72 Executive Summary
  • 4. 4NCB6-72 • The IT infrastructure outsourcing market in Brazil is mature; companies understand the benefits of outsourcing services, focusing on the core business, and reducing costs. • The market reached 1.79 billion in 2013, and it is expected to reach 2.88 billion by 2018. • There have been a considerable number of mergers and acquisitions in the Brazilian market over the last few years; further, private equity funds have been buying participation in data center companies. • Dedicated hosting was the most demanded service in 2013, with 45.2% of market, followed by disaster recovery with 23.2%, storage with 22.8%, and colocation with 8.8%. • Banking and finance comprise the vertical that demands most in the market. IT and telecom comprise the 2nd largest market, followed by manufacturing and industry. • The top-5 companies in the Brazilian market have decreased market shares as new companies are entering the market, increasing the level of competition. Key Findings Source: Frost & Sullivan
  • 5. 5NCB6-72 Market Overview
  • 6. 6NCB6-72 Market Overview—Definitions Due to the weakened Brazilian economy, companies in the market are looking for cost reductions, and this means outsourcing information so that focus can remain on the core business. All this movement is to the increasing maturity regarding data centers’ offerings that, in the last few years, received capital from private equity firms and several mergers and acquisitions among foreign and local companies. Although there are still some concerns over the companies in outsourcing, most are realizing the cost reductions and focus on core business. There is still demand for colocation, but the market is moving to more value-added services. Source: Frost & Sullivan
  • 7. 7NCB6-72 Market Overview—Key Questions This Study Will Answer What are the main drivers and restraints for the growth of the IT infrastructure outsourcing services market? Will the market continue to grow? At what rates? What is the percentage of the revenues that corresponds to the different vertical markets? Which is the most demanded data center service? Is this expected to change? What is the current market concentration? How will this change by the end of the forecasted period? How will this market behave in the future? Source: Frost & Sullivan
  • 8. 8NCB6-72 External Challenges: Drivers and Restraints— Total Market
  • 9. 9NCB6-72 Drivers and Restraints IT Infrastructure Outsourcing Services Market: Key Market Drivers and Restraints, Brazil, 2013–2018 Energy and connectivity can be variable. H H H Complexity and transaction cost reduction is a restraint to an outsourced work environment. M M M There are clear vertical restrictions. M M M Cultural barriers can be a restraint within companies. M L L 1–2 years 3–4 years 5–6 years The Brazilian market is mature in terms of buying data center services. H H H Customer focus is on the core business of companies. H H H Cost reduction is appealing. M M M Increased foreign investments drive the market. L L L Impact: H High M Medium L Low Note: Drivers & Restraints are ranked in order of impact. Source: Frost & Sullivan MarketDriversMarketRestraints
  • 10. 10NCB6-72 Drivers Explained The Brazilian market is mature in terms of buying data center services. The Brazilian market—especially in big market centers like São Paulo and Rio de Janeiro—is more likely to invest in outsourcing. Large enterprises and, more recently, small and medium businesses (SMBs) are better understanding data centers and are finally understanding the benefits of such business models and trusting service providers’ capabilities to guarantee availability and service-level agreements (SLAs). Best sellers and regular services, such as co-location, are still in demand, but data centers add more value to the offering with dedicated hosting, disaster recovery, and storage. Customer focus is on the core business of companies. Due to the dynamic nature of the market, companies must be constantly updating and ready to respond quickly to demand changes, competitor changes, or even by regulation changes. For this to happen, companies have sought service providers to outsource infrastructure management and monitor control. Thus, IT executives take on a more strategic role within the company, assisting in the organization and optimization of business processes and leaving the focus on operational work. Source: Frost & Sullivan
  • 11. 11NCB6-72 Drivers Explained (continued) Cost reduction is appealing. The strategy to turn capital expenditure (CAPEX) into operational expenditure (OPEX) is a great option to reduce costs. Instead of investing money in expanding capacity and having to manage and control it, companies are willing to invest in services. IT means that outsourcing is a valuable option to reduce costs because companies will not have to spend their own money in servers just to host emails. Increased foreign investments drive the market. The Brazilian data center market has received several investments from foreign companies that are in the technology sector; investment funds are aimed at the growing opportunities in this market in Brazil. Over the past 2 years, not only international companies invested in Brazilian companies, as well data center began building their own structures in the country. Source: Frost & Sullivan
  • 12. 12NCB6-72 Restraints Explained Source: Frost & Sullivan Energy and connectivity can be variable. The major cost for an IT company that is outsourcing to keep information internal is energy and connectivity. When outsourcing, energy and connectivity services help reduce costs because there is a monthly fee for the space used, which is similar to a fixed revenue; meanwhile, the actual cost of energy and connectivity can be variable. Complexity and transaction cost reduction is a restraint to an outsourced work environment. When outsourcing is complete, an important issue for IT executives to address is the period that the infrastructure and applications might be unavailable during the transaction; further, there is the potential for loss of information.
  • 13. 13NCB6-72 Restraints Explained (continued) Source: Frost & Sullivan There are clear vertical restrictions. For some verticals, such as governments, information is the main market asset. As a result, some companies prefer to keep the infrastructure and managerial operations internal so that monitoring is easier. This is usually due to the fear of theft or loss of information. Cultural barriers can be a restraint within companies. Infrastructure outsourcing refers to loss of control for some IT executives. The fact that the management and monitoring of the infrastructure under the responsibility of another company can generate mistrust, especially in a market like Brazil, which has a cultural characteristic of centralized control. Moreover, the vast majority of IT executives have managed infrastructure and, when it comes to outsourcing, need to take a more strategic role within the company.
  • 14. 14NCB6-72 The Last Word
  • 15. 15NCB6-72 The Last Word—Predictions 2 3 1 Source: Frost & Sullivan Brazil is developing the Internet civil mark that will oblige companies to host data centers within the country. This will stimulate the offering of data center services. Although colocation services are in demand, the market is moving to more value-added services, such as dedicated hosting, due to the availability of back-up services, security and maintenance, or full outsourcing of information. Telecom operators will have a stronger presence in data centers, due to important factors such as billing, customer support, infrastructure, and connectivity.
  • 16. 16NCB6-72 Legal Disclaimer Frost & Sullivan takes no responsibility for any incorrect information supplied to us by manufacturers or users. Quantitative market information is based primarily on interviews and therefore is subject to fluctuation. Frost & Sullivan research services are limited publications containing valuable market information provided to a select group of customers. Our customers acknowledge, when ordering or downloading, that Frost & Sullivan research services are for customers’ internal use and not for general publication or disclosure to third parties. No part of this research service may be given, lent, resold or disclosed to noncustomers without written permission. Furthermore, no part may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the permission of the publisher. For information regarding permission, write to: Frost & Sullivan 331 E. Evelyn Ave. Suite 100 Mountain View, CA 94041