The Current State Of Affairs — The Future Of IT Services, Pt.1
IT consulting has been around as long as there has been IT. Pretty much always has been and always will be. These days, consulting shops run in scale from one person out of their basement to multinational giants. As things move forwards, I believe we will see more companies on either end of the spectrum, as fewer in the middle When I originally thought of this series, I was going to make this prediction. However, it has already come true.
According to the Bureau of Labor Statistics, 3.4M out of 151M people in the US are “computer specialists” or about 2.25% of the overall population. (While I don’t want to disparage the good people at the BLS, this number seems a bit low to me, but that could be a bit of confirmation bias given that I live in the DC area and work with computers). During the same period, there were approximately 1M people consulting in the US, with 14.4% of them classified as IT-related. Of these 3.4M IT workers, it is likely that around 490k are consulting.
As mentioned previously, the spread of IT consulting firms has already come to pass:
The vast majority of establishments in the industry were fairly small, employing fewer than five workers. Self-employed individuals operated many of these small firms. Despite the prevalence of small firms and self-employed workers, large firms tend to dominate the industry. Approximately 41 percent of jobs are found in establishments with 50 or more employees, and some of the largest firms in the industry employ several thousand people.
Building on that idea, let’s say you decide you’ve had enough of your everyday, rat race job for your faceless company that just doesn’t care about you anyway. If you were to come to me and tell me you were planning on starting an IT services firm focusing on .NET, or JavaScript, or the LAMP stack, or HTML, or any relatively common technology, I’d say you were a fool. Unless you are a heavy hitter (contributor to Apache, author of a major book, Tom Kyte or the like), you basically have no chance of sustaining yourself over the long haul, let alone growing. Even if you have a handful of people ready to hand you money or a roledex full of existing clients, you will find it hard to move beyond
These skills are effectively a commodity now. Colleges churn out hundreds of people who either have taken enough LAMP classes to be sufficiently competent and/or have worked with LAMP enough on their own to provide lots of homegrown competition. Throw in globalization and China/Russia/India/Pakistan/Brazil, and the race to the bottom is on. Don’t believe me? Check out Guru, eLance, RentACoder or oDesk and see what rate the global market will bear. For some people, it’s a sobering wakeup call. Combine the abundance of people with commodity tech skills with the tolerance of user community for IT solutions that are “good enough” — because, let’s face it, if your restaurant’s website doesn’t work perfectly on the iPhone but does on the laptop, is that really worth the extra cost to make the website truly universal? — and you end up in the situation where just being “great” at JavaScript (let alone “good” or “okay”) just will not cut it in the marketplace.
The IT services industry has already shaken out into two general categories: huge conglomerates and small firms with just a few people in them. I think this trend will continue, but with a difference. Today’s huge conglomerates tend to charge jaw dropping rates (take a look at Oracle Consulting’s rates to New York State for 2008 as an example). Some of the time, those rates are justified by the skills of the consultant in question; other times, it’s just simply trading in on the name (for reasons into which we will go at another time) — “well, things must be serious now, they’ve brought in Microsoft Consulting to fix the problem.” I suppose there will always be a time and a place for such lily gilding, but I think economic pressures will soon convince decision makers otherwise.
What I believe will happen is the evolution of two tiers of service providers: one of very large firms offering everything at relatively low rates Wal-Mart style and the other of smaller firms offering highly specialized skillsets. As the lower complexity skills become more and more commodity-like in nature, only areas with comparatively low cost of living rates (for now, the aforementioned Pakistan/India/China/Russia/Brazil) or companies sufficiently large enough to leverage enough economies of scale (to both remain profitable and produce enough growth to stay viable in the market) will be able to remain sustainable in the commodity market. This will happen for the same reason that Mom-And-Pop grocery stores have disappeared in favor of large supermarket chains. By offering highly skilled, hard-to-find services, the smaller players can both survive and thrive by providing support to the more marginal cases. This model is harder from a business perspective, but potentially more lucrative.
In the next article, we’ll take a look at the history of a number of industries, technologies and companies and how their example shapes the direction in which IT services are heading.
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