The Hindu Business Line : `Average deal size continues to shrink'

THE average size of contracts announced by IT and business process outsourcing (BPO) service vendors in the first quarter of 2005 fell 18 per cent to $68.9 millioncompared with to the year-ago period, according to market analyst Datamonitor.

"The average deal size in the $600-billion global IT and BPO services sector is shrinking. Figures from Datamonitor's `IT Services Contracts Tracker,' show that average deal size has now declined for three consecutive quarters," the report said.

A total of 456 IT service contracts were announced during the first quarter of 2005, worth a combined total of $31.4 billion, a 13.7-per cent decline from the first quarter of 2004 ($36.4 billion).

The number of contracts tracked in the first quarter was up 5 per cent on the 435 recorded in the year-ago quarter, but the fall in average deal size suggested that clients are signing smaller, more focused deals with suppliers.

Mr Nick Mayes, lead analyst for Global Computing Services at Datamonitor, said, "The decline in average deal value is partly due to the rise of multi-sourcing, where clients work with a number of best-of-breed IT services vendors, rather than a single outsourcer under a far-reaching mega-deal."

Datamonitor tracked new BPO contracts during the first quarter of 2005, worth a combined $6 billion. Some 15 of the BPO deals had a value greater than $100 million, the largest of which was Atos Origin's $1.6-billion contract with the UK Department of Health. However, half of the BPO deals tracked was valued between $10 million and $50 million, showing that most of today's BPO activity is happening around mid-size contracts, rather than mega-deals. This trend is particularly evident in the fast-growing HR outsourcing sector.

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