51821 data processing & hosting services in the us industry report.pdf

WWW.IBISWORLD.COM Data Processing & Hosting Services in the US July 2013 1

IBISWorld Industry Report 51821Data Processing & Hosting Services in the USJuly 2013 Andrew Krabeepetcharat

Growth source: A revival in IT spending and greater outsourcing will benefit the industry

2 About this Industry2 Industry Definition

2 Main Activities

2 Similar Industries

3 Additional Resources

4 Industry at a Glance

5 Industry Performance5 Executive Summary

5 Key External Drivers

7 Current Performance

9 Industry Outlook

11 Industry Life Cycle

13 Products & Markets13 Supply Chain

13 Products & Services

14 Demand Determinants

15 Major Markets

16 International Trade

17 Business Locations

20 Competitive Landscape20 Market Share Concentration

20 Key Success Factors

21 Cost Structure Benchmarks

22 Basis of Competition

23 Barriers to Entry

24 Industry Globalization

25 Major Companies25 Hewlett-Packard Company

26 International Business Machines Corporation

28 Operating Conditions28 Capital Intensity

29 Technology & Systems

29 Revenue Volatility

30 Regulation & Policy

30 Industry Assistance

31 Key Statistics31 Industry Data

31 Annual Change

31 Key Ratios

32 Jargon & Glossary

www.ibisworld.com | 1-800-330-3772 | [email protected]


This industry provides specialized data processing or hosting activities. Data processing services provide specialized reports from information supplied by the

clients. Hosting services can include web and application hosting. Services range from automated data entry to processing that data.

The primary activities of this industry are

Application hosting

Application service provider services

Data entry services

Data processing computer services

Data processing

Database management

Web hosting

52232 Credit Card Processing & Money Transferring in the USThe logistics involved in processing the transfer of funds is often better handled by companies with extensive experience in the process.

54121b Payroll & Bookkeeping Services in the USThis industry provides outsourced payroll services for clients’ employees, including basic bookkeeping.

54121c Accounting Services in the USThis industry provides a range of financial services, such as auditing of accounting records, preparing financial statements and preparing tax returns.

54121d Tax Preparation Services in the USThis industry provides a range of financial services, such as auditing of accounting records, preparing financial statements and preparing tax returns.

54151 IT Consulting in the USIT consultants provide expert advice and assistance in the fields of writing, modifying, testing, and supporting software to meet the needs of particular customers.

Industry Definition

Main Activities

Similar Industries

About this Industry

The major products and services in this industry are

Application service provisioning

Business process management and data processing

Data storage and management services

IT computer network and network management services

IT technical support services

Website hosting services

Other services


About this Industry

For additional information on this industry

www.aitp.org Association of IT Professionals

www.itwire.com ITWire

www.census.gov US Census Bureau

Additional Resources

IBISWorld writes over 700 US industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com


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Demand from internet publishing and broadcasting

SOURCE: WWW.IBISWORLD.COM

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Revenue Employment

Revenue vs. employment growth

Products and services segmentation (2013)

25.3%Other services

7.4%IT computer network and

network management services

23.8%Business process management

and data processing

5.2%Website hosting

services

18.3%Application

service provisioning

12.4%Data storage and

management services

7.6%IT technical

support services


Key Statistics Snapshot

Industry at a GlanceData Processing & Hosting Services in 2013

Industry Structure Life Cycle Stage Growth

Revenue Volatility Medium

Capital Intensity High

Industry Assistance Low

Concentration Level Low

Regulation Level Light

Technology Change High

Barriers to Entry Medium

Industry Globalization Medium

Competition Level High

Revenue

$83.8bnProfit

$10.1bnWages

$15.4bnBusinesses

47,744

Annual Growth 13-18

3.0%Annual Growth 08-13

2.4%

Key External DriversDemand from internet publishing and broadcastingPrice of computers and peripheral equipmentExternal competitionPercentage of services conducted onlinePrivate investment in computers and softwareNumber of mobile internet connections

Market ShareHewlett-Packard Company 15.7%

International Business Machines Corporation 13.9%

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FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 31



Key External Drivers Demand from internet publishing and broadcastingA significant portion of this industry’s revenue comes from web hosting. As demand for hosting services increases, this industry will be called upon to supply the data infrastructure to make websites available to the public. The demand from internet publishing and broadcasting expected to increase in 2013, representing a potential industry opportunity.

Price of computers and peripheral equipmentFalling computer prices make purchases of equipment and other parts involved

with in-house data processing and hosting more manageable. Therefore, a decline in prices adversely affects industry demand. The price of computers and peripheral equipment is expected to decrease in 2013, representing a potential industry threat.

External competitionExternal competition for this industry largely stems from firms’ ability to provide for their own data processing and hosting needs internally. While trends in major markets favor a move away from internal provision of these services, events such as a major security breach at

Executive Summary

The Data Processing and Hosting Services industry provides infrastructure for hosting or data processing services used for a variety of information technology (IT)-related activities, ranging from web hosting to automated data entry services. During the five years to 2013, businesses have increasingly outsourced their IT infrastructure needs, directly benefiting industry operators. Therefore, the industry has fared well over the period, with revenue growing at

an estimated annualized rate of 2.4% to $83.8 billion, including expected growth of 1.5% during 2013.

Investment in outsourcing application hosting to specialized firms has been the primary driver of growth, as it has been an alternative to local hosting of enterprise software. Because revenue depends on subscriptions, the pullback of IT spending during the recession slowed the rate of revenue growth. However, spending has picked up since 2011, and it

is expected to grow even faster in 2013 as firms increasingly outsource their IT needs to third parties.

Mergers and acquisitions are anticipated to increase during the next five years as firms consolidate to increase the subscriber base over which they can allocate computing resources. Also, supply disruptions in the hardware space (such as the flooding of hard-drive manufacturing plants in Thailand during 2011) may push companies that managed their IT infrastructure needs in-house to opt for a third-party provider.

Other factors will also play into growth in coming years. Consolidation within other industries will push businesses to outsource their IT needs as systems become too complex to maintain in-house. At the same time, the exponential growth in complexity as scale grows will increase the expertise level needed to effectively manage large data centers. As firms begin capturing more data, they will increasingly require outside expertise to manage their data collection, hosting and processing. As a result, revenue is forecast to grow at an average annual rate of 3.0% during the next five years, reaching $97.3 billion in 2018.

Industry PerformanceExecutive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

Firms will increasingly outsource their IT needs, boosting demand for industry services


Industry Performance

Key External Driverscontinued

an industry firm could skew the trend in the opposite direction. External competition for the industry is expected to decrease to 2013.

Percentage of services conducted onlineLargely, this industry’s role is to facilitate online transactions and services. A rise in percentage of services conducted online indicates increased usage of the internet and data usage, which increases demand for the industry’s services. The percentage of services conducted online is expected to increase in 2013.

Private investment in computers and softwareThe industry is investing more resources in application service providers (ASPs). ASPs provide software as a service

(SaaS). SaaS involves using a server to remotely deliver software onto a desktop. ASPs and SaaS are part of data processing and hosting, so any investment in them will increase revenue for the industry. Private investment in computers and software is expected to increase in 2013.

Number of mobile internet connectionsAs the number of mobile internet connections increases, demand for services that take advantage of these connections rises. This number includes many location-based services that have not yet built significant delivery systems to take advantage of this industry. The number of mobile internet connections is expected to increase in 2013.

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Price of computers and peripheral equipment


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Demand from internet publishing and broadcasting



The cloud Cloud computing is one of the fastest-growing products the industry offers. The cloud is similar to time-sharing mainframe computing resources; however, rather than a single mainframe, a cluster of computers is virtualized into a single computing entity. The entity’s resources can then be divided and distributed on an as-needed basis to clients, who pay based on their needs or usage. Industry players IBM and HP have both heavily integrated cloud computing into the data processing and hosting services they already offer. As a result, this segment has experienced tremendous revenue growth in the past few years.

Cloud computing makes the most sense for smaller firms with less money to spend on IT. These

companies often have business plans that depend on their ability to access and manipulate their own data, so they may opt for cloud computing services to handle their IT needs. Recently, on a consumer level, cloud computing services are offered free of charge from Dropbox, Google’s Drive and Apple’s iCloud. These services allow users to store any type of file on the cloud and access them on any computer or mobile phone. While the base subscription is free, paid premium subscriptions that increase the maximum storage capacity are available. As new cloud technology continues to develop, more businesses and consumers will demand more cloud-related services, thus increasing industry revenue and profit.

Large-scale clients The majority of industry revenue comes from major corporations with tremendous volumes of data and little internal expertise in how to handle that data. In particular, financial service firms have been the most willing to pay for ever-faster access to increasing stores of data. The heightened importance of finance to the economy

has proven a windfall for cloud computing purveyors, as the finance sector’s dependence upon data that is easily stored and accessed in databases has helped maintain high demand, despite weakness in the overall economy. As a result, the financial sector is estimated to represent 16.0% of all demand for the industry’s services.

Current Performance

Because of an immense marketing push by some of its largest firms to popularize cloud computing, the Data Processing and Hosting Services industry has become more visible during the past five years. In addition, as more media is moved to online platforms, internet-based companies are demanding more industry services to manage their information technology (IT) infrastructure needs. As a result of these trends, the industry’s revenue is expected to grow at an annualized rate of 2.4% to $83.8

billion in the five years to 2013, including a 1.5% expected increase in 2013 alone. Profit, however, is expected to remain relatively constant at 12.0% during this period due to a high level of competition.

Demand for storage and hosting has grown in line with web video and music popularity



Large-scale clientscontinued

Content providers (including resellers, which sell web-hosting services directly to content providers) are driving demand for data hosting and processing. Rich media such as video, music and applications have grown increasingly

popular, and consumer bandwidth available to access this data has increased. As a result, demand for remote storage and web-hosting capacity has risen. Content providers are expected to constitute 33.0% of industry demand.

Increasing relevance Ultimately, the output of this industry appeals to two distinct groups. New firms demand data hosting to avoid the cost plateaus associated with internal investment in new hardware and software. Extremely large firms demand industry services because in-house management would be more burdensome than outsourcing. As a result, this industry depends on several factors, such as the enduring complexity of large-scale operations and the entrance of new enterprises, particularly those designed to operate via the internet. The recent spike in investment in internet firms, due to media shifting to online platforms, has been enormously beneficial to this industry. This speculation has driven significant money toward resellers and content purveyors that lease resources from data hosts.

At the same time, larger firms have found that the resources required to manage data increase exponentially as the amount of data to be analyzed increases because that data requires increasing amounts of metadata, a term for the data that describes and gives information about other data. Eventually, this metadata requires its own metadata to keep track of it, and so on. As such, the only firms of scale that can handle the infrastructure and engineering required to manage huge amounts of data are those with an expertise in such activities; these include major internet firms or the

specialized hosts and processors in this industry. As consolidation has gripped most American industries, data hosting and processing firms have been major beneficiaries. Meanwhile, firms in this industry have also been consolidating to gain the infrastructure needed to manage newly consolidated firms’ immense IT needs.

Most of the consolidation during the past five years has occurred among smaller, private firms. This consolidation has claimed a significant number of enterprises and establishments. Additionally, consolidation has weighed on employment. The industry now employs about 214,404 people, representing an annualized decrease of 4.0% in the five years to 2013, despite strong revenue growth. Many of these job losses have come from low-skill jobs ripe for outsourcing. In particular, many low-paid data-entry positions have disappeared from domestic labor statistics, which has contributed to the increases in average wages in the past five years, from about $67,800 per worker in 2008 to $71,888 in 2013.

Average industry wages have risen as a result of a consolidation and fewer low-paid jobs



Shift to online services

The growing provision of services online will also drive growth. Cloud computing has made starting an online business easier than ever by giving clients the ability to access resources on an as-needed basis. Rather than subjecting buyers to the steep upfront costs of purchasing hardware and software, they can buy computing resources in much

smaller and smoother increments and then expand or shrink their allotment as needed. This model will likely encourage investment in internet-based businesses and result in higher demand for industry products.

Furthermore, businesses that planned on handling their own IT infrastructure may decide otherwise

Growth in major markets

Due to sustained economic uncertainty, nonindustry firms will likely focus investment on products designed to improve and streamline operations, often through adopting software that saves time and improves efficiencies. The difficulty of maintaining a data infrastructure capable of monitoring, collecting and collating the data needed to feed such software will push firms to use this industry’s computing resources. Distributed networks of servers are complex to install and maintain. They are also well outside the area of expertise of most large firms. As such, many companies rely on third parties to provide those resources, and IBISWorld expects more firms to depend on those

third parties over the next five years.One industry that has experienced

growth in recent years is the financial services sector. As growth expectations have declined among asset managers, many institutional funds, such as endowments and pensions, have moved their money to hedge funds to achieve returns beyond what standard market instruments like equities and bonds can offer. Because the performance of those funds largely depends on the speed of computing resources, financial firms will increasingly require a larger computer infrastructure to achieve growth. This trend is expected to drive a significant portion of the industry’s growth in the immediate future.

Industry Outlook

In the next five years, IBISWorld expects several factors to drive industry growth, including: the desire to improve operational efficiencies in a slow-growth environment; an increase in the expense of providing IT resources internally; and large corporations’ continued outsourcing of IT needs to third parties. Consequently, the Data Processing and Hosting Services industry’s revenue is projected to grow at an annualized rate of 3.0% to $97.3 billion in the five years to 2018. In 2014 alone, revenue is expected to increase 2.9% to $86.3 billion.

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Shift to online servicescontinued

in light of unexpected supply disruptions that significantly increase the costs of hard drives. These supply disruptions encourage

consumers to use this industry’s services to help mitigate any fluctuations in computer and peripheral equipment prices.

Organizational activity

Consolidation and employment declines are expected to continue as industry companies pursue mergers and acquisitions. As such, the number of industry enterprises is expected to decline at an average annual rate of 4.2% to 38,514 over the five years to 2018. In particular, this consolidation is expected to occur among larger operators with multiple establishments, while the number of smaller, independent operators that provide low-intensity web hosting is expected to remain high for some time. As a result, disparity between the number of establishments and the number of enterprises (i.e. their parent companies) is expected to decrease. The number of establishments is expected to decline to

38,750 in 2018, representing an annualized decrease of 5.2% over the five-year period. Meanwhile, employment is expected to decline at an annualized rate of 2.5 to 188,712 during the period as low-level positions are cut as a result of automation. Profit is expected to rise over the next five years as new technology in the industry emerges and companies move resources to higher margin activities.

Consolidation and employment declines will continue as companies pursue M&As


Industry PerformanceIndustry value added (IVA) is forecast to grow faster than GDP from 2008 to 2018

Technology has progressed, and businesses need to store an increasing amount of data

New products such as cloud computing continue to benefit industry operators

Life Cycle Stage


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Quality GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

MaturityCompany consolidation;level of economic importance stable

Quantity GrowthMany new companies; minor growth in economic importance; substantial technology change

DeclineShrinking economicimportance

Key Features of a Growth Industry

Revenue grows faster than the economyMany new companies enter the marketRapid technology & process changeGrowing customer acceptance of productRapid introduction of products & brands

Credit Card Processing & Money Transferring

Internet Publishing and Broadcasting

Computer Manufacturing

Payroll & Bookkeeping Services

Computer Peripheral Manufacturing

Data Processing & Hosting Services



Industry Life Cycle This industry is in the mature stage of its life cycle. During the 10 years to 2018, IBISWorld forecasts industry value added (the industry’s overall contribution to the economy) to increase at an average annual rate of 0.9%. During the same period, GDP is projected to grow at an annualized rate of 2.1%, indicating that the industry is growing but becoming a smaller share of the overall economy.

A rapid rate of technological change is also indicative of a growing industry. Major players in this industry invest heavily in research and development to create new products that will improve

the efficiency of data processing and hosting services. Technological change for key buying industries has also contributed to demand, as new internet startups require massive hosting capabilities to run their sites.

Cloud computing has become one of the fastest-growing products the industry offers. Major player IBM’s cloud computing segment more than tripled its revenue in the past year alone. In the next five years, industry firms are expected to continue to demand more cloud-related services to meet the growing IT needs of their clients.

This industry is Growing


Products & Services

Data processing involves capturing, digitizing and processing data from various sources. Traditional data processing services include taking data from manually filled forms, images or publications, and preparing databases and integrating them. However, with the advent of multimedia and the

internet, sources have widened to include manually printed documents, images, sounds and video. New output media is equally diverse, including databases on servers and management of records derived from internet-based queries. Data processing has numerous subcategories.

Products & MarketsSupply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations

KEY BUYING INDUSTRIES

51913b Internet Publishing and Broadcasting in the US Internet publishers and broadcasters use data hosts to store and transmit content to users.

52 Finance and Insurance in the US The finance sector is the single largest enterprise-level industry that demands data processing and hosting services, primarily in the form of market and transaction data.

92 Public Administration in the US Government agencies demand industry services as part of outsourced contracts.

KEY SELLING INDUSTRIES

33411a Computer Manufacturing in the US Computer manufacturers supply the industry with computers.

33411b Computer Peripheral Manufacturing in the US Computer peripheral manufacturers supply the industry with computer equipment.

51121 Software Publishing in the US Software publishers supply the industry with packaged software solutions.

51711c Wired Telecommunications Carriers in the US Wired telecommunications carriers supply the industry with telecommunications services.

54151 IT Consulting in the US IT consultants help the industry implement computer systems design solutions.

Supply Chain

Products and services segmentation (2013)

Total $83.8bn

25.3%Other services

7.4%IT computer network and

network management services

23.8%Business process management

and data processing

5.2%Website hosting

services

18.3%Application

service provisioning

12.4%Data storage and

management services

7.6%IT technical

support services



Products & Markets

DemandDeterminants

While numerous factors create demand for data processing and hosting services, the primary drivers are business sentiment, the price of services and the cost of technology. The price of a company’s services provided is a strong determinant of whether a customer will use them. Additionally, if the client’s business is booming, there is a larger possibility that it will require data processing or hosting services.

Business sentimentThe demand for industry services depends on business sentiment and

corporate profit, in part because businesses that perform well are more likely to update to the latest technology and software to maintain efficiency. For instance, well-performing companies need additional data storage to maintain customer lists and find customer purchase trends. This factor will increase the use of software as a service (SaaS).

Cost of technologyDemand for industry services is sensitive to developments in the global IT market. Cheaper hardware and software means

Products & Servicescontinued

About 54.5% of total industry revenue is derived from three services. The first is business process management and data processing, which use technology to improve business efficiency. The second is data storage and management services, which involve storing and accessing data. The third is application service provisioning, also called software as a service (SaaS). The industry also offers many other value-added services, including links to customer invoicing services and data warehousing and mining to assist in market and customer analysis. Website hosting services have also increased as an area of revenue, as companies require websites to operate and promote their businesses in an increasingly competitive environment.

Application service provisioningApplication service provisioning is growing in importance within this industry. To operate efficiently, many companies use SaaS, which allows single users to access computer software across a server. This strategy improves overall company efficiency because it avoids manually installing software onto each computer. However, SaaS increases companies’ risk of losing their data because all of

their information is processed and stored on a single server instead of on separate computers.

Data storage and management servicesData management and data storage is also becoming increasingly popular. As companies collect more information from customers, they require additional capacity to store and use that information. Smaller firms have dedicated information technology departments to (at least partly) oversee these operations, while other companies opt to outsource this function to third-party companies. However, some of this outsourcing will go to data storage companies abroad.

Other servicesOther services offered by the industry, which compose 25.3% of revenue, vary greatly from document transformation to software publishing. These activities are not the main sources of revenue for this industry, but when they are combined, they provide a material part of data processing and hosting firms’ revenue. Nevertheless, none of these smaller segments represent more than 5.0% of revenue individually.


Products & Markets

Major Markets

The industry’s primary markets are enterprise firms with huge amounts of data to which they need fast, secure, reliable access. In particular, the finance industry is the largest business sector, as it has significant needs for industry services. In particular, real-time market data is a major source of revenue for this industry. Nonfinancial enterprise firms have need for the remote storage and management of retail data, logistics

information, supply chain information and scheduling and so forth. Financial firms account for an estimated 16.0% of industry revenue, while nonfinancial enterprises account for 39.0% of industry revenue.

Government firms make similar use of data processing and hosting, accounting for an estimated 12.0% of industry revenue. Meanwhile, content providers account for an estimated 7.0%

DemandDeterminantscontinued

that data processing and hosting companies are able to deliver services to their customers at cheaper rates. Increasingly, data processing operations are being offshored to countries such as China and India, with highly skilled yet low-cost labor. The lowered cost through offshoring will be passed on to clients in the form of lower prices. In turn, lower prices will increase demand.

On the other hand, as hardware and software become faster and more affordable, companies will likely undertake data processing and hosting services in-house. This trend would decrease demand for this industry’s services from major corporate clients. However, the specialization of the

industry’s major players ensures that outsourcing sporadic or major projects is more cost-effective than performing the task in-house.

Price of existing servicesProviding application services is an important new technology for businesses. The ability to access software remotely from a company’s server enables employees to work from any computer, regardless of whether that computer has the software installed on it. This factor significantly increases efficiency. Additionally, SaaS eliminates the need to purchase and install licensed software on every single computer, saving companies time and money.

Major market segmentation (2013)

Total $83.8bn

39%Non-financial enterprises

26%Resellers

16%Financial firms

12%Government firms

7%Content providers



Products & Markets

International Trade Trade does not occur in this industry due to the service-based nature of activities data processing and hosting firms provide. However, globalization has made maintaining an international presence more prevalent and important among large hosting firms that service

multinational corporations. Just as some American firms have set up shop abroad, some companies operating in the United States are foreign-based. While outsourcing of domestic data processing and storage jobs is common, there is no physical trade of goods.

Major Marketscontinued

of the industry’s market. Content providers pay hosting fees to web hosts for hosting websites and related data. In particular, entertainment websites that use external hosting or content delivery networks are significant members of this group.

Resellers include companies that buy hosting services in order to resell them, usually to smaller customers such as individuals or small businesses in need of web hosting services. These resellers constitute an estimated 26.0% of the industry’s revenue.


Products & Markets

Business Locations 2013

MO1.8

West

West

West

Rocky Mountains Plains

Southwest

Southeast

New England

Great Lakes

VT0.3

MA3.5

RI0.1

NJ3.2

DE0.7

NH0.2

CT0.6

MD2.0

DC0.5

1

5

3

7

2

6

4

8 9

Additional States (as marked on map)

AZ2.5

CA14.2

NV0.2

OR1.0

WA1.7

MT0.2

NE0.8

MN3.2

IA1.7

OH3.3 VA

3.9

FL4.0

KS0.6

CO3.1

UT0.9

ID0.1

TX10.4

OK1.1

NC1.5

AK0.1

WY0.0

TN1.0

KY0.5

GA6.4

IL3.7

ME0.1

ND0.1

WI2.0 MI

5.3 PA3.2

WV0.1

SD0.1

NM0.2

AR1.0

MS0.2

AL1.0

SC0.2

LA0.2

IN1.4

NY5.8 5

67

8

321

4

9


Mid- Atlantic

Revenue (%)

Less than 3% 3% to less than 10% 10% to less than 20% 20% or more

HI0.1


Products & Markets

Business Locations The Southeast, Mid-Atlantic and West regions have a combined share of more than 50.0% of industry establishments. These regions make up the largest portion of establishments because they have the highest number of people in the United States. Other reasons include the geographic client locations in these regions. For example, California has a large number of industry establishments (and the highest share of revenue) because of the number of technology companies based in Silicon Valley. Additionally, most major international clients of this industry have headquarters in California. The Mid-Atlantic region also has a large number of establishments because many of the nation’s financial institutions are headquartered in New York. Even firms that work remotely want to stay close to their customers so they can provide quick assistance with any technical difficulties.

The shift of employees to other countries is having a marked effect on the industry’s geographic spread. As skills become more oriented toward sales and client services roles, US

employees will spend more time contacting current and prospective clients. IBISWorld expects that as computer technology becomes more mobile, there will be a minor shift of establishments away from large commercial centers, as industry firms attempt to minimize rent and other associated costs with maintaining establishments in major cities. Many

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Revenue vs. population

Employment and population (2012)*

Region

Share of employment

(%)

Share of population

(%)

West 15.4 17.0Great Lakes 13.0 15.0Mid-Atlantic 15.0 15.6New England 5.5 4.7Plains 10.6 6.6Rocky Mountains 5.8 3.5Southeast 19.7 25.2Southwest 15.0 12.1

*Estimate

SOURCE: US CENSUS BUREAU COUNTY BUSINESS PATTERNS


Products & Markets

Business Locationscontinued

employees who work in this industry will be able to work remotely from home.

IBISWorld research indicates that the main operations of many firms are located abroad. Many firms in this industry require large servers and database systems in order to operate.

During the next five years, data processors and hosting service providers will shift their operations to other countries because the price to rent real estate and hire workers in foreign countries such as India is often cheaper than in the United States.


Key Success Factors Ability to quickly adopt new technologyBecause of the rapid pace of technological change in the information technology industry, many industry companies must quickly adopt new techniques in order to remain competitive.

Access to multiskilled and flexible workforceIt is necessary to have access to a large pool of labor with varying levels of skills, from data processing to programming. This helps companies stay competitive and adopt new technologies more quickly.

Ability to manage external (outsourcing) contractsMost industry operators outsource several operating functions. In order to continue to deliver quality services, managing external contracts properly is essential.

Effective quality controlMany of the industry’s services require strict quality control because clients rely on companies to keep data secure.

Ensuring pricing policy is appropriateWith price-based competition occurring on some outsourced contracts, it is important to ensure that the organization’s pricing policy is reasonable.

Having a cost-effective distribution systemHaving a cost-effective delivery system allows companies to better compete on price. This is becoming progressively important as more companies provide similar services at affordable prices abroad.

Market Share Concentration

The level of concentration in the Data Processing and Hosting Services industry is low, primarily due to the range of services that data processing and hosting service companies can provide. In 2013, IBISWorld estimates that the four largest operators in the Data Processing and Hosting Services industry will account for about 33.5% of industry revenue. In terms of the size of establishments according to staff levels, the industry is highly fragmented, with 56.9% of all establishments employing fewer than five people in 2013. Large establishments of 100 or more employees represent just 8.6% of total establishments. These numbers may be skewed due to outsourcing; some firms may have more employees overseas that are not included in the data for this industry.

While market share concentration is low, it is gradually increasing because of a number of recent acquisitions. Most notably, Hewlett-Packard’s recent acquisition of

Electronic Data Systems, formerly one of the largest operators, has made HP the largest player in the industry. The industry’s smaller operators face increasingly difficult competitive conditions, as large companies with falling costs look to control broader segments of the market. These smaller firms are likely to target niche providers for acquisition over the five years to 2018 and increase their market share.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization

Enterprises by employment size (2013)*No. of employees Share (%)

1 to 4 56.95 to 9 11.610 to 19 10.220 to 99 12.8100 to 499 4.1500+ 4.5Total 100.0

*EstimateSOURCE: US CENSUS BUREAU

Level Concentration in this industry is Low

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:


Competitive Landscape

Cost Structure Benchmarks

Costs related to this industry and, by extension, profitability, have remained relatively stable in the five years to 2013. Despite the continuous advancement of technology, established firms have fallen into stable spending patterns. One of the primary benefits this industry offers its customers is the availability of pooled resources to handle unexpected spikes in demand.

ProfitThe net effect of this business model is that industry firms have relatively stable and predictable needs going forward, particularly since this industry’s pricing scheme is subscription-based. Thus, revenue is growing while technological advances allow for increased output at constant spending levels. Though pricing is competitive among providers with less brand recognition, firms with significant visibility can charge a premium for their

services. Profit, measured as earnings before interest and taxes, amounts to about 12.0% of industry revenue in 2013. While some costs may decrease over time, competition will likely force other costs to increase as well, keeping profitability at about this level for the foreseeable future.

OtherThis industry’s overall cost structure is difficult to gauge due to the high level of corporate activity, such as large one-time capital investments and mergers and acquisitions, which can dramatically impact costs from year to year. As a result, miscellaneous costs make up 41.0% of industry revenue. Other costs include expenses associated with research and development, restructuring, write-downs of acquired intangible assets, and acquisition costs paid to firms no longer in the industry. Acquisitions designed to build

Sector vs. Industry Costs

■ Profi t■ Wages■ Purchases■ Depreciation■ Marketing■ Rent & Utilities■ Other

Average Costs of all Industries in sector (2013)

Industry Costs (2013)

0

20

40

60

Perc

enta

ge o

f rev

enue

80

100

14.7

19.6

5.17.48.0

24.2

21.0

12.0

41.0

9.03.0

12.44.2

18.4




Basis of Competition This industry has a high level of competition. Companies compete with each other (internal competition) and with customers who may choose to move their data hosting and processing services in-house (external competition). In both cases, the competition involves four key factors: reputation, utility, cost and support.

Reputation is the most important competitive factor because the nature of the industry’s output makes shopping by comparison difficult. Reputation includes factors such as the firm’s track record and the perceived financial stability and viability of vendors. Firms are wary of the costs of moving providers, and investing their resources in a firm perceived to be stable is viewed as an acceptable cost.

Utility refers to the value a hosting or processing service offers to its customers. This factor can include the speed and ease of implementation, the functionality of its products, its performance, security, scalability, flexibility, and reliability, and the ease with which it can be integrated into existing services. Industry firms become more attractive to clients if they are able to offer a wide variety of services to handle a full spectrum of needs. New trends in cloud computing are making industry firms compete in the quality and value of the service they offer (e.g. Google offers five gigabytes of free cloud storage compared to Dropbox’s two gigabytes).

Cost is relatively self-explanatory, though the nature of how costs are computed in this industry can be somewhat complex. Firms competing on

Cost Structure Benchmarkscontinued

market share often include overpayment for things such as customer lists or “goodwill,” which are routinely written down upon testing for impairment.

WagesFollowing the “other” cost segment, the single-largest cost is wages, despite significant layoffs in recent years. Wages are estimated to account for 18.4% of industry revenue. Though industry employment has fallen to a level much lower than before the financial crisis, wages as a percentage of revenue have not declined dramatically because the majority of the jobs shed were at the lower end of the pay scale. These jobs included data entry keying and customer service representation, which have been largely relocated abroad where low-skill labor is cheaper.

Depreciation, rent and utilities, and purchasesAfter wages, depreciation is the next-largest expense, amounting to an

estimated 12.4% of industry revenue. This industry requires significant capital investment in property and computer hardware, the latter of which has a short useful life and depreciates rapidly. As a result, industry firms continuously invest in new hardware and software to stay competitive.

Rent and utility expenses are fairly small as a portion of overall industry revenue, at about 5.9% and 3.1%, respectively, but they are still significant for businesses in this industry. Data centers can spread across large swaths of land and consume buckets of electricity; therefore, they are often situated where these two costs can be minimized.

Purchase costs are primarily composed of internet connectivity charges, or the money that industry firms pay to telecom firms for bandwidth. Though crucial to this industry, regulation and competition have ensured that connectivity costs do not overwhelm data hosts and processors.

Level & Trend Competition in this industry is High and the trend is Increasing



Barriers to Entry The industry’s largest players have considerable capital investment, including server farms with incredible processing power. However, thousands of smaller companies perform some form of data processing outsourcing for smaller clients. As such, for those wishing to enter the industry at its bottom end, the barriers do not pose a significant challenge.

The cost of establishing an operation in this industry is high due to the cost of computing and other equipment. For data hosting companies, the leasing of space on other companies’ servers may offer a lower short-term initial cost solution to establishing a firm in this industry. Nevertheless, data processing and application service providers have a lower need for capital. They mostly rely on labor to develop software and process information through computers.

Basic equipment costs are declining while providing faster processing power. However, the industry will likely expand its reliance on such technology, possibly increasing future capital costs for start-up companies. The use of appropriate equipment on a leased basis can lower the initial establishment costs.

Larger players have an advantage, benefiting from economies of scale. Larger data storage companies are able to use their data servers to host information for many clients rather than just one. Larger application service providers and data processing companies are also able to benefit through outsourcing. By taking

the operations portion of its business abroad, industry firms are able to save labor and material money.

Aside from the start-up capital costs to obtain computers and servers, new entrants to this industry must also obtain business contracts. New entrants are more likely to target smaller firms in the region because they lack the means and reputation to service larger clients. Start-up companies must spend a relatively large amount of money advertising their business to clients.

New entrants also need to manage their labor costs effectively. Therefore, companies are taking some aspects of their businesses to low labor-cost companies in India or China. Low wage costs in these regions allow companies to have larger servers and data storage areas. Smaller companies that first enter the industry often do not have the luxury of outsourcing their entire operation. Therefore, they will either rent servers from abroad or buy servers domestically to service their clients.

Basis of Competitioncontinued

price often cut costs by outsourcing labor or through mergers and eliminating redundant positions.

Support refers to the level and quality of support services firms offer. Support services can refer directly to customer support but also to consulting and training services. It also includes assistance in

installing and integrating a customer’s required services and software.

International competition is not a significant concern because the speed of transmission is prohibitively slower from across the globe. As a result, most firms will hire data hosts that are at least located on the same continent.

Barriers to Entry checklist Level

Competition HighConcentration LowLife Cycle Stage GrowthCapital Intensity HighTechnology Change HighRegulation & Policy LightIndustry Assistance Low


Level & Trend Barriers to Entry in this industry are Medium and Steady



Industry Globalization

Historically, US-based companies have dominated the industry, with firms in lower labor-cost countries abroad offering some competition. However, the technology revolution that India has been experiencing during the past decade has caused a seismic shift in the industry, and there is now a burgeoning data processing sector in India. Neighboring countries are attempting to recreate its success.

While there are still data processing and hosting firms on US soil, the rise of Indian companies such as InfoSys and the propensity for US firms to outsource their work abroad is creating a more globalized industry. Data processing

and hosting firms will have their sales and client relationship in the United States, while outsourcing the main operation abroad to cheap labor. This trend is even truer for data storage and hosting companies.

In the future, more technology companies based in foreign countries will likely gain industry prominence with a larger share of revenue. However, a fundamental physical restriction, particularly the speed at which electrons or light can traverse the globe, will mandate that companies maintain operations somewhere near their customers.

Level & Trend Globalization in this industry is Medium and the trend is Increasing


Player Performance Hewlett-Packard (HP) is a global technology corporation that specializes in the manufacturing of computers, data storage, network hardware, software and a variety of technology-related services. The company was founded in a one-car garage in 1939 by two Stanford electrical engineering graduates, William Redington Hewlett and David Packard. Headquartered in Palo Alto, CA, the company provides services to more than 160 countries around the world and now employs about 350,000 employees.

HP operates in this industry through its services division, which provides technology and application services, as well as information technology (IT) and business outsourcing. The IT outsourcing segment provides services that streamline and optimize infrastructure through data centers that improve efficiency and reduce costs. The

company’s technology services aim to keep clients’ infrastructure running by providing networking services, in addition to infrastructure services for storage, server and unified communication environments. Applications services provide technology consulting and integration solutions and services that use cloud computing, information management and analytics.

Financial performanceIn August 2008, the company made the major acquisition of Electronic Data Systems (EDS) for $13.8 billion. EDS provides services in systems infrastructure, application development and business-process outsourcing. The transaction significantly increased HP’s industry-relevant revenue in 2009, when HP announced that EDS would be changed to HP Enterprise Services.

Major CompaniesHewlett-Packard Company | International Business Machines Corporation | Other Companies

70.4%Other

Hewlett-Packard Company 15.7%

International Business Machines Corporation 13.9%


Major players(Market share)

Hewlett-Packard Company (US industry relevant) – fi nancial performance*

YearRevenue

($ million) (% change)Operating Income

($ million) (% change)

2008 7,342 36.8 881 41.2

2009 12,383 68.7 1,786 102.7

2010 12,435 0.4 1,981 10.9

2011 12,584 1.2 1,802 -9.0

2012 12,652 0.5 1,808 0.3

2013 13,159 4.0 1,853 2.5

*EstimatesSOURCE: ANNUAL REPORT AND IBISWORLD

Hewlett-Packard Company Market share: 15.7% Industry Brand Names First Data Corporation HP Enterprise Services Electronic Data Systems


Major Companies

Player Performance Founded in 1919, International Business Machines Corporation (IBM) is a US-based multinational technology consulting and software development firm headquartered in Armonk, NY. IBM manufactures and sells high-end computer hardware and software and also offers consulting, IT and hosting services. IBM has operations in most major cities worldwide and employs more than 430,000 employees.

IBM competes in this industry via its global technology services (GTS) division, which provides IT infrastructure services and business process services. This segment provides strategic outsourcing services using cloud computing, analytics and virtualization to help businesses meet their IT needs. In addition, this division includes GTS services delivery, which is responsible for the global delivery of process-based services.

The fastest-growing portion of this division is cloud computing. The IBM SmartCloud delivers business and IT services over the network, changing the way that businesses use and store data.

In 2012, an estimated $35.0 billion in commerce transactions were conducted in the IBM SmartCloud. IBM has helped clients integrate cloud computing into their business by making IT resources highly automated and virtualized. Amid increasing demand for cloud computing, IBM has made itself a leader in the industry by heavily investing in this technology. The company holds more patents than any other US-based company, investing $6.0 billion annually in research and development (R&D).

Financial performanceIndustry-related operations grew at an annualized rate of about 2.1% to $11.6 billion in the five years to 2013. This growth is a result of clients requiring more data processing and hosting as they integrate more IT into their business processes. This segment benefited from investments in R&D during the past five years, as IBM’s new cloud-computing technology helped spur growth within the segment.

Player Performancecontinued

HP operates in more than 40 countries and has more than 230 data centers as part of its outsourcing program. In the five years to 2013, HP’s industry-

relevant revenue is estimated to have grown an average of 12.4% annually to $13.2 billion, largely as a result of the EDS acquisition.

IBM Corporation (US industry relevant) – fi nancial performance*

YearRevenue

($ million) (% change)Operating Income

($ million) (% change)

2008 10,475 8.9 1,257 0.6

2009 10,067 -3.9 1,409 12.1

2010 10,278 2.1 1,541 9.4

2011 11,111 8.1 1,583 2.7

2012 11,436 2.9 1,715 8.3

2013 11,635 1.7 1,730 0.9

*EstimatesSOURCE: ANNUAL REPORT AND IBISWORLD

International Business Machines Corporation Market share: 13.9% Industry Brand Names Global Technology Services


Major Companies

Other Companies Other significant firms in this industry include Equinix, Savvis, Amazon and Akamai, each of which is estimated to generate between $800.0 million and $1.2 billion in revenue in 2013. Other relevant companies, including Google, Apple and Dropbox, are beginning to offer more consumer-level data hosting services through cloud computing. Google’s Drive, Apple’s iCloud and Dropbox’s flagship service all offer consumers a free basic account that allows them to store files on the cloud, which is accessible from any computer or mobile phone, but they also offer paid, higher-capacity subscription options.

Salesforce.com Estimated market share: 2.3%Salesforce is a leading application service provider. The company provides on-demand software as a service (SaaS) to corporations around the world, mainly through customer relationship management (CRM). Founded in 1999, the company’s initial objective was to provide business applications through the internet. At the end of 2010, Salesforce had 87,200 clients, a vast increase from its 2005 total of 20,500 (latest information available).

Salesforce’s flagship CRM application helps companies record, track and manage customer information, including sales and customer service. It is considered a form of data processing because the customer enters data into the software and the system delivers vital customer information back to the client. Within the CRM segment, Salesforce focuses on four particular services: automation, partner relationship management, customer service and support and marketing.

Besides traditional cloud computing (where the end user does not require knowledge of the configuration or location of the system that delivers its data processing services), the company also generates money from consulting and professional training work, accounting for about 10.0% of its SaaS revenue. In 2013, Salesforce recorded revenue of about $1.9 billion.

GoDaddy.com Estimated market share: 1.6%GoDaddy is a private online website-hosting company established in 2001 that has grown significantly since its inception. The company is headquartered in Scottsdale, AZ, and employs about 3,341 people.

The main service lines for GoDaddy include web hosting, domain name registration and reselling of domain names. Within those segments, domain names generate the most revenue for the company, with more than 60.0% of GoDaddy’s sales. Hosting only makes up about 20.0% of the company’s revenue. Like most web-hosting businesses, repeat business is an important revenue generator.

In December 2011, other companies and the online community criticized the company for supporting the Stop Online Piracy Act, while major sites like Google and Wikipedia strongly opposed the act. In protest, Wikipedia moved all of their domains away from GoDaddy. Despite the negative publicity, it is expected that the company will continue to perform strongly in the future due to repeat business from other existing customers. Revenue totaled an estimated $1.3 billion in 2013.


Capital Intensity This industry depends more on expensive (and rapidly depreciated) computers and software than employees. In fact, its competitive advantage is largely derived from its relatively minimal staffing needs. Measured as depreciation costs over labor costs, this industry’s level of capital intensity is high; for every dollar in wages spent this industry spends, $0.67 go toward paying for the decrease in value of capital investments over time. This capital consists of facilities, servers, software and office equipment. Industry wages are divided between computer and mathematical operations and office and administrative support occupations.

Operating ConditionsCapital Intensity | Technology & Systems | Revenue VolatilityRegulation & Policy | Industry Assistance

Tools of the Trade: Growth Strategies for Success


Labo

r Int

ensi

veCapital Intensive

Change in Share of the Economy

New Age Economy

Recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.

Traditional Service Economy

Wholesale and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old Economy

Agriculture and Manufacturing. Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.

Investment Economy

Information, Communications, Mining, Finance and Real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Credit Card Processing & Money Transferring

Internet Publishing and Broadcasting

Computer Manufacturing

Payroll & Bookkeeping Services Computer Peripheral Manufacturing


Capital intensity

1.0

0.0

0.2

0.4

0.6

0.8

SOURCE: WWW.IBISWORLD.COMDotted line shows a high level of capital intensity

Capital units per labor unit


InformationEconomy

Level The level of capital intensity is High


Operating Conditions

Revenue Volatility The industry has a moderate level of revenue volatility, although that volatility has largely been due to positive growth. During the five years to 2013, the year-on-year revenue changes averaged 2.7% per year. Customers typically subscribe to hosting services, meaning that revenue is steady and constant. Price declines are typically

met with increased demand from customers as the quantity of data required grows. New services, such as clouds and the broader software as a service (SaaS) delivery system, have expanded the industry, leading revenue to increase sharply in recent years, and they will likely continue to do so for the intermediate future.

Technology& Systems

This industry uses computer hardware and software and telecommunications; therefore, it is exposed to the technological advancements of all of those industries. In particular, recent innovation in this industry has involved embracing the idea of the cloud. The cloud refers to the virtualization of many computing resources into a single logical computing entity whose resources can then be re-virtualized into any number of logical computing entities. Advances in software rather than hardware largely drive the push toward cloud computing.

Virtualization software is a major component, but so are new file systems and database management systems designed to take advantage of this style of server architecture by distributing data and the examination of data across multiple computers. Software of this type includes Hadoop and NoSQL, as well as commercial offerings by firms like Oracle and EMC. More information on these programs can be found in the Database, Storage and Backup Software Publishing industry report (IBISWorld report 51121b).

Level The level of Technology Change is High


Volatility vs Growth

Reve

nue

vola

tility

* (%

)

1,000

100

10

1

0.1

Five year annualized revenue growth (%)–30 –10 10 30 50 70

Hazardous

Stagnant

Rollercoaster

Blue Chip

* Axis is in logarithmic scale


A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.

Level The level of Volatility is Medium


Operating Conditions

Industry Assistance The industry receives no specific assistance in the form of subsidies or government protection.

Regulation & Policy The industry is not strictly regulated. Standard intellectual property regulations exist to ensure a company’s proprietary software is not lost to competitors. There is also considerable pressure to create a legislative framework

to oversee online operations, particularly in regard to protecting intellectual property. However, the breadth of information and freedom with which the industry moves makes enforcing any legislation highly challenging.

Level & Trend The level of Regulation is Light and the trend is Steady

Level & Trend The level of Industry Assistance is Low and the trend is Steady


Key StatisticsRevenue

($m)

Industry Value Added

($m)Establish-

ments Enterprises Employment Exports ImportsWages ($m)

Domestic Demand

Corporate Profit ($b)

2004 60,111.8 32,223.7 46,987 40,804 264,980 -- -- 17,556.4 N/A 1,246.92005 62,932.7 32,542.6 48,038 41,224 265,260 -- -- 17,187.0 N/A 1,456.12006 67,036.8 33,628.3 52,000 44,149 264,320 -- -- 17,271.4 N/A 1,608.32007 73,667.3 35,879.2 57,628 49,324 266,130 -- -- 17,904.3 N/A 1,510.62008 74,520.8 36,024.1 58,190 49,800 263,140 -- -- 17,841.0 N/A 1,248.42009 76,758.4 36,102.5 58,082 49,721 254,140 -- -- 17,373.4 N/A 1,362.02010 77,062.8 35,408.6 57,829 49,522 239,850 -- -- 16,605.3 N/A 1,800.12011 78,277.3 36,362.6 55,587 47,529 245,573 -- -- 17,263.0 N/A 1,928.02012 82,638.5 35,626.1 52,746 47,239 215,797 -- -- 15,462.3 N/A 1,942.52013 83,845.5 35,871.4 50,620 47,744 214,404 -- -- 15,413.1 N/A 1,960.12014 86,312.3 36,083.2 45,747 44,789 204,318 -- -- 15,023.0 N/A 2,031.82015 89,768.3 36,984.4 43,362 42,621 199,729 -- -- 15,080.9 N/A 2,134.92016 89,930.3 37,184.2 41,463 40,916 196,393 -- -- 15,241.2 N/A 2,221.22017 94,451.2 38,479.3 40,082 39,847 192,978 -- -- 15,433.2 N/A 2,275.62018 97,336.7 39,229.7 38,750 38,514 188,712 -- -- 15,479.5 N/A 2,446.1Sector Rank 5/93 5/93 3/93 1/93 5/93 N/A N/A 4/93 N/A N/AEconomy Rank 113/1272 75/1272 140/1271 127/1271 172/1272 N/A N/A 99/1272 N/A N/A

IVA/Revenue (%)

Imports/Demand

(%)Exports/Revenue

(%)

Revenue per Employee

($’000)Wages/Revenue

(%)Employees

per Est.Average Wage

($)

Share of the Economy

(%)2004 53.61 N/A N/A 226.85 29.21 5.64 66,255.57 0.262005 51.71 N/A N/A 237.25 27.31 5.52 64,793.03 0.262006 50.16 N/A N/A 253.62 25.76 5.08 65,342.77 0.262007 48.70 N/A N/A 276.81 24.30 4.62 67,276.52 0.272008 48.34 N/A N/A 283.20 23.94 4.52 67,800.41 0.272009 47.03 N/A N/A 302.03 22.63 4.38 68,361.53 0.282010 45.95 N/A N/A 321.30 21.55 4.15 69,232.02 0.272011 46.45 N/A N/A 318.75 22.05 4.42 70,296.82 0.272012 43.11 N/A N/A 382.95 18.71 4.09 71,652.06 0.262013 42.78 N/A N/A 391.06 18.38 4.24 71,888.12 0.262014 41.81 N/A N/A 422.44 17.41 4.47 73,527.54 0.252015 41.20 N/A N/A 449.45 16.80 4.61 75,506.81 0.252016 41.35 N/A N/A 457.91 16.95 4.74 77,605.62 0.242017 40.74 N/A N/A 489.44 16.34 4.81 79,973.88 0.242018 40.30 N/A N/A 515.79 15.90 4.87 82,027.11 0.24Sector Rank 53/93 N/A N/A 37/93 58/93 80/93 48/93 5/93Economy Rank 390/1272 N/A N/A 440/1272 608/1272 1003/1271 229/1272 75/1272

Figures are inflation-adjusted 2013 dollars. Rank refers to 2013 data.

Revenue (%)

Industry Value Added

(%)

Establish-ments

(%)Enterprises

(%)Employment

(%)Exports

(%)Imports

(%)Wages

(%)

Domestic Demand

(%)

Corporate Profit (%)

2005 4.7 1.0 2.2 1.0 0.1 N/A N/A -2.1 N/A 16.82006 6.5 3.3 8.2 7.1 -0.4 N/A N/A 0.5 N/A 10.52007 9.9 6.7 10.8 11.7 0.7 N/A N/A 3.7 N/A -6.12008 1.2 0.4 1.0 1.0 -1.1 N/A N/A -0.4 N/A -17.42009 3.0 0.2 -0.2 -0.2 -3.4 N/A N/A -2.6 N/A 9.12010 0.4 -1.9 -0.4 -0.4 -5.6 N/A N/A -4.4 N/A 32.22011 1.6 2.7 -3.9 -4.0 2.4 N/A N/A 4.0 N/A 7.12012 5.6 -2.0 -5.1 -0.6 -12.1 N/A N/A -10.4 N/A 0.82013 1.5 0.7 -4.0 1.1 -0.6 N/A N/A -0.3 N/A 0.92014 2.9 0.6 -9.6 -6.2 -4.7 N/A N/A -2.5 N/A 3.72015 4.0 2.5 -5.2 -4.8 -2.2 N/A N/A 0.4 N/A 5.12016 0.2 0.5 -4.4 -4.0 -1.7 N/A N/A 1.1 N/A 4.02017 5.0 3.5 -3.3 -2.6 -1.7 N/A N/A 1.3 N/A 2.42018 3.1 2.0 -3.3 -3.3 -2.2 N/A N/A 0.3 N/A 7.5Sector Rank 67/93 66/93 87/93 38/93 69/93 N/A N/A 67/93 N/A N/AEconomy Rank 923/1272 971/1272 1239/1271 574/1271 1046/1272 N/A N/A 1021/1272 N/A N/A

Annual Change

Key Ratios

Industry Data



Jargon & Glossary

BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry.

CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor.

CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the “real” growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator.

DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports.

EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry.

ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control.

ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise.

EXPORTS Total value of industry goods and services sold by US companies to customers abroad.

IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in the United States.

INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%.

INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation.

INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%.

LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.

Industry Jargon

IBISWorld Glossary

APPLICATION SERVICE PROVIDER (ASP) A business that provides computer-based services to customers over a network.

CLOUD COMPUTING Computing model in which companies’ computer applications are hosted in outside servers accessible via the internet and managed by third-party firms.

DATA WAREHOUSING The collection of data and the establishment of a common format for different data sets to allow them to work together and be stored in one place.

INFORMATION TECHNOLOGY (IT) The acquisition, processing, storage and dissemination of vocal, pictorial, textual and numerical information by microelectronics-based computing and telecommunications.

OUTSOURCING To procure goods or services under contract with an outside supplier.

SOFTWARE AS A SERVICE (SAAS) Software that is deployed over the internet and runs behind a firewall in a person’s local area network or personal computer.


Jargon & Glossary

IBISWorld Glossarycontinued

NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals.

PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.

VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.

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