I’ve been blogging about the services market consolidating in the provider/delivery space. We’re seeing it with iGate, Dell and others. We believe that activity will accelerate. Here’s what’s new and significant: we’re also seeing it in the adjacent spaces of sourcing advisory and research.
In the heyday of the sourcing advisory space in the early 2000s, there were literally dozens of competitors in that space. There are now far fewer players, and consolidation is happening again. ISG has been consolidating the benchmarking services, for instance. It acquired Compass in 2011 and in December 2016 acquired Alsbridge as the next large installment in consolidation efforts.
The research space also sits adjacent to the services space, and it is consolidating. Right out of the gate in 2017, research firm Gartner announced it entered into an agreement to acquire Corporate Executive Board (CEB). For years, we’ve seen Gartner grow both organically and inorganically. This recent move represents a big step in market consolidation in the research space.
What does consolidation in these three areas mean for the services industry?
First of all, size matters, particularly for profitability. That applies to all three categories – service providers and the sourcing advisory and research firms. The market doesn’t want a single voice for advice or capabilities in these areas.
In the service provider space, key clients have been moving away from their risks in over-concentration with one provider. We’ve seen Cognizant and TCS and sometimes Infosys suffer from this. After a provider gets to a certain scale within a client, the client is reluctant is give the provider more work and actively starts to seek to find other delivery mechanisms.
In the research space, the market rewards Gartner because of its scale that allows better profitability; however, the market also wants contrary or other opinions, not just one opinion. Hence, companies like Forrester and, arguably, Everest Group, grow as alternate voices.
Yes, there is consolidation today; but there are multiple voices, which the market needs. Consolidation makes sense for the acquiring companies; it’s a substitute for organic growth, and they reap the rewards from scale and profitability. But consolidation results in something even more significant: it gives an opening to boutique firms.
Boutiques have an opening particularly in the large clients that are over-concentrated in one or two service providers. That’s where we see small digital players moving now and doing well. We believe the opening for boutique service provider firms as a result of consolidation also applies for research firms and potentially for sourcing advisory firms as well.