Bulgaria IT Services Market 2011_2015 Forecast and 2010 Vendor Shares Draft

Filing Information: December 2011, IDC #ES05T, Volume: 1

Central and Eastern European IT Services Expanded Country Set: Market Analysis

M A R K E T AN A L Y S I S

B u l g a r i a I T S e r v i c e s M a r k e t 2 0 1 1 –2 0 1 5 F o r e c a s t a n d 2 0 1 0 V e n d o r S h a r e s

Neli Vacheva

I D C O P I N I O N

The Bulgarian IT services market contracted in U.S. dollar terms in 2010 to reach a

value of $133.66 million. The decline was the result of a slow recovery from the

economic crisis, overall economic uncertainty, the debts business had, those that the

government had towards businesses, and a drop in foreign direct investments.

There was a double-digit decline in the IT services market in Bulgaria for a

second consecutive year. The share of IT services in the total IT market fell to

2007 levels. The IT services market would have seen an even more dramatic

decline if the government was not forced to spend on systems to fulfill obligations

related to its membership in the EU.

The support and installation foundation market was the largest on the Bulgarian

IT services market again, despite the need for further reduction of operational

costs in the private and public sectors directly hitting the installation and support

services market. The low number of new projects led to declines in the network

consulting and integration services and the information system consulting

services markets. Systems integration services had less of a decline due to

projects in the government segment. The slight recovery in some areas of the

Bulgarian economy in the second half of 2010, mainly driven by exports, failed to

provide a positive spark for the IT services market.

It is expected that demand for IT services will recover slowly in the second half of

2011, following the recovery of the economy and a renewal of government

spending for new IT projects. However, the deteriorating economic situation may

scupper demand from the private and public sectors, delaying the recovery in the

IT services market.

Vendors have to prepare for a period of slow demand as user priorities change.

Users will continue to be cautious about IT spending and their attention will

gradually move from cost-cutting to projects with greater business value.

Vendors should prepare to offer high levels of reliability and commitments to

user’s concerns.

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In This Study 7

Methodology ............................................................................................................................................. 7 Executive Summary .................................................................................................................................. 7

Situat ion Overview 7

Overview of the IT Services Market .......................................................................................................... 7 Continuing Economic Malaise ........................................................................................................... 8 Trends in Services Procurement ....................................................................................................... 9 Acceptance of Outsourcing/Cloud Computing ................................................................................... 9 Vertical Market Perspective ............................................................................................................... 10 Competitive Landscape ..................................................................................................................... 10 Mergers and Acquisitions .................................................................................................................. 10

Leading IT Services Vendors .................................................................................................................... 11 IT Environment ......................................................................................................................................... 13

Drivers ............................................................................................................................................... 13 Inhibitors ............................................................................................................................................ 14

Overview of the IT Services Market by Foundation Market ...................................................................... 14 Support and Training Services Macromarket..................................................................................... 16

Hardware Support and Installation Services ............................................................................... 16 Software Support and Installation Services ................................................................................ 18 IT Training and Education .......................................................................................................... 19 IDC Analysis of Support and Training Macromarket ................................................................... 20

Project Services Macromarket ........................................................................................................... 21 Network Consulting and Integration ........................................................................................... 21 Systems Integration .................................................................................................................... 23 Information System Consulting ................................................................................................... 24 Application Consulting and Customization ................................................................................. 25 Custom Application Development .............................................................................................. 27 IDC Analysis Project Services Macromarket .............................................................................. 28

Outsourcing Macromarket ................................................................................................................. 29 Application Management Outsourcing ........................................................................................ 29 Information System Outsourcing ................................................................................................ 31 Network and Desktop Outsourcing Services .............................................................................. 32 Hosted Application Management ................................................................................................ 33 Hosting Infrastructure Services .................................................................................................. 34 IDC Analysis of the Outsourcing Services Macromarket ............................................................ 36

Overview of the Information Technology Services Market by Vendor Category ....................................... 36 The Services Landscape ................................................................................................................... 36

Overview of IT Services Spending by Vertical Market .............................................................................. 37 Government sector ............................................................................................................................ 38 Financial Sector ................................................................................................................................. 39 Telecommunications .......................................................................................................................... 40 Combined Manufacturing .................................................................................................................. 40

Future Outlook 42

Forecast and Assumptions ....................................................................................................................... 42 Forecast by IDC Engagement Type.......................................................................................................... 48

Hardware Support and Installation Services ...................................................................................... 48 Software Support and Installation Services ....................................................................................... 48 IT Training and Education ................................................................................................................. 48

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Network Consulting and Integration ................................................................................................... 49 Systems Integration ........................................................................................................................... 49 Information System Consulting .......................................................................................................... 50 Application Consulting and Customization ........................................................................................ 50 Custom Application Development ...................................................................................................... 50 Information Systems Outsourcing ...................................................................................................... 51 Network and Desktop Outsourcing Services ..................................................................................... 51 Application Management ................................................................................................................... 52 Hosted Application Management ....................................................................................................... 52 Hosting Infrastructure Service Providors ........................................................................................... 52

Market Context ......................................................................................................................................... 53 Alternative Scenario .................................................................................................................................. 54

Main Assumptions ............................................................................................................................. 54 Future Outlook by Vertical Market ............................................................................................................ 55

Government ....................................................................................................................................... 56 Telecom ............................................................................................................................................. 57 Finance .............................................................................................................................................. 57

Vendor Profiles ......................................................................................................................................... 57 Siemens IT Solutions and Services ................................................................................................... 58

Services Overview ...................................................................................................................... 58 Clients and Contracts ................................................................................................................. 60 SWOT Analysis .......................................................................................................................... 61

Information Services .......................................................................................................................... 61 Services Overview ...................................................................................................................... 61 Clients and Contracts ................................................................................................................. 63 SWOT Analysis .......................................................................................................................... 64

HP ..................................................................................................................................................... 64 Services Overview ...................................................................................................................... 64 Clients and Contracts ................................................................................................................. 66 SWOT Analysis .......................................................................................................................... 67

Kontrax .............................................................................................................................................. 67 Services Overview ...................................................................................................................... 67 Clients and Contracts ................................................................................................................. 69 SWOT Analysis .......................................................................................................................... 70

Printec ............................................................................................................................................... 70 Services Overview ...................................................................................................................... 70 Clients and Contracts ................................................................................................................. 72 SWOT Analysis .......................................................................................................................... 1

Essential Guidance 1

Learn More 2

Related Research ..................................................................................................................................... 2 Definitions ................................................................................................................................................. 3

Foundation Markets ........................................................................................................................... 3 Hardware Support and Installation ............................................................................................. 3 Managed Support Services ........................................................................................................ 4 Software Support and Installation ............................................................................................... 4 IT Education and Training .......................................................................................................... 4 IT Consulting .............................................................................................................................. 4 Systems Integration .................................................................................................................... 5 Network Consulting and Integration ........................................................................................... 5

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Application Consulting and Customization ................................................................................. 6 Custom Application Development .............................................................................................. 6 Exceptions and Exclusions ......................................................................................................... 7 Outsourcing (as an Engagement Type) ...................................................................................... 7

IS Outsourcing ................................................................................................................................... 7 Exceptions and Exclusions ......................................................................................................... 8

Network and Desktop Outsourcing Services ..................................................................................... 8 Exceptions and Exclusions ......................................................................................................... 9 Application Management ............................................................................................................ 9

Hosted Application Management ....................................................................................................... 9 Exceptions and Exclusions ......................................................................................................... 11

Hosting Infrastructure Services.......................................................................................................... 11 Exceptions and Exclusions ......................................................................................................... 12

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1 Overview of the Leading IT Services Companies in Bulgaria by IT Services Revenue, 2010 ..... 12

2 Overview of the Top 10 IT Services Companies by IT Services Revenue Provisioned in Bulgaria, 2010 ............................................................................................................................. 13

3 Overview of IT Services Spending by IDC Foundation Market in Bulgaria, 2010 ......................... 15

4 Total Supply-Side Revenue on the Hardware Support and Installation Foundation Market in Bulgaria, 2010 ............................................................................................................................. 17

5 Total Supply-Side Revenue on the Software Support and Installation Foundation Market in Bulgaria, 2010 .............................................................................................................................. 19

6 Total Supply-Side Revenue on the IT Training and Education Foundation Market in Bulgaria, 2010 ............................................................................................................................. 20

7 Total Supply-Side Revenue on the Network Consulting and Integration Foundation Market in Bulgaria, 2010 .......................................................................................................................... 22

8 Total Supply-Side Revenue on the Systems Integration Market in Bulgaria, 2010 ..................... 24

9 Total Supply-Side Revenue on the Information System Consulting Market in Bulgaria, 2010 ..................................................................................................................................................... 25

10 Total Supply-Side Revenue on the Application Consulting and Customization Foundation Market in Bulgaria, 2010 ............................................................................................................. 26

11 Total Supply-Side Revenue on the Custom Application Development Foundation Market in Bulgaria, 2010 ............................................................................................................................. 28

12 Total Supply-Side Revenue on the Application Management Outsourcing Foundation Market in Bulgaria, 2010 ............................................................................................................. 30

13 Total Supply-Side Revenue on the Information System Outsourcing Foundation Market in Bulgaria, 2010 ............................................................................................................................. 31

14 Total Supply-Side Revenue on the Network and Desktop Outsourcing Foundation Market in Bulgaria, 2010 ............................................................................................................................. 33

15 Total Supply-Side Revenue on the Hosted Application Management Foundation Market in Bulgaria, 2010 ............................................................................................................................. 34

16 Total Supply-Side Revenue on the Hosting Infrastructure Services Foundation Market in Bulgaria, 2010 ............................................................................................................................. 35

17 Overview of IT Services Spending by Vertical Market in Bulgaria, 2010 ..................................... 41

18 Top 3 Assumptions for the IT Services Market, 2011–2015 ......................................................... 42

19 Key Forecast Assumptions for the IT Services Market, in 2010, 2011–2015 ............................... 43

20 Forecast and Analysis of IT Services Spending (US$M) by IDC Foundation Market in Bulgaria, 2010–2015 ................................................................................................................... 46

21 Comparison of Forecast for IT Services Spending (US$M) in Bulgaria, 2010–2014 versus 2011–2015 ................................................................................................................................... 54

22 Overview of Siemens IT Solutions and Services' Contracts, 2010 ............................................... 60

23 SWOT Analysis of Siemens IT Services and Solutions, 2010–2015 ............................................ 61

24 Overview of Information Services' Contracts, 2010 ...................................................................... 63

25 SWOT Analysis of Information Services, 2010–2015 ................................................................... 64

26 Overview of HP's Contracts, 2010................................................................................................ 66

27 SWOT Analysis of HP, 2010–2015 .............................................................................................. 67

28 Overview of Kontrax's Contracts, 2010 ........................................................................................ 69

29 SWOT Analysis of Kontrax, 2010–2015 ....................................................................................... 70

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30 Overview of Printec's Contracts, 2010 ......................................................................................... 73

31 SWOT Analysis of Printec, 2010–2015 ........................................................................................ 1

32 Distinctions Between Systems Integration, Custom Application Development, and Software Deploy .......................................................................................................................................... 6

33 Distinctions Between Hosted Application Management and Traditional Application Management ................................................................................................................................ 10

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1 Spending (US$M) on IT Services by IT Services Engagement Type in Bulgaria, 2009 and 2010 ............................................................................................................................................. 9

2 Spending (US$M) on IT Services by IT Services Engagement Type in Bulgaria, 2010 and 2011 ............................................................................................................................................. 9

3 Spending (US$M) on IT Services by IT Services Engagement Type in Bulgaria, 2010 ............... 16

4 Overview of the Leading Providers of the Support and Training Services Macromarket in Bulgaria by IT Services Revenue (US$M), 2010 .......................................................................... 17

5 Hardware Support and Installation Foundation Market Vendor Shares in Bulgaria by IT Services Revenue (US$M), 2010 ................................................................................................. 18

6 Software Support and Installation Foundation Market Vendor Shares in Bulgaria by IT Services Revenue (US$M), 2010 ................................................................................................. 19

7 IT Training and Education Foundation Market Vendor Shares in Bulgaria by IT Services Revenue (US$M), 2010 ............................................................................................................... 20

8 Overview of the Leading Providers of the Project Services Macromarket in Bulgaria by IT Services Revenue (US$M), 2010 ................................................................................................. 22

9 Network Consulting and Integration Foundation Market Vendor Shares in Bulgaria by IT Services Revenue (US$M), 2010 ................................................................................................. 23

10 Systems Integration Foundation Market Vendor Shares in Bulgaria by IT Services Revenue (US$M), 2010 ............................................................................................................................... 24

11 Information System Consulting Foundation Market Vendor Shares in Bulgaria by IT Services Revenue (US$M), 2010 ................................................................................................. 25

12 Application Consulting and Customization Foundation Market Vendor Shares in Bulgaria by IT Services Revenue (US$M), 2010 ............................................................................................. 27

13 Custom Application Development Foundation Market Vendor Shares in Bulgaria by IT Services Revenue (US$M), 2010 ................................................................................................. 28

14 Overview of the Leading Providers of the Outsourcing Services Macromarket in Bulgaria by IT Services Revenue (US$M), 2010 ............................................................................................. 30

15 Application Management Outsourcing Foundation Market Vendor Shares in Bulgaria by IT Services Revenue (US$M), 2010 ................................................................................................. 31

16 Information System Outsourcing Foundation Market Vendor Shares in Bulgaria by IT Services Revenue (US$M), 2010 ................................................................................................. 32

17 Network and Desktop Outsourcing Foundation Market Vendor Shares in Bulgaria by IT Services Revenue (US$M), 2010 ................................................................................................. 33

18 Hosted Application Management Foundation Market Vendor Shares in Bulgaria by IT Services Revenue (US$M), 2010 ................................................................................................. 34

19 Hosting Infrastructure Services Foundation Market Vendor Shares in Bulgaria by IT Services Revenue (US$M), 2010 ................................................................................................. 36

20 IT Services Revenue Share by Vendor Category in Bulgaria, 2010 ............................................. 38

21 Overview of IT Services Spending by Vertical Market in Bulgaria, 2010 ...................................... 39

22 Forecast of IT Services Spending (US$M) by IDC Engagement Type in Bulgaria, 2010–2015 ............................................................................................................................................. 48

23 Forecast of IT Services Spending (US$M) by IDC Engagement Type in Bulgaria, 2010–2015 ............................................................................................................................................. 50

24 Forecast of Relative Shares by IDC Engagement Type in Bulgaria, 2010–2015 ......................... 53

25 Forecast of Relative Shares by IDC Engagement Type in Bulgaria, 2010–2015 ......................... 55

26 Comparison of Forecast for IT Services Spending (US$M) in Bulgaria, 2009–2014 versus 2010–2015 ................................................................................................................................... 56

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27 Forecast of IT Services Spending (US$M) by IDC Engagement Type in Bulgaria, 2010–2015 - Alternative Scenario .......................................................................................................... 57

28 Spending (US$M) on IT Services by Vertical Market in Bulgaria, 2010 ....................................... 58

29 Siemens IT Solutions and Services: Overview of IT Services Revenue by IDC Engagement Type in Bulgaria,, 2010 ................................................................................................................ 60

30 Siemens IT Solutions and Services: Overview of IT Services Revenue by Vertical Market in Bulgaria, 2010 .............................................................................................................................. 61

31 Information services: Overview of IT Services Revenue by IDC Engagement Type in Bulgaria,, 2010 ............................................................................................................................. 64

32 Information services: Overview of IT Services Revenue by Vertical Market in Bulgaria, 2010 ..... 64

33 HP: Overview of IT Services Revenue by IDC Engagement Type in Bulgaria, 2010 ................... 67

34 HP: Overview of IT Services Revenue by Vertical Market in Bulgaria2010 .................................. 67

35 Kontrax: Overview of IT Services Revenue by IDC Engagement Type in Bulgaria, 2010 ............ 70

36 Kontrax: Overview of IT Services Revenue by Vertical Market in Bulgaria, 2010 ........................ 70

37 Printec Bulgaria: Overview of IT Services Revenue by IDC Engagement Type in Bulgaria, 2010 ............................................................................................................................................. 73

38 Printec Bulgaria: Overview of IT Services Revenue by Vertical Market in Bulgaria, 2010 ........... 73

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I N T H I S S T U D Y

M e t h o d o l o g y

See the Learn More section at the end of this study for information on the

methodology.

E x e c u t i v e S u m m a r y

In 2010, the IT services market in Bulgaria totaled $133.66 million, representing a

year-on-year decline of 15.5% in U.S. dollar terms. The hardware support and

installation category accounted for the largest share of IT services revenue at 27.6%,

followed by systems integration with 26.3% and combined outsourcing with 11.2% of

the IT services market in the county in 2010.

Siemens IT Solutions and Services was the leading IT services provider in Bulgaria in

2010 with IT services revenue of $12.30 million and 8.9% market share. Information

Services placed second with $12.08 million and 8.7% market share. HP ranked third

with $9.19 million and 6.6% share. Kontrax and Printec Bulgaria rounded out the top

five IT services providers in the country in 2010 with 6.6% and 6.4% of the market,

respectively.

Combined government was the largest vertical market in Bulgaria in 2010 with $41.33

million in services-related spending and 30.9% market share. It should be noted

immediately that this result is due to spending on three huge projects launched in pre-

crisis years. The combined finance vertical placed second with 22.2% share from IT

services investment of $29.63 million. Telecommunications ranked as the third-largest

vertical market in 2010 with IT services investment of $21.23 million and 15.9%

market share. Combined manufacturing was the fourth-largest market in the country,

accounting for $10.15 million in IT services revenue and 7.6% market share.

IDC expects spending on IT services in Bulgaria to increase 0.6% year on year in

2011 and to expand at a CAGR of 38.8% across the five-year forecast period to total

$688.54 million in 2015.

S I T U AT I O N O V E R V I E W

O v e r v i e w o f t h e I T S e r v i c e s M a r k e t

In 2010, the IT services market in Bulgaria totaled $133.66 million, representing a

year-on-year decline of 15.5% in U.S. dollar terms. Measured in local currency, the

domestic IT services market was down 11.9% in 2009.

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F I G U R E 1

S p e n d i n g ( U S $ M ) o n I T S e r v i c e s b y I T S e r v i c e s E n g a g em en t

T y p e i n B u l g a r i a , 2 0 0 9 a n d 2 0 1 0

Source: IDC, 2011

F I G U R E 2


T y p e i n B u l g a r i a , 2 0 1 0 a n d 2 0 1 1

Source: IDC, 2011

Key trends in the 2010 IT services market in Bulgaria include the following:

Continuing Economic Malaise

In 2010, internal demand in Bulgaria remained low and is forecast to stay low in 2011.

The slight restoration of economy growth in 2010 was mainly due to an increase in

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demand for Bulgarian exports in Europe. The inflow of foreign direct investment (FDI),

which was critical for the growth of the Bulgarian economy in the pre-crisis years, was

59% lower in comparison with 2009, reflecting a tough recovery in verticals like

finance (mainly in insurance and leasing services) and real estate, construction, and

trade. If the European economy recovers well, is can be expected that FDI will grow

thanks to favorable tax conditions (a 10% corporate tax) and a stable banking sector.

The uncertain economic situation in 2010 made organizations cautious and even

more cost cuts were implemented. Many reduced their IT budgets, which seriously

hurt demand for IT services, as IT support and maintenance services were usually the

first to be cut. Projects were limited in scope and were aimed at immediate return on

investment (ROI). Service providers significantly lowered their margins and it is not

likely that they will be able to return to the pre-crisis levels in the near future.

With the decline in the domestic market, Bulgarian IT service providers looked for

opportunities abroad. This helped Bulgarian IT companies weather the crisis and

avoid layoffs. Many IT service providers became certified in ISO 27000, ITIL, and

other benchmarks, which became critical for compliance with requirements imposed

in many public tender procedures.

Trends in Services Procurement

In an attempt to compensate for the decline in revenues from hardware, software, and

traditional services, systems integrators expanded their portfolios and repositioned

themselves through specialization in key areas. Some integrators turned toward

software consulting and implementation, while others specialized in IT security, or

developed managed, hosted, and cloud services. With greater pressure from global

technology and software vendors exploring direct sales models, we may expect to

see more changes in integrators' strategies, further repositioning, and collaborations.

Models for provisioning of services on demand matured. A number of hosting and

independent datacenter providers introduced virtual servers, virtual storage, and other

infrastructure as services. Some systems integrators successfully launched hosted

application services, infrastructure as a service (IaaS), and managed services.

Microsoft and its partners were very active in introducing software as a service

(SaaS) options. SAP took some steps in that direction as well. It should be noted that

despite the market being currently driven by the large enterprise segment, small and

medium-sized businesses (SMBs) present significant growth potential, as they do not

have the financial power to build and support their own IT infrastructure.

Acceptance of Outsourcing/Cloud Computing

Outsourcing and the cloud expanded slightly in terms of share, driven by the need for

flexible scaling and timely provisioning of services. The bulk of businesses ran their

core systems internally and turned to external suppliers to secure disaster recovery or

resources for peak workloads. This outsourcing is motivated by the very low ROI of

investments into system redundancy. On rare occasions, some large international

companies outsourced their IT functions in order to improve the quality of service.

The growing maturity of the market will further change users' perception. Fear of

breaches in security continues to be the main concern among CIOs and an inhibitor

to outsourcing. The cloud business model is still questioned in many respects, but the

number of the CIOs that are willing to consider mixed in-house and outsourced IT

service delivery models is growing.

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Sticking to the definition of the cloud services market as defined by IDC, it is not likely

that many local service suppliers will introduce a pure public cloud model that

features self-servicing. However, new hosting and managed services marketed as

cloud services are likely to appear, which will continue to create confusion among IT

users about what should be classified as cloud services.

Vertical Market Perspective

All vertical markets in Bulgaria recorded a decline of IT services spending in 2010.

The government sector, traditionally significant for IT services, launched only a few

large-scale projects. Moreover, about one-fourth of the spending in the central

government vertical was due to one project that started in 2009. A very limited

number of IT services providers benefited from the government sector, while the

majority suffered from budget restrictions on the part of the government. In 2010, the

telecom sector continued to look for a reduction to its operational costs by

outsourcing IT operations and reducing IT staff. In the financial vertical, the extensive

cost-saving measures imposed in 2009 were undone in 2010, but projects seem to be

smaller in scope and are mostly implemented by internal IT staff. Deposits attracted

by high interest rates make the Bulgarian banking sector stable, but the restrictions

on the IT spending came from the central headquarters abroad. The overall

performance of the manufacturing sector started to recover in the second half of

2010, but IT budgets were not influenced.

Competitive Landscape

In 2010, businesses did not see significant changes to the competitive landscape.

The crisis froze the beginnings of consolidation in the Bulgarian IT business. Instead

of expanding by acquisitions and mergers, service providers formed consortiums on a

project-by-project basis.

In an attempt to boost sales, major technology vendors tried to strength their partner

networks by acquiring new partners. This approach had a positive effect, though not a

very healthy one over the longer term, as the proliferation of the partners harmed the

loyalty of traditional partners that looked for contracts with new vendors. The local

offices of global technology vendors like SAP, Oracle, and Microsoft implemented

global partner programs. While in general these programs were aimed at increasing

the skills of partners and the quality of service, they also imposed tougher

requirements on the local service providers and some refrained from investing in

certificate renewal. The crisis hindered the activities of regional IT service providers,

mainly Greek IT integrators, on the Bulgarian market.

Mergers and Acquisitions

The government did not privatize state-owned systems integrator Information

Serivces as it previously intended. The vendor won only one of four calls for tenders

for IT services that it had previously provided. However, in 2011 the Ministry of

Finance abrogated the tenders and invited Information Services to resume its

previous activities. It appears likely that Information Services will hold on to its

position as the major supplier of IT services to the government.

A group of Bulgarian banks that owned Borica and Bankservise, companies that

provide electronic payment infrastructure and other banking systems, merged the two

companies into a single entity. The merger will not substantially change the

competitive landscape as the newly established Borica-Bankservice JSC will take

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over the functions of its predecessor and aims to provide increased efficiency and

competitiveness.

L e a d i n g I T S e r v i c e s V e n d o r s

In Table 1 below ranks the top IT services providers on the Bulgarian market by 2010

services revenue. IDC provides total IT services-related revenue when reporting

figures for individual vendors. In other words, IDC does not subtract revenue

delivered via third-party channels or through subsidiaries when reporting an individual

vendor's revenue. This creates a discrepancy between the sum of revenue arrived at

by adding an individual vendor's total IT services revenue (supply side) and the actual

spending by end users (demand side). See the Revenue Recognition section for

further details.

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T A B L E 1

O v e r v i e w o f t h e L e a d i n g I T S e r v i c e s C o m p an i e s i n B u l g a r i a b y I T S e r v i c e s

R e v en u e , 2 0 1 0

2010 Ranking Vendor Value (US$M) Share (%) 2009 Ranking

1 Siemens IT Solutions and Services 12.30 8.9 10

2 Information services 12.08 8.7 4

3 HP 9.19 6.6 5

4 Kontrax 9.19 6.6 2

5 Printec Bulgaria 8.81 6.4 n/a

6 IBM 7.10 5.1 3

7 CNSys 6.72 4.9 6

8 Bankservice 5.91 4.3 14

9 Stemo 5.72 4.1 8

10 Lirex 5.20 3.8 7

11 Stone Computers 4.86 3.5 16

12 Paraflow 4.14 3.0 9

13 Musala Soft 2.46 1.8 11

14 S&T 2.37 1.7 15

15 Cisco 2.32 1.7 n/a

16 Microsoft 2.02 1.5 17

17 CAD Progress 1.94 1.4 12

18 Bulmag 1.44 1.0 18

19 Global Consulting 1.39 1.0 19

20 Intracom Bulgaria 1.19 0.9 13

21 Telelink 1.16 0.8 1

22 ITCE 0.89 0.6 20

23 KPMG 0.88 0.6 n/a

24 Oracle 0.74 0.5 21

25 Bull 0.74 0.5 n/a

26 VBS 0.74 0.5 n/a

27 EMC 0.70 0.5 n/a

28 PWC 0.68 0.5 n/a

29 New Horizons 0.66 0.5 n/a

30 IBS Bulgaria 0.59 0.2 n/a

Others 24.34 17.8

Total 138.48 100.0

Notes:

The total reflects total IT services revenue from the supply side, including offshore revenue and subcontracted revenue.

Actual spending by end users from the demand side was $133.66 million.

* Revenue estimated by IDC CEMA.

Source: IDC, 2011

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T A B L E 2

O v e r v i e w o f t h e T o p 1 0 I T S e r v i c e s C o m p an i e s b y I T S e r v i c e s R e ve n u e

P r o v i s i o n e d i n B u l g a r i a , 2 0 1 0

2010 Ranking Vendor (US$M) Value (US$M) Share (%)

1 Siemens IT Solutions and Services 12.30 8.9

2 Information services 12.08 8.7

3 HP 9.19 6.6

4 Kontrax 9.19 6.6

5 Printec Bulgaria 8.81 6.4

6 IBM 7.10 5.1

7 CNSys 6.72 4.9

8 Bankservice 5.91 4.3

9 Stemo 5.72 4.1

10 Lirex 5.20 3.8

Others 56.26 40.6

Total 138.48 100.0

Notes:

The total reflects total IT services revenue from the supply side, excluding offshore revenue.

* Revenue estimated by IDC CEMA.

Source: IDC, 2011

I T E n v i r o n m e n t

The IT market in Bulgaria contracted 1.7% year on year in 2010 to stand at $981.47

million. The hardware segment expanded 1.3%, while IT services and packaged

software declined 15.5% and 1.1%, respectively, year on year. Hardware accounted

for 70.6% of IT spending in the country, IT services for 13.6%, and software for the

remaining 15.8%.

The latest IDC data indicates the Bulgarian IT market will decline 4.6% year on year

in 2011 to a value of $935.97 million. The Bulgarian market is forecast to expand at a

compound annual growth rate (CAGR) of 6.6% over the five-year forecast period to

reach $1.35 billion in 2015, with the strongest growth in the IT services segment.

Drivers

Economy Revival: The Bulgarian economy rebounded moderately in the second

half of 2010, supported by a rise in demand in the eurozone and a slight recovery

in domestic demand following the declines in 2009 and H1 2010. Business

confidence remained low, influenced by factors like high fuel prices, the crisis in

Greece, and inconsistent government policies.

Government IT Spending: Government ICT policies in critical areas such as

egovernment, ehealth, and ejustice have been severely underfinanced in the last

two years. The priorities in the area of egovernance have been put in place and it

is expected that government spending will resume at high rates in the second

half of 2011.

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Progress in EU Funds Absorption: Accelerating the absorption of EU funds

and preventing fraud is a priority for the government. This drives ICT spending

for the development of systems for monitoring EU finances.

FDI Inflow: With the global economic recession over, several foreign companies

announced plans to make new investments or expand existing investments in

Bulgaria. The government is trying to attract FDI with low taxes, low production

costs, and a relatively cheap workforce.

Bulgaria as an Outsourcing Destination. The growing importance of Bulgaria

as business process outsourcing destination for global technology vendors like

AVG, HP, IBM, SAP, Johnson Controls, as well as for service vendors, boosts

the construction of new ICT infrastructure, call centers, helpdesk installations,

and datacenters. The jobs created help lessen the impact of the country's brain

drain.

Inhibitors

Economic Uncertainty: The Bulgarian economy was badly affected by the crisis

in 2010 compared with other CEE countries, which either posted growth or saw

only insignificant declines in GDP in 2010. Although the Bulgarian economy

seems to have emerged from decline, the recovery is still slow and not robust

throughout the economy.

Public Procurement Still not Effective: Except for EU-funded tenders, the

government canceled most of its IT projects. Besides the limited number of new

tender announcements in 2010, the continuous changes in procurement

legislation also had a negative effect on government IT spending. While intended

to ensure a competitive environment in the procurement process, these changes

still create room for abuse and corruption. For this reason, some high-quality

suppliers and service providers do not submit tenders for government business

because they see it as a waste of time.

Inter-Company Liabilities: The tough economic climate caused solvency

problems for many organizations. In addition, the government delayed many of

its liabilities to companies in the private sector, which led to a contraction of

financial resources in many organizations and delays in IT investments.

Lack of Vertical Spending Diversity: The government, telecom, and finance

industries are the leading IT spenders in Bulgaria, while other vertical markets

lag far behind in terms of IT spending. The retail and utility sectors are also

underpenetrated, but have limited potential compared with the government

sector.

O v e r v i e w o f t h e I T S e r v i c e s M a r k e t b y

F o u n d a t i o n M a r k e t

This section of the study examines the IT services industry by IDC's 13 core

segments, called foundation markets. These are mutually exclusive and all inclusive.

Although the activities in these categories can potentially overlap, such as systems

integration taking place as part of an IS outsourcing contract or software support

bundled into a network and desktop management contract, IDC has reconciled

overlaps by sizing each category by the primary way in which the service is procured.

This technique ensures that the categories are mutually exclusive.

©2011 IDC #ES05T 17

F I G U R E 3


T y p e i n B u l g a r i a , 2 0 1 0

Source: IDC, 2011

T A B L E 3

O v e r v i e w o f I T S e r v i c e s S p en d i n g b y I D C F o u n da t i o n M a r k e t i n B u l g a r i a , 2 0 1 0

Value (US$M) Share (%) Year-on-Year

Growth (Value)

Hardware Support and Installation 36.87 27.6 -21.6%

Software Support and Installation 11.26 8.4 -37.6%

Support and Installation Total 48.13 36.0 -26.0%

IT Training and Education Total 5.44 4.1 -2.6%

Network Consulting and Integration 7.50 5.6 -40.1%

Systems Integration 35.13 26.3 1.8%

Systems Integration Total 42.63 31.9 -9.4%

Information System Consulting Total 4.81 3.6 -35.6%

Application Consulting and Customization 9.99 7.5 -7.6%

Custom Application Development 7.63 5.7 -12.7%

Custom Application Development Total 17.62 13.2 -9.9%

Application Management Outsourcing 2.31 1.7 1.8%

Information System Outsourcing 3.31 2.5 -5.6%

Network and Desktop Outsourcing Services 3.13 2.3 45.3%

Hosted Application Management 3.95 3.0 3.2%

Hosting Infrastructure Services 2.34 1.7 45.4%

Outsourcing Total 15.03 11.2 12.5%

Total 133.66 100.0 -15.5%

Source: IDC, 2011

18 #ES05T ©2011 IDC

Support and Training Services Macromarket

In 2010, spending in the support and training services macromarket in Bulgaria

totaled $53.56 million, making it the second-largest macromarket in the country with

40.1% share.

F I G U R E 4

O v e r v i e w o f t h e L e a d i n g P r o v i d e r s o f t h e S u p p o r t a n d T r a i n i n g

S e r v i c e s M a c r o m a r k e t i n B u l g a r i a b y I T S e r v i c e s R e v en u e

( US $ M ) , 2 0 1 0

Source: IDC, 2011

Hardware Support and Instal lat ion Services

Spending on the hardware support and installation services market in Bulgaria stood

at $36.87 million in 2010, representing a year-on-year decrease of 21.6% and 27.6%

share of the total IT services market.

©2011 IDC #ES05T 19

F I G U R E 5

H a r dw a r e S u p po r t a n d I n s t a l l a t i o n F o u n da t i o n M a r k e t V en do r

S h a r e s i n B u l g a r i a b y I T S e r v i c e s R e v en u e ( U S $ M ) , 2 0 1 0

Source: IDC, 2011

Key vendor developments in this category include the following:

Printec Bulgaria placed first in the hardware support and installation services

market in Bulgaria in 2010 with revenue of $8.01 million and 20.7% share. The

service revenue of Printec includes support services for ATM networks.

HP ranked second in the hardware support and installation services market in

Bulgaria in 2010 with revenue of $5.05 million and 13.1% share.

Siemens IT Solutions and Services came third in the hardware support and

installation services market in Bulgaria in 2010 with revenue of $2.89 million and

7.5% share.

T A B L E 4

T o t a l S u p p l y - S i d e R e ve n u e o n t h e H a r d w a r e S u pp o r t a n d I n s t a l l a t i o n

F o u n d a t i o n M a r k e t i n B u l g a r i a , 2 0 1 0

Value (US$M) Share (%)

Printec Bulgaria 8.01 20.7

HP 5.05 13.1

Siemens IT Solutions and Services 2.89 7.5

Information services 2.51 6.5

Stemo 2.40 6.2

IBM 2.13 5.5

CNSys 2.08 5.4

Lirex 1.33 3.4

Kontrax 1.17 3.0

Bankservice 0.94 2.4

Others 10.18 26.3

Total 38.70 100.0

20 #ES05T ©2011 IDC

T A B L E 4

T o t a l S u p p l y - S i d e R e ve n u e o n t h e H a r d w a r e S u pp o r t a n d I n s t a l l a t i o n



Notes:

The table reflects IT services revenue from the supply side minus offshore revenue.


Source: IDC, 2011

Software Support and Instal lat ion Services

In 2010, expenditures on software support and installation services in Bulgaria

decreased 37.6% year on year to $11.26 million, representing 8.4% of the IT services

market in the country.

F I G U R E 6

S o f t w a r e S u p po r t a n d I n s t a l l a t i o n F o u n da t i o n M a r k e t V en do r


Source: IDC, 2011


CAD Progress placed first in the software support and installation services

market in Bulgaria in 2010 with revenue of $1.46 million and 12.6% share.

Bankservice ranked second in the software support and installation services

market in Bulgaria in 2010 with revenue of $0.71 million and 6.2% share.

Kontrax came third in the software support and installation services market in

Bulgaria in 2010 with revenue of $0.67 million and 5.8% share.

©2011 IDC #ES05T 21

T A B L E 5

T o t a l S u p p l y - S i d e R e ve n u e o n t h e S o f t w a r e S u p po r t a n d I n s t a l l a t i o n F o u n d a t i o n

M a r k e t i n B u l g a r i a , 2 0 1 0


CAD Progress 1.46 12.6


Kontrax 0.67 5.8

Microsoft 0.61 5.3

IBM 0.53 4.6

Stemo 0.51 4.5


VBS 0.47 4.1

HP 0.46 4.0

Global Consulting 0.44 3.9

Others 5.15 44.7

Total 11.53 100.0

Notes:



Source: IDC, 2011

IT Tra ining and Educat ion

Organizations in Bulgaria spent $5.44 million on IT training and education services in

2010, reflecting a year-on-year decrease of 2.6% and representing 4.1% of the IT

services market.

F I G U R E 7

I T T r a i n i n g a n d E du c a t i o n F o u n d a t i o n M a r k e t V en do r S h a r e s i n

B u l g a r i a b y I T S e r v i c e s R e v en u e ( U S $ M ) , 2 0 1 0

Source: IDC, 2011

22 #ES05T ©2011 IDC


New Horizons placed top in the IT training and education services market in

Bulgaria in 2010, with revenue of $0.66 million and 11.7% share.

HP ranked second in the IT training and education services market in Bulgaria in

2010, with revenue of $0.55 million and 9.8% share.

ITCE came third in the IT training and education services market in Bulgaria in


T A B L E 6

T o t a l S u p p l y - S i d e R e ve n u e o n t h e I T T r a i n i n g a n d E du c a t i o n F o u n d a t i o n M a r k e t

i n B u l g a r i a , 2 0 1 0


New Horizons 0.66 11.7

HP 0.55 9.8

ITCE 0.46 8.1


Information services 0.40 7.1

Bulmag 0.26 4.6

Microsoft 0.24 4.3

Lirex 0.23 4.1

Oracle 0.22 4.0

IBM 0.18 3.1

Others 1.98 35.1

Total 5.64 100.0

Notes:



Source: IDC, 2011

IDC Analys is of Support and Tra ining Macromarket

In 2010, customers postponed hardware replacements and software upgrades, which

seriously affected the support and training macro market and IT budget cuts imposed

severe pressure on support and maintenance contracts. Many large customers either

delayed contract renewals or reduced volumes by 20–30% while keeping the same

scope of services. Vendors and service providers saw a serious decline in revenues

and tried to compensate by adding new services and repositioning themselves.

Software support and installation services were affected by the limited number of new

projects, cancelation of upgrades, and a lack of expired license renewals. Corporate

IT departments were pressed to provide installation and support services internally.

Implementations of IT asset management and license management software

solutions increased as IT departments were forced to keep track of IT assets in order

to increase the transparency of spending while reducing expenditures.

IT training and education services declined at low rate, boosted by several EU-funded

programs for development of human resources. End user organizations, as well as IT

companies, benefited from the programs and invested in the qualification of their staff

©2011 IDC #ES05T 23

and professional certificates. The decline in demand for basic end-user trainings was

partly compensated by the increased demand for specialized professional trainings.

Demand for these services will increase in the next phase of EU funding as

compliance requirements increase as well.

The support and training macro market, together with integration services, were

influenced most by the large project for the implementation of the biometric passport

system. A contract for the installation and support of Microsoft OS and Office

products in the state administration launched in 2007 prevented this macro market

from declining even further.

Project Services Macromarket

The project services macromarket amounted to $65.06 million in Bulgaria, making it

the largest macromarket in the country, with 48.7% share.

F I G U R E 8

O v e r v i e w o f t h e L e a d i n g P r o v i d e r s o f t h e P r o j e c t S e r v i c e s

M a c r o m a r k e t i n B u l g a r i a b y I T S e r v i c e s R e v en u e ( U S $ M ) , 2 0 1 0

Source: IDC, 2011

Network Consult ing and Integrat ion

The market for network consulting and integration services in Bulgaria totaled $7.50

million in 2010, reflecting a year-on-year decrease of 40.1% and accounting for 5.6%

of the IT services market.

24 #ES05T ©2011 IDC

F I G U R E 9

N e t w o r k C o n su l t i n g a n d I n t e g r a t i o n F o u n d a t i o n M a r k e t V en do r


Source: IDC, 2011


CNSys placed first in the network consulting and integration services market in


Paraflow ranked second in the network consulting and integration services

market in Bulgaria in 2010, with revenue of $1.33 million and 15.8% share.

Cisco came third in the network consulting and integration services market in


T A B L E 7

T o t a l S u p p l y - S i d e R e ve n u e o n t h e N e t w o r k C o n su l t i n g a n d I n t e g r a t i o n



CNSys 1.54 18.4

Paraflow 1.33 15.8

Cisco 1.28 15.2

Lirex 0.73 8.7

Stemo 0.53 6.3

IBM 0.50 5.9

Information Services 0.24 2.9

Intracom Bulgaria 0.24 2.8

Microsoft 0.16 1.9

GMN 0.15 1.8

Others 1.72 20.4

Total 8.42 100.0

Notes:



©2011 IDC #ES05T 25

T A B L E 7

T o t a l S u p p l y - S i d e R e ve n u e o n t h e N e t w o r k C o n su l t i n g a n d I n t e g r a t i o n



Source: IDC, 2011

Systems Integrat ion

In 2010, the market for systems integration in Bulgaria increased 1.8% from 2009 to

$35.13 million, representing 26.3% of the total IT services market in the country.

F I G U R E 1 0

S y s t em s I n t e g r a t i o n F o u n d a t i o n M a r k e t V en d o r S h a r e s i n

B u l g a r i a b y I T S e r v i c e s R e v en u e ( U S $ M ) , 2 0 1 0

Source: IDC, 2011


Siemens IT Solutions and Services placed first in the systems integration

services market in Bulgaria in 2010, with revenue of $7.16 million and 19.9%

share.

Kontrax ranked second in the systems integration services market in Bulgaria in


Stone Computers came third in the systems integration services market in


26 #ES05T ©2011 IDC

T A B L E 8

T o t a l S u p p l y - S i d e R e ve n u e o n t h e S y s t em s I n t e g r a t i o n M a r k e t i n B u l g a r i a , 2 0 1 0



Kontrax 7.12 19.8

Stone Computers 4.71 13.1

CNSys 2.03 5.6

HP 2.02 5.6


S&T 1.54 4.3

Paraflow 1.18 3.3

IBM 0.99 2.8

Stemo 0.97 2.7

Others 6.35 17.6

Total 36.05 100.0

Notes:



Source: IDC, 2011

Informat ion System Consult ing

The information system consulting foundation market was valued at $4.81 million in

Bulgaria in 2010, representing a year-on-year decrease of 35.6% and constituting

3.6% of the total IT services market.

F I G U R E 1 1

I n f o r m a t i o n S y s t em C o n su l t i n g F o u n d a t i o n M a r k e t V e n do r


Source: IDC, 2011


©2011 IDC #ES05T 27

IBM placed first in the information system consulting services market in Bulgaria

in 2010, with revenue of $0.78 million and 16.0% share.

Information Services ranked second in the information system consulting


share.

KPMG came third in the information system consulting services market in


T A B L E 9

T o t a l S u p p l y - S i d e R e ve n u e o n t h e I n f o r m a t i o n S y s t e m C o n su l t i n g M a r k e t i n

B u l g a r i a , 2 0 1 0


IBM 0.78 16.0


KPMG 0.42 8.7

ITCE 0.38 7.7

Microsoft 0.32 6.6

Musala Soft 0.32 6.6

Lirex 0.31 6.4

Stemo 0.20 4.1

Oracle 0.19 3.8

CNSys 0.18 3.7

Others 1.29 26.5

Total 4.88 100.0

Notes:



Source: IDC, 2011

Applicat ion Consult ing and Customizat ion

Spending on application consulting and customization services in Bulgaria decreased

7.6% year on year in 2010 to $9.99 million, accounting for 7.5% share of the IT

services market.

28 #ES05T ©2011 IDC

F I G U R E 1 2

A p p l i c a t i o n C o n s u l t i n g a n d C u s t o m i z a t i o n F o u n da t i o n M a r k e t

V e n do r S h a r e s i n B u l g a r i a b y I T S e r v i c e s R e v e n u e ( U S $ M ) ,

2 0 1 0

Source: IDC, 2011


HP placed first in the application consulting and customization services market in


Siemens IT Solutions and Services ranked second in the application consulting

and customization services market in Bulgaria in 2010, with revenue of $0.92

million and 8.9% share.

Bankservice came third in the application consulting and customization services


T A B L E 1 0

T o t a l S u p p l y - S i d e R e ve n u e o n t h e A p p l i c a t i o n C o n s u l t i n g a n d C u s t o m i z a t i o n



HP 1.10 10.6



IBM 0.57 5.5

Bull 0.47 4.5

PWC 0.44 4.2

Microsoft 0.40 3.9

Stemo 0.40 3.8


Paraflow 0.33 3.2

Others 4.76 45.7

Total 10.41 100.0

Notes:

©2011 IDC #ES05T 29

T A B L E 1 0

T o t a l S u p p l y - S i d e R e ve n u e o n t h e A p p l i c a t i o n C o n s u l t i n g a n d C u s t o m i z a t i o n





Source: IDC, 2011

Custom Appl icat ion Development

In 2010, expenditure on custom application development services in Bulgaria

decreased 12.7% year on year to $7.63 million, representing 5.7% share of the total

IT services market.

F I G U R E 1 3

C u s t o m A pp l i c a t i o n D ev e l o pm en t F o u n d a t i o n M a r k e t V e n do r


Source: IDC, 2011


Musala Soft placed first in the custom application development services market

in Bulgaria in 2010, with revenue of $2.03 million and 26.3% share.

Information Services ranked second in the custom application development


share.

Stemo came third in the custom application development services market in


30 #ES05T ©2011 IDC

T A B L E 1 1

T o t a l S u p p l y - S i d e R e ve n u e o n t h e C u s t o m A p p l i c a t i o n D e v e l o pm e n t F o u n d a t i o n



Musala Soft 2.03 26.3


Stemo 0.57 7.4

Global Consulting 0.43 5.6

Interconsult Bulgaria 0.32 4.1


IBM 0.21 2.8

Lirex 0.21 2.7

Bull 0.19 2.5


Others 1.96 25.4

Total 7.71 100.0

Notes:



Source: IDC, 2011

IDC Analys is Project Services Macromarket

The project services macromarket was harmed by restrictions to IT investments in all

verticals. The majority of the projects were small, with short implementation cycles,

low risk, and fast ROI. The project services macromarket was driven by technology

convergence and increased broadband speeds in the telecom sector; adoption of

various IT security features in the finance sector; and high availability and disaster

recovery initiatives in almost all verticals. Virtualization became normal in the large

and very large business segment, but penetrated the SMB segment at lower rate than

expected. The small scale of SMBs makes investments into virtualization rather

ineffective and many companies in this segment prefer free versions of virtualization

installations.

Many software integration and software implementation projects were put on hold.

Internal IT teams usually performed process reengineering and functional expansion

of information systems, which is particularly true of large businesses with extensive

ICT teams and resources. Aggressive price promotions, new licensing schemes, and

reductions of services fees by software vendors and integrators managed to attract

enterprise application software (EAS) and customer relationship management (CRM)

clients from the SMB segment, but projects were restricted to the implementation of

core functional modules. Funding through EU operational programs had a limited

positive effect to the project services market. These projects drove spending in

software installation and support, consulting, and software deployment services, but

as whole their budgets were limited.

Network consulting and integration services declined more than 40% year on year for

a second consecutive year despite the private and public sectors continuing to

develop network infrastructures. The government's priority is to integrate the two

state-owned broadband networks, thus creating a highly reliable environment for the

exchange of information between government entities. The project should be

accomplished by the end of 2011.

©2011 IDC #ES05T 31

Outsourcing Macromarket

The outsourcing macromarket in Bulgaria achieved a value of $15.03 million in 2010,

making it the third largest macromarket with 11.2% share.

F I G U R E 1 4

O v e r v i e w o f t h e L e a d i n g P r o v i d e r s o f t h e O u t s o u r c i n g S e r v i c e s

M a c r o m a r k e t i n B u l g a r i a b y I T S e r v i c e s R e v en u e ( U S $ M ) , 2 0 1 0

Source: IDC, 2011

Applicat ion Management Outsourc ing

The market for application management services in Bulgaria totaled $2.31 million in

2010, reflecting a year-on-year increase of 1.8% and constituting 1.7% of the total IT

services market.

32 #ES05T ©2011 IDC

F I G U R E 1 5

A p p l i c a t i o n M an a g em en t O u t s o u r c i n g F o u n d a t i o n M a r k e t

V e n do r S h a r e s i n B u l g a r i a b y I T S e r v i c e s R e v e n u e ( U S $ M ) ,

2 0 1 0

Source: IDC, 2011


Bankservice placed first in the application management services market in


Information services ranked second in the application management services


IBM came third in the application management services market in Bulgaria in


T A B L E 1 2

T o t a l S u p p l y - S i d e R e ve n u e o n t h e A p p l i c a t i o n M a n a g em en t O u t s o u r c i n g





IBM 0.28 12.1

S&T 0.09 4.0

Cisco 0.09 4.0

Lirex 0.05 2.2

Others 0.14 6.0

Total 2.35 100.0

Notes:



Source: IDC, 2011

©2011 IDC #ES05T 33

Informat ion System Outsourcing

In 2010, the information system outsourcing market in Bulgaria stood at $3.31 million,

representing a year-on-year decrease of 5.6% and 2.5% of the IT services market.

F I G U R E 1 6

I n f o r m a t i o n S y s t em O u t s o u r c i n g F o u n d a t i o n M a r k e t V e n do r


Source: IDC, 2011


Information services placed first in the information system outsourcing services


IBM ranked second in the information system outsourcing services market in


Lirex came third in the information system outsourcing services market in


T A B L E 1 3

T o t a l S u p p l y - S i d e R e ve n u e o n t h e I n f o r m a t i o n S y s t e m O u t s o u r c i n g F o u n d a t i o n




IBM 0.28 8.6

Lirex 0.26 7.9


Paraflow 0.17 5.0

Accenture 0.12 3.7

Microsoft 0.12 3.7

Xerox 0.10 3.0

34 #ES05T ©2011 IDC

T A B L E 1 3

T o t a l S u p p l y - S i d e R e ve n u e o n t h e I n f o r m a t i o n S y s t e m O u t s o u r c i n g F o u n d a t i o n



IBS Bulagria 0.01 0.4

Deloitte 0.00 0.0

Others 1.26 38.0

Total 3.31 100.0

Notes:



Source: IDC, 2011

Network and Desktop Outsourcing Serv ices

Organizations in Bulgaria invested $3.13 million into network and desktop outsourcing

services in 2010, constituting a year-on-year increase of 45.3% and 2.3% of the IT

services market.

F I G U R E 1 7

N e t w o r k a n d D e s k t o p O u t s o u r c i n g F o u n d a t i o n M a r k e t V en do r


Source: IDC, 2011


Bankservice placed first in the network and desktop outsourcing services market

in Bulgaria in 2010, with revenue of $1.03 million and 32.3% share.

Information Services ranked second in the network and desktop outsourcing


share.

©2011 IDC #ES05T 35

Lirex came third in the network and desktop outsourcing services market in


T A B L E 1 4

T o t a l S u p p l y - S i d e R e ve n u e o n t h e N e t w o r k a n d D e s k t o p O u t s o u r c i n g F o u n d a t i o n





Lirex 0.31 9.7

Paraflow 0.25 7.8

Kontrax 0.18 5.7

IBM 0.14 4.4

Cisco 0.14 4.3

Telelink 0.10 3.3

CNSys 0.08 2.5

Others 0.30 9.5

Total 3.20 100.0

Notes:



Source: IDC, 2011

Hosted Appl icat ion Management

In 2010, spending on hosted application management increased 3.2% year on year in

Bulgaria to $3.95, representing 3.0% of the total IT services market.

F I G U R E 1 8

H o s t e d A p p l i c a t i o n M an a g e m en t F o u n d a t i o n M a r k e t V e n do r


Source: IDC, 2011

36 #ES05T ©2011 IDC


Information Services placed first in the hosted application management services


Bankservice ranked second in the hosted application management services


Lirex came third in the hosted application management services market in


T A B L E 1 5

T o t a l S u p p l y - S i d e R e ve n u e o n t h e H o s t e d A p p l i c a t i o n M an a g e m en t F o u n d a t i o n





Lirex 0.52 13.2

IBM 0.36 9.0

IBS Bulagria 0.03 0.7

Others 0.24 6.0

Total 3.95 100.0

Notes:



Source: IDC, 2011

Host ing Infrastructure Services

Spending on hosting infrastructure services increased 45.4% year on year in Bulgaria

to $2.34 million, constituting 1.8% of the total IT services market.

©2011 IDC #ES05T 37

F I G U R E 1 9

H o s t i n g I n f r a s t r u c t u r e S e r v i c e s F o u n d a t i o n M a r k e t V e n do r


Source: IDC, 2011


Siemens IT Solutions and Services placed first in the hosting infrastructure


share.

Lirex ranked second in the hosting infrastructure services market in Bulgaria in


Bankservice came third in the hosting infrastructure services market in Bulgaria

in 2010, with revenue of $0.30 million and 12.6% share.

T A B L E 1 6

T o t a l S u p p l y - S i d e R e ve n u e o n t h e H o s t i n g I n f r a s t r u c t u r e S e r v i c e s F o u n d a t i o n




Lirex 0.42 17.8



IBM 0.14 6.1

Others 0.73 31.0

Total 2.34 100.0

Notes:



Source: IDC, 2011

38 #ES05T ©2011 IDC

IDC Analys is of the Outsourc ing Services Macromarket

The outsourcing services macromarket was the only macromarket that registered

positive growth in 2010. User resistance to outsourcing is declining gradually in

Bulgaria as a result of pressure to lower operational costs and provide a better quality

of service. Outsourcing clients become organizations that have low ICT capacity in

terms of IT staff and skills, regardless of the size of the business and vertical.

Generally, mid-sized enterprises' IT needs exceed their capacity to invest. SMBs in

Bulgaria represent more than 70% of businesses, but despite this figure, the largest

share of outsourcing spending came from the large and very large business

segments. Core IT systems outsourcing projects were few and mainly took place after

a crisis within an organization or as a result of centralized contracts. Companies

mostly sought reliability and constant availability options. Among the enterprises that

outsourced the management of their core systems in 2010 were Sofiiska Voda

(utility), Lev Ins (insurance), Speedy (logistics), and Panda (retail). High datacenter

operating costs is another reason for outsourcing IT systems to third-parties in

Bulgaria. The transfer of risks from within the organization to an external supplier,

including the risks of security breaches was also an important consideration. Other

problems addressed by outsourcing were the need for a reduction in IT equipment

inline with a reduction of in the businesses' volumes.

A significant push to the growth of the local outsourcing market came from regional or

global outsourcing contracts. One of the largest deals was the IT infrastructure

management outsourcing contract for E.ON by HP in 2010, which is expected to be

followed by outscoring of applications and business processes. Alcatel-Lucent

also won a contract to develop Vivacom's fixed and mobile network.

O v e r v i e w o f t h e I n f o r m a t i o n T e c h n o l o g y

S e r v i c e s M a r k e t b y V e n d o r C a t e g o r y

The Services Landscape

In addition to foundation markets, IDC defines the Bulgarian services market by the

categories that reflect the heritage and primary activities of the vendors. While many

vendors operate successfully within many, if not all categories, providing some form

of delineation by vendor type enables a better understanding of the dynamics and

trends within the country's fast-evolving IT services industry.

Figure 20 below illustrates the competitive landscape of the IT services industry in

Bulgaria by vendor category. The following types of firm were contacted and surveyed

for this study: systems integrators (e.g., Siemens Business Solutions, Kontrax,

CNSys), technology vendors (e.g., HP, IBM, and Sun Microsystems), consulting firms

(e.g., PWC and KPMG), independent software vendors (e.g., Microsoft, SAP, and

Oracle), indirect channel partners (e.g., IBS, Primasoft), outsourcers and data centers

providers (e.g., Lirex, Daticum, Teleink), offshore outsourcers (Cognizant, Wipro, and

Tata Consultancy Services), and telecommunications service providers (Mobiltel,

Vivacom, Globul, Blizoo) .

©2011 IDC #ES05T 39

F I G U R E 2 0

I T S e r v i c e s R e v en u e S h a r e b y V en do r C a t e go r y i n B u l g a r i a ,

2 0 1 0

Source: IDC, 2011

O v e r v i e w o f I T S e r v i c e s S p e n d i n g b y V e r t i c a l

M a r k e t

Combined government was the largest vertical market in Bulgaria in 2010 with $41.78

million in services-related spending and 31.3% market share. The combined finance

vertical placed second with 22.2% share from IT services investments of $29.62

million. Telecommunications ranked as the third-largest vertical market in 2010 with

IT services investment of $20.78 million and 15.5% market share. Combined

manufacturing was the fourth-largest market in the country, accounting for $10.18

million in IT services revenue and 7.6% market share.

40 #ES05T ©2011 IDC

F I G U R E 2 1

O v e r v i e w o f I T S e r v i c e s S p en d i n g b y V e r t i c a l M a r k e t i n

B u l g a r i a , 2 0 1 0

Source: IDC, 2011

Government Sector

In 2010, the combined government sector in Bulgaria accounted for $41.16 million in

IT services spending, thus constituting 32.1% of the total IT services market in the

country. The leading provider of IT services to this industry last year was Information

Services with revenue of $10.56 million, followed by Siemens IT Solutions and

Services with revenue of $9.22 million. Rounding out the top five players in this sector

in 2010 were Kontrax, CNSys, and CAD Progress.

IT spending in the government sector was reduced to a bare minimum for two

consecutive years and most of the spending was associated with the launch of

systems, arising from the country's membership in the EU and entering the Shengen

area. These include the decentralized automated information system project for

Bulgarian identity documents; several projects in connection with the accession of

Bulgaria to the Shengen area; the development of a system for management of traffic

on the Danube River (BULRIS); and a project for the creation of a GIS metadata

model. These projects raised IT services spending for installation and support and

integration services, leading to the government becoming the largest consumer of IT

services in 2010. The demand for software and customization services and consulting

services was limited due to the low number of new projects. The long-awaited

egovernment portal has been launched, but the services accessible through it had

been developed in previous years. The next stages will involve more software-related

and consulting services to introduce new eservices and improve interoperability of the

egovernment portal. Other priorities are in the area of cyber security and development

of frameworks for municipal IT systems.

In 2010, the government announced its intention to privatize state-owned company

Information Services and ran tender proceedings for the support of a central

information system previously provided by Information Services. Despite the fact that

consortiums of private companies won three of the four tenders, the outsourced IT

services were never transferred from Information Services to the winners. In 2011,

the Ministry of Finance abrogated the tenders and invited Information Services to

©2011 IDC #ES05T 41

resume its previous activities. It appears likely that Information Services will hold on to

its position as the major supplier of IT services to the government.

Financial Sector

In 2010, the combined finance sector in Bulgaria accounted for $29.67 million in IT

services spending, constituting 23.1% of the total IT services market in the country.

The leading provider of IT services to this industry last year was Printec Bulgaria with

revenue of $8.80 million, followed by Broica-Bankservice with revenue of $5.50

million. Rounding out the top five players in this sector in 2010 were Stone

Computers, HP, and Kontrax. Printec's revenue includes services supporting ATMs.

The banking sector in Bulgaria remained profitable, despite the decreasing volume of

the credits. However, IT investments continued to be limited. Leasing and insurance

companies saw a serious decline in the volume of their business, leading to a steep

drop in investments. The crisis also caused some smaller financial services

companies to close their doors.

Projects in the financial sector varied greatly. Many of these projects targeted

increased information security and IT system availability. Consolidation and

virtualization initiatives and projects to improve storage manageability drove spending

in network consulting and integration services. The banking sector is traditionally

among the largest consumers of hardware and software support and installation

services that are outsourced to national system. Companies in the finance vertical run

internal the core systems, but compliance issues force the outsourcing of disaster

recovery sites to third-party datacenters. Banking companies maintain extensive

qualified IT staffs and do not use consulting services to a great extent as they must

adopt the practices and IT solutions run by their international headquarters. Raiffeizen

Bank commissioned IBM for an extensive consulting project in 2010 that included

redesigning business processes and implement an IT infrastructure library (ITIL).

Companies in the finance vertical also addressed issues such as mobile payments,

online banking, client portals, accession to the Single Euro Payments Area (SEPA)

standard, and fraud prevention. Business analytics (BA) upgrades and development

and CRM projects were also commissioned. One of the largest ongoing projects is

the internal development of a CRM system at Unicredit Bulbank. Some insurance

companies also introduced client eportals and different eservices. IT investments in

the insurance sector were led by fraud-reduction measures and by preparation for

adoption of e-insurance in 2011. The information systems of the Traffic Police and the

Guarantee Fund started to exchange information, allowing easier fraud detection. The

Guarantee Fund was established to enable injured persons to get compensation

under Motor Third Party Liability Insurance /MTPL/ and accident insurance for public

transport passengers.

The serious indebtedness of businesses and little access to credit boosted the

development of factoring services. The establishment of series of factoring

companies raised the demand for implementation services for specific software and

communication solutions. Changes in the legal environment boosted the development

of e-insurance systems, but the implementations will come in 2011.

Telecommunications

The telecommunications market in Bulgaria is highly competitive and it is in the

process of consolidation and technological renewal. Mobile operators strengthened

their 3G networks trying to take advantage of growing demand for mobile data and

42 #ES05T ©2011 IDC

compensate the declining revenues from voice services. Fixed operators increased

network coverage and invested in higher bandwidths. Many built optic backbones and

some provided fiber to the home. Both fixed and mobile operators invested into digital

TV, digital video, telepresence, content services, and other ―over the top‖ services.

The telecommunication vertical was the largest IT spender for many years and a

consumer of almost all types of IT services. However, telecoms faced declining

revenues from their core services and focused on reducing operational costs in 2010.

These measures, as well as the completion of several large projects and the

cancellation of others led to a significant reduction in the volume of contracts for IT

services. The fall in IT spending was also due to acquisitions and consolidation, as

telcos halted investments while waiting for regulatory approval.

The top three telecommunication providers revised their IT budgets, restructured IT

operations, and outsourced some IT activities to external suppliers. Incumbent BTC

outsourced the expansion and operational management of its fixed and mobile

network to Alcatel-Lucent. About 3,000 employees were reallocated from the telco to

the service provider. As far as the outsourced processes are not considered IT

services by IDC, the deal had only a partial impact on the volume of the IT services

market. Vivacom outsourced to HP the consolidation of its various networks and the

management of all services including data, messaging, and voice in real time, as well

as prepaid billing. Mobiltel also announced the outsourcing of expansion and support

of its mobile network to the system integrator and 60 Mobitel employees moved to

Telelink. Telcos were forced to invest into integration, management platforms, and

improved billing solutions. Mobiltel also invested heavily into CRM, implementing

Amdocs CES 7.5. The project caused significant problems with billing and

significantly exceeded the initial implementation deadline.

Combined Manufacturing

The manufacturing sector in Bulgaria was seriously hit by the decline in exports to

Europe and the slump in internal demand. In the autumn of 2010, the revitalization of

demand in Europe drove growth in some manufacturing subsectors, but IT spending

remained at very low levels. The sector is not homogeneous in regard to the need of

IT services, as it is comprised of a small number of large and very large businesses

and high number of SMBs; both categories greatly differ in regard to the maturity of IT

systems and IT service needs. Large companies invested significantly into their IT

infrastructure and business software in the pre-crisis years and in 2010 concentrated

on better utilization of existing resources. Alongside with consolidation and server

virtualization, large businesses strengthened the resilience of IT systems and put in

place industry-specific software systems, which helps support compliance with

industry standards. The penetration of EAS systems in large and very large

manufacturing companies is high. Many of the installations are expanding functions

with advanced capabilities like production planning and management, budgeting,

supply chain management, and analytics. However, investments into EAS software

and deployment services saw a sharp decline in 2010. New projects were few and far

between and expansions were mainly performed by internal IT teams. Several

business intelligence (BI) projects were launched. Manufacturing SMBs in Bulgaria

have low ICT capacity and use different external suppliers to support their IT

functions, with some outsourcing IT processes and using managed services,

infrastructure as a service (IaaS) and software as a service (SaaS), thus lowering IT

costs. Attracted by aggressive price promotions from EAS vendors and their partners

and funding opportunities under EU development programs, a number of manufacture

©2011 IDC #ES05T 43

SMBs launched EAS projects. Despite this, demand for services was limited, as many

installations remained limited in scope.

T A B L E 1 7

O v e r v i e w o f I T S e r v i c e s S p en d i n g b y V e r t i c a l M a r k e t i n B u l g a r i a , 2 0 1 0


Agriculture, Construction, and Mining 1.89 1.4

Discrete Manufacturing 4.24 3.2

Process Manufacturing 5.95 4.4

Transportation 1.51 1.1

Telecommunications 20.78 15.5

Broadcasting and Media 0.69 0.5

Utilities 6.23 4.7

Retail 5.91 4.4

Wholesale 1.46 1.1

Banking 25.75 19.3

Insurance 2.18 1.6

Financial Services 1.69 1.3

Business Services 5.91 4.4

Local Government 4.65 3.5

Central Government 37.13 27.8

Healthcare 2.91 2.2

Education 2.64 2.0

Home 0.33 0.2

Other 1.84 1.4

Total 133.66 100.0

Combined Finance 29.62 22.2

Combined Manufacturing 10.18 7.6

Combined Government 41.78 31.3

Source: IDC, 2011

F U T U R E O U T L O O K

F o r e c a s t a n d A s s u m p t i o n s

Table 18 below outlines the general set of assumptions that affect the IT services

market in Bulgaria and provides guidance to future trends and developments within

the IT services industry.

T A B L E 1 8

T o p 3 A s s u m p t i o n s f o r t h e I T S e r v i c e s M a r k e t , 2 0 1 1 –2 0 1 5

Market Force IDC Assumption Significance Changes to This

Assumption That

Could Affect Current

Forecast

Comment

44 #ES05T ©2011 IDC

T A B L E 1 8

T o p 3 A s s u m p t i o n s f o r t h e I T S e r v i c e s M a r k e t , 2 0 1 1 –2 0 1 5

Market Force IDC Assumption Significance Changes to This

Assumption That

Could Affect Current

Forecast

Comment

GDP Growth GDP is expected to

grow 2.8% in 2011, far

ahead of the average

annual growth of 3.7%

forecasted for the

period 2012–2015

The recovery of the IT

market is directly

dependent on the

overall economic

recovery.

Slow economic

reforms and an

inconsistent budget

policy may further

delay the economic

recovery. Experts are

warning against a "W"-

shaped recession.

As a result of

inconsistent fiscal

strategy, it is very

difficult to forecast a

recovery in FDI and

domestic demand.

Government

Spending on IT

The government has

committed itself to

substantial IT

investments over the

medium to long term.

Government spending

on IT services has

always represented a

large share of the

market and its

restoration will

significantly drive the

market.

The government

sector may not be

effective in setting

priorities and policies.

That will continue to

postpone investments

into eservices and IT

infrastructure.

IT investments have

already seen several

delays in public

procurements and

unsuccessful attempts

addressing critical

areas like low public

procurement, the

creation of a

competitive

environment, and the

introduction of

strategies that are

financially sound.

EU Funds The absorption of EU

funds will accelerate.

Bulgaria’s has

absorbed only 2.6% of

the allocated $8.4

billion in EU funds for

2007–2013.

The elections for local

government and

president in Q4 of

2012 may cause a

further slowdown in

administration and

changes to priorities.

Even a partial

improvement in the

absorption of EU funds

could directly and

indirectly speed up

national ICT

development and ICT

spending.

Source: IDC, 2011

Table 19 below outlines the general assumptions that affect the IT services market in

Bulgaria and provides guidance on future trends and developments within the IT

services industry.

T A B L E 1 9

K e y F o r e c a s t A s s u m p t i o n s f o r t h e I T S e r v i c e s M a r k e t , i n 2 0 1 0 , 2 0 1 1 –2 0 1 5

Market Force IDC Assumption Impact Accelerator/

Inhibitor/

Neutral

Certainty of

Assumption

Macroeconomics

©2011 IDC #ES05T 45

T A B L E 1 9



Inhibitor/

Neutral

Certainty of

Assumption

GDP Growth GDP is expected to grow 2.8%

in 2011, far ahead of the

average annual growth of

3.7% forecasted for the period

2012–2015

High. The low economic

growth results in less demand

for products and services,

including IT and project delays.

EU Funding The absorption of EU funds

will accelerate.

High. Higher absorption of EU

funding will increase demand

for ICT as implementations of

new technologies, standards,

and best practices are directly

financed by the operational

programs.

Foreign Direct

Investment

FDI will remain low in 2011

and gradual recovery to the

end of forecast period.

High. Low FDI inflow harms

the economy's potential for

growths and indirectly affects

the ICT market.

Political Situation The local government

elections for in October 2011

will affect the performance of

the local administration

Moderate. Elections will cause

a slowdown in local

government spending in the

short term and delays in

regional projects. However, the

government, criticized for its

inefficiency and slow reforms,

will try to improve its reputation

by not delaying further ICT

projects financed by the EU.

Market

Characteristics

Globalization of IT

Functions

Multinational companies are

centralizing IT functions

Moderate. Bulgaria may

benefit from infrastructure-

related international

consolidation projects, as the

country offers low electricity

prices, space in datacenters,

rents, and a skilled workforce.

IT functions mat also be

outsourced globally, thus

reducing the demand for IT

services.

Internal IT Budgets Internal IT budgets will

continue to be closely

monitored.

High. Suppliers will be pressed

to provide services at relatively

low margins for some more

time. They will need to

reconsider their portfolios and

will invest in efficient service

delivery. New delivery models

and services will appear. Some

suppliers will bankrupt.

Neighboring States

Economies

The crisis in Greece will

continue to negatively affect

the Bulgarian economy, mainly

by lowering demand for

Bulgarian exports. On the

other hand, investments could

Low. The crisis will delay the

regional expansion of some

Greek businesses and will

continue to affect the IT

spending of Greek banks in

Bulgaria. The growth potential

46 #ES05T ©2011 IDC

T A B L E 1 9



Inhibitor/

Neutral

Certainty of

Assumption

come from Greece, as

businesses may move to

Bulgaria.

of Greek IT suppliers that

operate regionally will be

harmed as well.

Government

Spending on IT

Bulgaria is lagging behind

other SEE countries in the

area of egovernance and the

government will try to show

progress before parliamentary

elections in 2012.

Moderate. Large projects will

be launched, but it is not clear

if the government will create

the conditions for their timely

implementation, sustainability,

and quality control.

Business

Environment

The cloud, as well as other

outsourcing service models,

will be more widely adopted.

Moderate. Pressed by the

need for quality IT services,

SMBs will adopt outsourcing.

New IT players will enter the

market, including telcos, and

new business models will

emerge. Traditional integrators

and vendor partners will suffer

from price pressures.

Labor Market The demand for qualified IT

staff with managerial skills will

remain high.

Low. Labor costs will stay

stable as the market is not

struggling from a lack of IT

specialists, but it will remain

difficult to hire project

managers.

EU Financing for

the Implementation

of Business

Software

The launch of a government

program for financing of

business software

implementations via EU funds

will postpone investments in

business software in 2011, as

many companies apply for

financing and wait for approval

before launching project

implementation activities.

Moderate. Software support

and installation and application

customization services will be

the most affected by access to

EU funds. A positive impact on

spending might be expected in

Q4 2012 and beyond.

Technology/

Service

Developments

Support Services Support services will suffer

from a decline in hardware

and software sales, but will

return to moderate growth in

2012 and that growth will

continue over the forecast

period.

High. The pressure on vendors

to provide more services for

the price will continue and It

will be difficult for vendors to

keep their margins, which have

already been cut. They will look

to optimize their operations by

seeking new partners,

implementation of

technologies, and change in

delivery models.

Training Services IT training services were hit

hard by priority reevaluations

stemming from the crisis, but

this was mitigated by EU

Low. This segment is likely to

see a slight decline in 2011

due to low numbers of new IT

implementations. It will grow in

©2011 IDC #ES05T 47

T A B L E 1 9



Inhibitor/

Neutral

Certainty of

Assumption

funding for HR programs,

which will continue in the

future.

the coming years. Furthermore,

businesses are lowering

spending pm trainings in

expectation of the next round

of grants form the EU-financed

HR development program.

Integration Services Growth in the integration

services market should

resume as both the public

sector and private enterprises

continue to invest in

infrastructure. However,

growth will be at a significantly

lower rate than in the years

prior to the crisis.

High. Integration services will

experience slight growth over

the short term, but will perform

well in the medium to long

term. The increasing

complexity of IT solutions,

together with need for better

integration between systems

will increase demand for

services from highly-skilled

external suppliers.

Customization

Services

Businesses will continue to

seek better alignment of IT

with business needs.

High. Most likely, the market

will see a decline in 2011 and

will revive in 2012. In the short

to medium term, the demand

for customization services will

remain strong in Bulgaria as

users adopt new solutions to

achieve business goals.

Outsourcing

Services

Outsourcing is no longer

viewed solely as cost cutting,

but as an opportunity for the

delivery of better services to

clients.

Low. The demand for

outsourcing services will

increase at high rate, as these

services are underpenetrated

in Bulgaria and have significant

potential.

Consulting Services The demand for IS consulting

services is driven by complex

projects in the government

sector and large enterprise

segment.

Moderate. As the role of IT for

the support of business

processes is continuously

growing, the demand for

consulting services will

increase once the economy

recovers.

Vertical Markets

Manufacturing Manufacturing will be boosted

by increased demand from the

EU and will resume

investments into IT and

business applications.

Moderate. Many companies in

the manufacturing sector, in

particular SMBs, lack IT

competences and will continue

to consume integration,

software customization and

development, consulting, and

other services.

Telecoms Telecoms will remain intense

users of IT services as the

sector is under pressure, both

from regulations and from the

competition. Declining

revenues from voice service

behoove the companies to

High. Telecoms will slow

investments into their networks

and IT infrastructures in long

term and will spend more on

integration, consulting, and

software customization. It is

expected that telcos will

48 #ES05T ©2011 IDC

T A B L E 1 9



Inhibitor/

Neutral

Certainty of

Assumption

seek additional sources by

developing new services.

increase their significance as a

provider of IT and business

services.

Public Sector The public sector will resume

investments into egovernment

and ehealth. The projects will

be carefully monitored for

being in line with the initial

targets and requirements.

High. Government spending

on IT will be at lower rate than

before the crisis

Finance The financial sector in Bulgaria

will continue to be stable and

profitable, despite the crisis in

Greece and the fact that many

of the banks in Bulgaria are

Greek-owned.

Moderate. The banking sector

will continue to invest in IT

systems for improved security,

risk management and better

client relations. New

regulations, like BASEL III, will

drive further IT spending in the

medium term.

Legend: very low, low, moderate, high, very high

Source: IDC, 2010

Spending on IT services will continue to grow in Bulgaria over the forecast period,

boosted by egovernment and other public sector initiatives, competition in the finance

and telecommunications sectors, and expected long-term transformations in sectors

like transportation, manufacturing, and utilities. It is expected that the Bulgarian IT

services market will expand slightly in 2011. The growth in the near term will be

driven by the need for better utilization of existing systems and improved alignment of

IT with business needs. The rise in the demand for exports in manufacturing, the

growing maturity of IT in the financial sector, transformations in telecoms, and the

restoration of demand in government sector will fuel the market for IT services, but

significant inter-company liabilities, rising unemployment and a slow-down in growth

of the eurozone will continue to hamper the launch of new projects. The economic

situation is expected to improve in 2012 and spending on IT services will grow in

almost all segments. Some fluctuations in growth rates in services categories during

the forecast period (i.e. application consulting and customization, custom software

development, IT training and education) are related to the expected allocation of EU

funds. When credit is scares, the importance of EU funds grows and may lead to

tangible slowdowns in anticipation of project approval.

IDC expects spending on IT services in Bulgaria to increase 0.6% year on year in

2011 and to expand at a CAGR of 6.9% over the five-year forecast period to total

$187.01 million in 2015.

©2011 IDC #ES05T 49

T A B L E 2 0

F o r e c a s t a n d A n a l y s i s o f I T S e r v i c e s S p en d i n g ( US $ M ) b y I D C F o u n d a t i o n

M a r k e t i n B u l g a r i a , 2 0 1 0 –2 0 1 5

2010 2011 2012 2013 2014 2015 CAGR

2010–

2015

Hardware Support and Installation 36.87 36.50 38.36 40.51 42.86 45.39 4.2%

Software Support and Installation 11.26 10.92 11.74 13.09 15.25 17.57 9.3%

Support and Installation Total 48.13 47.42 50.10 53.60 58.11 62.96 5.5%

IT Training and Education Total 5.44 5.60 5.99 6.65 7.02 7.49 6.6%

Network Consulting and Integration 7.50 7.76 8.24 9.01 10.02 11.23 8.4%

Systems Integration 35.13 35.62 37.44 39.99 42.90 46.64 5.8%

Systems Integration Total 42.63 43.39 45.68 49.00 52.92 57.87 6.3%

Information System Consulting Total 4.81 4.96 5.35 5.68 6.14 6.77 7.1%

Application Consulting and Customization 9.99 9.59 11.90 13.21 14.03 15.18 8.7%

Custom Application Development 7.63 7.17 8.03 9.21 10.07 10.87 7.3%

Custom Application Development Total 17.62 16.76 19.93 22.42 24.10 26.06 8.1%

Application Management Outsourcing 2.31 2.44 2.64 2.88 3.19 3.56 9.1%

Information System Outsourcing 3.31 3.67 4.09 4.62 5.29 6.10 13.0%

Network and Desktop Outsourcing Services 3.13 3.27 3.46 3.74 4.19 4.74 8.7%

Hosted Application Management 3.95 4.23 4.65 5.23 5.98 6.89 11.8%

Hosting Infrastructure Services 2.34 2.74 3.04 3.45 3.96 4.58 14.4%

Outsourcing Total 15.03 16.36 17.90 19.91 22.62 25.87 11.5%

Total 133.66 134.48 144.96 157.26 170.91 187.01 6.9%

Source: IDC, 2011

F I G U R E 2 2

F o r e c a s t o f I T S e r v i c e s S p en d i n g ( US $ M ) b y I D C E n g a g e m e n t

T y p e i n B u l g a r i a , 2 0 1 0 – 2 0 1 5

Source: IDC, 2011

50 #ES05T ©2011 IDC

F o r e c a s t b y I D C E n g a g e m e n t T y p e

Hardware Support and Installation Services

The hardware support and installation services market in Bulgaria stood at $34.52

million in 2010, representing a year-on-year decline of 26.6% and 26.9% share of the

total IT services market.

Spending on hardware support and installation will decrease 1.0% year on year in

2011. Through 2015, this foundation market will expand at a CAGR of 4.2% to total

$45.39 million in 2015, representing 2.,3% of the country's IT services market, as

compared with $36.87 million and 27.6% share in 2010.

In 2011, support and installation service contracts will probably remain on 2010

levels. The category will follow the hardware market, but at a slower pace than

predicted earlier as pressure on margins will remain. The managed services market

has growth potential, as it is underdeveloped in Bulgaria, but its share will remain

relatively small in the forecast period.

Software Support and Installation Services

Spending on software support and installation will decrease 3.0% year on year in


$17.57 million in 2015, representing 9.4% of the country's IT services market, as


The software support and installation services category has already seen a serious

decline in 2010 and will be harmed by further delays of software upgrades and new

projects in 2011. The pressure on budgets force corporate IT teams to keep software

support services as internal as possible. The expected launch of projects by the

government in the autumn of 2011 will have a slight influence to the market.

Acceleration in growth is expected in 2012 or 2013, depending on when projects

under the EU's Competitiveness operational program will be approved.

IT Training and Education

Spending on IT training and education will increase 3.0% year on year in 2011.

Through 2015, this foundation market will expand at a CAGR of 6.6% to total $7.49

million in 2015, representing 4.0% share of the country's IT services market, as


The rising complexity of the IT environment raises the need for the training and

education of staff. In 2011, the possibility of receiving funds from the operational

program Human resource development will positively influence the category. Steady

growth may be seen after 2012, after spending for training of end users is restored.

Over the longer term, demand for highly professional training and certifications will

accelerate in order to meet compliance and technology requirements.

©2011 IDC #ES05T 51

F I G U R E 2 3


T y p e i n B u l g a r i a , 2 0 1 0 – 2 0 1 5

Source: IDC, 2011

Network Consulting and Integration

Spending on network consulting and integration will increase 3.5% year on year in


$11.23 million in 2015, representing 6.0% of the country's IT services market, as


The continuing expansion and renovation of telecom networks; the introduction of

high bandwidth services like digital video and digital TV; government initiatives;

emerging third-party datacenters; the development of the country as outsourcing

destination; and the relatively low penetration of broadband Internet are factors that

will drive growth over the entire forecast period. Virtualization and cloud adoption will

support the growth of network consulting and integration as well.

Systems Integration

Spending on systems integration will increase 1.4% year on year in 2011. Through

2015, this foundation market will expand at a CAGR of 5.8% to total $46.64 million in

2015, representing 24.9% share of the country's IT services market, as compared

with $35.13 million and 26.3% share in 2010.

Due to immaturity of the Bulgarian market, there are many hardware infrastructure

projects and the demand for system integration services will remain high in the

forecast period. Consolidation and later virtualization are expected to accelerate in

the large and very large business segment. The SMB segment lags behind and still

purchase low-volume standalone servers. Both segments will continue to add storage

52 #ES05T ©2011 IDC

capacities and implement various data management features like tiering, thin

provisioning, and de-duplication. The convergence of technologies, the need for

better utilization of IT investments, and the need of interoperability between the

systems will contribute to the stable performance of the integration services category.

It seems that the adoption of mobility will not be significant driver for integration

services in the corporate segment during the forecasted period. Demand will rather

come from telcos that target the consumer segment.

Information System Consulting

Spending on information system consulting will increase 3.0% year on year in 2011.




The demand for consulting services is expected to rise gradually in all verticals, but

the sharp growth in 2012–2014 is expected to come from large projects

commissioned by traditional consumers of consulting services like the government,

telecoms, and the transportation sector. Demand for IT consulting services from the

utility sector is hardly predictable and will depend on further privatization and

liberalization. Also the transition to private and public cloud is expected to increase

demand for IT consulting. Consulting services will probably be strongly influenced by

the end of the EU accession programs in 2013, when new mechanisms for fund-

absobtion and changes in funded areas will be implemented.

Application Consulting and Customization

Spending on application consulting and customization will decrease 4.0% year on

year in 2011 due to the slowdown of the IT market due to overall economic situation

and the postponement of projects while awaiting decisions about grants from the

Competitiveness operational program in 2012. Through 2015, this foundation market

will expand at a CAGR of 8.7% to total $15.18 million in 2015, representing 8.1%

share of the country's IT services market, as compared with $9.99 million and 7.5%

share in 2010.

The application consulting and implementation market has significant potential for

growth due to low penetration of complex business management systems like EAS,

CRM, and enterprise relationship management (ERM) in the SMB segment in

Bulgaria; needs for functional expansion of the existing EAS installations in large

corporate segment; and low penetration of CRM and analytic systems in large

businesses. The need for better integration of all corporate systems is another

important issue that will continue to boost the segment.

Custom Application Development

Spending on custom application development will decrease 6.0% year on year in


$10.87 million in 2015, representing 5.8% share of the country's IT services market,

as compared with $7.63 million and 5.7% share in 2010.

Custom application development services are very dependent on the availability of

new projects. That is why a slight recovery in demand may be expected in mid-2012.

Custom application development services see lower demand from the private sector

as clients seek shorter implementation times and less risk by implementing pre-

defined packaged solutions. In the near term, custom application development

©2011 IDC #ES05T 53

services will be fueled by integration, reporting, and interoperability needs in the

corporate segment.

F I G U R E 2 4

F o r e c a s t o f R e l a t i v e S h a r e s ( %) b y I D C E n ga g e m e n t T y p e i n

B u l g a r i a , 2 0 1 0 –2 0 1 5

Source: IDC, 2011

Information Systems Outsourcing

The information system outsourcing foundation market will increase 11.0% year on

year in 2011. Over the 2010–2015 forecast period, this foundation market will expand

at a CAGR of 13.0%. Annual spending will total $6.10 million in 2015 to account for a

3.3% share of the total IT services market in the country, as compared with $3.31

million and 2.5% share in 2010.

The demand for outsourcing services will continue to rise, but the share of the

segment on the IT services market will remain low, as the majority of the companies

in Bulgaria are not ready to outsource their business processes entirely. The attitude

toward outsourcing is changing. Companies will increasingly seek availability

services, as the ROI in IT infrastructure is very high. Outsourcing is already seen as

an opportunity for risk reduction and better quality of service. Promotions of cloud

computing by vendors contribute to changes in the attitudes of companies.

The outlook for outsourcing may be even more optimistic if state agencies outsource

their IT operations, but there are no signs that this is on the horizon.

Network and Desktop Outsourcing Services

The network and desktop outsourcing services foundation market will increase 4.5%

year on year in 2011. Over the 2011–2015 forecast period, this foundation market will

expand at a CAGR of 8.7%. Annual spending will total $4.74 million in 2015 to make

54 #ES05T ©2011 IDC

up 2.5% share of the total IT services market in the country, as compared with $3.13


The desktop outsourcing services market will follow the recovery of the hardware

market. It became clear by Q3 2011, that such a recovery may not be expected until

2012. Network outsourcing on the other hand has serious cost saving potential and is

considered by companies whose ITC needs exceed the volume of what they are able

to investment. IDC forecasts this market will continue to witness positive momentum

in Bulgaria during the forecast period.

Application Management

Spending on application management will increase 6.0% year on year in 2011.




The application management services market follows the increasing penetration of

business software solutions and the growing role of service providers, vendors, and

integrators in the monitoring and management of a client’s systems. The transfer of

application management to external vendors from the companies themselves will

accelerate, but this share will remain very small during the forecast period.

Hosted Application Management

The hosted application management (HAM) foundation market will increase 7.0%

year on year in 2011. Through 2015, this foundation market will expand at a CAGR of

11.8%, which is faster than the overall IT services market, but its market share will

remain modest. Annual spending will total $6.89 million in 2015 to constitute 3.7%

share of the country's total IT services market, as compared with $3.95 million and

3.0% share in 2010. The largest portion of revenue in the category in 2010 came from

the banking sector, where banks operate a common specific system from integrator

Borica-Bankservice, and by the government sector, where application hosting is

outsourced to Information Systems. Only a few large private businesses use the HAM

model for core systems (i.e. insurance company LevIns), and despite the increased

readiness of the suppliers to deliver high quality services, outsourcing critical

applications still needs to prove its worth to many large businesses. On the other

hand, many SMBs are not ready to pay fees for high-quality service, even being

aware of the benefits. It is likely that they will prefer switching directly to cloud

services, due to potentially more affordable pricing.

Hosting Infrastructure Service Providers

The hosting infrastructure services (HIS) foundation market will increase 17.4% year

on year in 2011. Over the 2010–2015 forecast period, this foundation market will

expand at a CAGR of 14.4%. Annual spending will total $4.58 million in 2015 to make

up 2.4% share of the total IT services market in the country, as compared with $2.34


The market will be driven by needs for increased IT system reliability, faster

restoration of operations after crashes, and lower time to market for innovative

services. It is expected that new providers will enter the market. Pure HIS players will

collaborate with ISVs, content suppliers and other business service suppliers to

increase the client base.

©2011 IDC #ES05T 55

F I G U R E 2 5

F o r e c a s t o f R e l a t i v e S h a r e s ( %) b y I D C E n ga g e m e n t T y p e i n

B u l g a r i a , 2 0 1 0 –2 0 1 5

Source: IDC, 2011

M a r k e t C o n t e x t

IDC's current 2011–2015 forecast of the Bulgaria IT services market differs from the

2010–2014 forecast published in last year's study of this market. The forecast has

been decreased due to the following factors:

Economic Recession: In 2010, the Bulgarian economy did not achieve the

predicted economic growth of 0.5%, and 2011's expected 2.8% growth will also

not happen. The future of important national projects in energy, waste treatment,

and construction is not clear. As a result, IDC has reduced its forecast for IT

services revenue in 2011. IT service spending is more resilient to short-term

changes in the economy and will return to growth once the economy recovers.

Access to Financing: Corporate debt, as well as government debt, continues to

be high and businesses struggle with cash-flow issues and limited access to

credit. Demand from abroad is not enough to boost internal demand.

Unpredictable Schedules for Government Projects: The initial plan called for

the launch of egovernment projects in September 2011. However, only some

tenders may be launched in late 2011, but they will only have a limited effect on

the market. According to projects already announced, IT service spending will

jump in the 2012–2014 period.

56 #ES05T ©2011 IDC

F I G U R E 2 7

C o m p a r i s o n o f F o r e c a s t f o r I T S e r v i c e s S p en d i n g ( US $ M ) i n

B u l g a r i a , 2 0 1 0 –2 0 1 4 v e r s u s 2 0 1 1 –2 0 1 5

Source: IDC, 2011

T A B L E 2 1

C o m p a r i s o n o f F o r e c a s t f o r I T S e r v i c e s S p en d i n g ( US $ M ) i n B u l g a r i a ,

2 0 1 0– 2 0 1 4 v e r s u s 2 0 1 1 –2 0 1 5

2007 2008 2009 2010 2011 2012 2013 2014 2015

Forecast 2010–2014 133.63 186.1 158.08 165.80 185.06 216.60 257.10 299.66 n/a

Forecast 2011–2015 n/a n/a n/a 133.66 134.48 144.96 157.26 170.91 187.01

Source: IDC, 2011

A l t e r n a t i v e S c e n a r i o

Main Assumptions

IDC presents an alternative market scenario should the following possibilities become

a reality:

The overall slowdown in the European economy and the crisis in Greece may

have further consequences for the Bulgarian economy due to a decline in

demand for exports, low FDI inflows, and declining revenue because of strikes,

protests, and delayed payments. IDC research shows that 2011 would most-

likely be another bad year for the IT business.

As has happened several times in the past, the results of government tenders

may be challenged in the courts and projects can be delayed unpredictably.

Legislation in the area of public procurements has been changed several times

already, but still does not address the problem effectively. The forecast above is

based on the assumption that several large projects for egovernment systems

will be launched in Q4 2011 or early 2012 and the money allocated to them from

different EU programs will be absorbed..

©2011 IDC #ES05T 57

Despite the measures taken by the government to overcome problems absorbing

EU funds, it is possible that Bulgaria will face new funding stoppages and

investigations into past cases. Because of concerns about double funding, the

EU halted the introduction of electronic services in ministries and municipalities

of the OPAC (Operational Program Administrative Capacity) program whle

before the publishing of this report.

F I G U R E 2 7


T y p e i n B u l g a r i a , 2 0 1 0 – 2 0 1 5 - A l t e r n a t i v e S c e n a r i o

Source: IDC, 2011

F u t u r e O u t l o o k b y V e r t i c a l M a r k e t

The following figure's x-axis shows IT services spending (US$M) in each vertical

market in 2010. The y-axis illustrates potential IT services spending growth for each

vertical market.

58 #ES05T ©2011 IDC

F I G U R E 2 8

S p e n d i n g ( U S $ M ) o n I T S e r v i c e s b y V e r t i c a l M a r k e t i n

B u l g a r i a , 2 0 1 0

Source: IDC, 2011

Government

The government sector will continue to be one of the major consumers of almost

all types of IT services, but the economic situation and the difficulties of the

government to institute reforms will continue to inhibit implementations of IT

strategies. It is expected spending will recover in 2012. A strong increase in

demand for consulting, software development and deployment, integration, and

support services might be expected in 2012–2014 with the launch of

egovernment and ehealth projects. It is difficult to predict when the projects will

start, as they have already been delayed due to appeals in the court and other

reasons. The focus in egovernment will be on the deployment of new eservices;

further development of the egovernment portal's service oriented architecture

(SOA); the establishment of a centralized system for monitoring and managing

information security and interoperability; and the implementation of an electronic

identity registry. The planned development of a reference architecture model for

the central government and municipal administrations is crucial for further

©2011 IDC #ES05T 59

development, as the variety of systems in operation hampers interaction between

them.

The National Information Network in eHealth will be deployed in 2012–2014. The

system must guarantee the interchange of data among all participants in the

ehealth system and better monitoring of processes and costs in the health

system. The implementation of intelligent transportation systems in major cities

will also be launched in the forecast period.

Telecommunications

Due to strong competition in the sector and declining tariffs, operators need to

look for other revenue sources. They will continue adding new services on top of

core voice and data services, such as digital TV, digital video, and other content

services. They are also very likely to become service providers. Telcos are well

positioned to exploit the cloud business model and may introduce cloud IT

services offerings either by themselves or in partnership with other vendors.

During the forecast period, telecoms will increase their share of hosted,

managed, and cloud services market by providing virtual servers, storage-on-

demand, datacenter management, managed business continuity services, etc.

The transformation of operators into IT service providers will continue to fuel

demand for consulting, system and network integration, software implementation

and support from the telcos themselves. Telecoms will also continue investments

in the capacity of their networks, better manageability, quality of service, and

advanced billing.

Finance

The financial sector will continue to see restrictions on IT spending in the next

couple of years, but growing demands from business and regulators will force the

players to invest into IT. The higher maturity of IT in banking in comparison with

other verticals means that financial institutions will shift spending toward software

implementations and IT services, increasing demand for consulting, software

development, and deployment and network consulting services. They will

continue to look for better utilization and manageability of resources,

implementations of ITIL, or other best practices, higher IT security, and better

quality of service for the business. Further cost-cutting initiatives might be

expected as well.

The expected consolidations in banking, the growing maturity of leasing services,

and changes in insurance businesses, such as the introduction of e-insurance,

will drive spending in IT services until the end of the forecasting period.

V e n d o r P r o f i l e s

In this section, IDC profiles the top IT services providers and ranks them by total

supply-side IT services revenue.

For each company, IDC provides a brief description of its competitive positioning,

services offerings, contact/client base, and growth strategies. The following vendors

were selected: Siemens IT Solutions and Services, Information Services, HP,

Kontrax, and Printec Bulgaria.

60 #ES05T ©2011 IDC

Siemens IT Solutions and Services

Siemens IT Solutions and Services became the top vendor in the Bulgarian IT

services market in 2010, generating $12.30 million in IT services-related revenue and

45.7% IT services market share. The company was recently purchased by Atos.

Siemens IT Solutions and Services is a provider of integrated IT solutions and

services from one source, covering systems integration, consulting, and management

of IT infrastructure. The vendor's main partnerships are with SAP AG, SAP Bulgaria,

Oracle, Fujitsu, Microsoft, and EMC. Siemens IT Solutions and Services provides

consulting and advisory services; design, implementation, and support of the mySAP

Business Suite and mySAP ERP (SAP R/3) standard business applications;

specialized IT solutions such as RFID; and biometric and mobile solutions, among

others.

Services Overview

F I G U R E 2 9

S i em e n s I T S o l u t i o n s a n d S e r v i c e s : O v e r v i ew o f I T S e r v i c e s

R e v en u e b y I D C E n g a ge m e n t T y p e i n B u l g a r i a , 2 0 1 0

Source: IDC, 2011

©2011 IDC #ES05T 61

F I G U R E 3 0

S i em e n s I T S o l u t i o n s a n d S e r v i c e s : O v e r v i ew o f I T S e r v i c e s

R e v en u e b y V e r t i c a l M a r k e t i n B u l g a r i a , 2 0 1 0

Source: IDC, 2011

62 #ES05T ©2011 IDC

Clients and Contracts

T A B L E 2 2

O v e r v i e w o f S i em e n s I T S o l u t i o n s a n d S e r v i c e s ' C o n t r a c t s , 2 0 1 0

Client's Name Project Description Industry Macro Market Foundation Market Contract's Length

Ministry of Finance IT infrastructure, maintenance, and development activities. Government Project System Integration na

Ministry of Interior Implementation of a system for passports with biometric data worth

more than $9.2 million

Government Project Systems Integration 6 years

Ministry of Interior Delivery and installation of equipment for a border control system. Government Project Installation and

Support

1 year

CCB Management

Services

SAP consultancy services Business Services Project Application

Consulting and

Customization

1 year

Source: IDC, 2011

©2011 IDC #ES05T 63

SWOT Analys is

T A B L E 2 3

S W O T A n a l y s i s o f S i em e n s I T S e r v i c e s a n d S o l u t i o n s , 2 0 1 0 –2 0 1 5

Strengths Weaknesses

Well-rounded portfolio allows vendor to address

numerous sectors and service lines across the

Bulgarian IT services market

Solid installation and support offerings allow vendor to

maintain strong foothold during difficult times in other

service lines

Performs well in the public sector, the largest in

Bulgaria

Experience in outsourcing of IT business processes

Certified in ISO/IEC 20000-1, ISO 27001:2005 and

ISO 9001:2008

Extensive expertise in SAP implementations

Does not have clear positioning in client’s minds

because the new portfolio of services is not known to

Bulgarian clients

Perceived as ignoring the SMB segment due to the

complexity and scale of services offerings

The transformation of operations will take some time

Opportunities Threats

Look for growth in other key verticals as the economy

recovers while keeping an eye on public sector

Benefit form outsourcing of IT operations by large

international clients

Utilize acquisition by Atos to target key verticals like

combined finance, transport, retail, healthcare, and

manufacturing

Increasing competition in the public sector, as well as

continuing inefficiencies in the sector in allocating

funds could hamper revenue in this market.

Source: IDC, 2011

Information Services

In 2010, state-owned Information Services ranked second on the Bulgarian IT

services market with revenue of $12.08 million. The majority shareholder in

Information Services PLC is the Ministry of Finance.

Information Services (IS) has always been the largest supplier of IT services to the

government. The company covers the entire spectrum of IT services: software

development, construction and administration of networks, hardware support,

consultancy, and training. IS has a well-developed network of 26 branches in all of

Bulgaria's regional cities.

Services Overview

64 #ES05T ©2011 IDC

F I G U R E 3 1

I n f o r m a t i o n S e r v i c e s : O v e r v i e w o f I T S e r v i c e s R e v en u e b y I D C

E n g a g em en t T y p e i n B u l g a r i a , , 2 0 1 0

Source: IDC, 2011

F I G U R E 3 2

I n f o r m a t i o n S e r v i c e s : O v e r v i e w o f I T S e r v i c e s R e v en u e b y

V e r t i c a l M a r k e t i n B u l g a r i a , 2 0 1 0

Source: IDC, 2011

©2011 IDC #ES05T 65


T A B L E 2 4

O v e r v i e w o f I n f o r m a t i o n S e r v i c e s ' C o n t r a c t s , 2 0 1 0


Ministry of Finance Development of information systems for monitoring and

management of structural instruments in Bulgaria (ISUN)

Government Project Application

consulting and

integration

1 year

E.ON, EVN, CEZ Support of regional offices, adjustment of reporting systems Utility Support/Training Application

consulting and

integration

1 year

Ministry of Finance Support and development of the IT infrastructure for the ministry Government Support/Training Systems

Integration/Support

1 year

National Revenue

Agency

Provisioning and support of esignatures for the employees of the

National Revenue Agency.

Government Project Support Services 1 year

Source: IDC, 2011

66 #ES05T ©2011 IDC

SWOT Analys is

T A B L E 2 5

S W O T A n a l y s i s o f I n f o r m a t i o n S e r v i c e s , 2 0 1 0 –2 0 1 5


Well-developed network throughout the country,

which is valuable when implementing large-scale

projects

Government-owned and able to capitalize on the

large number of government IT projects

Stable revenues due to maintenance contracts

Conscious effort to target high-value projects

Operator of esignatures

ISO 27001:2005 certified

Limited presence in verticals other than government

Doesn’t use its potential on the SMB market

Looses revenues from business services as result of

reforms in state administration

Large and ineffective structure

Dependent on political decisions


Capitalize on growing government investments into IT

infrastructure

Utilize the nationwide network for projects outside the

public sector

Build on leading position in the outsourcing market

Capitalize on introduction of new eservices requiring

esignatures

Capitalize on anticipated inflow of EU funds for

technology projects within the public sector

Potential delays or slowdowns of government projects

Uncertain position of the government in regard to the future

of the company, possible privatization, or transfer of

government contracts to other suppliers

Loss of share to more quick and flexible private companies

Source: IDC, 2011

HP

In 20010, HP was the third-largest IT services provider based on revenue of $9.9

million and 6.6% share. HP employs almost 100 people in Bulgaria.

HP in Bulgaria offers the following IT services: security and privacy services; PC and

server services; business continuity and resiliency services; integrated

communications services; storage and data services; middleware services;

maintenance and support; managed print services; and application consulting and

deployment.

Services Overview

©2011 IDC #ES05T 67

F I G U R E 3 3

H P : O v e r v i e w o f I T S e r v i c e s R e v en u e b y I D C E n g a g em en t T y p e

i n B u l g a r i a , 2 0 1 0

Source: IDC, 2011

F I G U R E 3 4

H P : O v e r v i e w o f I T S e r v i c e s R e v en u e b y V e r t i c a l M a r k e t i n

B u l g a r i a 2 0 1 0

Source: IDC, 2011

68 #ES05T ©2011 IDC


T A B L E 2 6

O v e r v i e w o f H P ' s C o n t r a c t s , 2 0 1 0


E.ON Management and support of the IT infrastructure Utility Outsourcing Systems Integration 3 years

Vivacom Set-up and run of Next Generation Intelligent

Network system

Telecom Outsourcing Network Management 3 years

E.ON Delivery of managed print services Utility Outsourcing Outsourcing 4 years

Source: IDC, 2011

©2011 IDC #ES05T 69

SWOT Analys is

T A B L E 2 7

S W O T A n a l y s i s o f H P , 2 0 1 0 – 2 0 1 5


Recognized as global technology leader with broad

hardware, software, and services portfolios

Market leader in PCs within Bulgaria with strong

support revenues and compelling brand recognition

Long-term relationships with clients and business

partners

Global outsourcing experience and references

Access to a pool of highly-skilled IT professionals

Strong position in the government vertical

May not always be flexible due to internal administrative

procedures and risk compliance measures

Complex organizational structure

Perceived as a high-priced vendor

Threatens relations with partners with its direct sales model


Migrate growing hardware installed base to other

related services

Capitalize on growing interest in outsourcing services

Capitalize on growing focus on systems and services

management to pave the way for the provision of

value-added services

Capitalize on cloud adoption

Intense market competition from more flexible companies

Large accounts becoming saturated

Danger of direct competition with channel partners in

services

Global economic instability likely to increase price sensitivity

within the market

Source: IDC, 2011

Kontrax

In 2010, Kontrax ranked as the fourth-largest vendor in the Bulgarian IT services

market with revenue of $9.90 million, corresponding to 6.6% share and total revenue

of $12.94 million. The company employs 119 people.

Kontrax specializes in servicing large government and corporate entities, although it

also has increased its focus on the SMB segment. Kontrax Group includes

companies that specialize in custom application development, Internet services, cable

infrastructure systems, call center systems, and the manufacturing of office furniture.

The company distributes hardcopy peripherals from Kyocera Mita and Canon; PCs

and servers by NEC, Acer, and Fujitsu Siemens; and communications equipment

from Lucent and AVAYA and is partner of Microsoft and Cisco.

Services Overview

70 #ES05T ©2011 IDC

F I G U R E 3 5

K o n t r a x : O v e r v i ew o f I T S e r v i c e s R e v en u e b y I D C E n g a g em e n t

T y p e i n B u l g a r i a , 2 0 1 0

Source: IDC, 2011

F I G U R E 3 6

K o n t r a x : O v e r v i ew o f I T S e r v i c e s R e v en u e b y V e r t i c a l M a r k e t

i n B u l g a r i a , 2 0 1 0

Source: IDC, 2011

©2011 IDC #ES05T 71


T A B L E 2 8

O v e r v i e w o f K o n t r a x ' s C o n t r a c t s , 2 0 1 0

Client's Name Project Description Industry Macro Market Foundation

Market

Contract's

Length

Ministry of Interior Software and maintain a database of security features related to travel

documents as part accession to the Schengen system

Government Project Systems

Integration

1 year

Bulgarian Post Development and implementation of a centralized system for service delivery

via an integrated service counter.

Transport Project Application

Consulting and

Customization

1 year

DSK Bank Managed print services – maintenance of printer and MFP equipment. Banking Outsourcing Other

Outsourcing

1 year

Ministry of Finance Delivery and support of a protected records system Government Project Systems

Integration

1 year

Source: IDC, 2011

72 #ES05T ©2011 IDC

SWOT Analys is

T A B L E 2 9

S W O T A n a l y s i s o f K o n t r a x , 2 0 1 0 – 2 0 1 5


Established company with 18 years of experience on

the Bulgarian IT market

Good reputation in key verticals

Expanded portfolio of offerings

Well-developed office structure in the country and

abroad

Partnerships with key vendors

Offerings for SMB segment

Vertical expertise in healthcare

Dependency on government contracts

Marked impact of the economic downturn on the enterprise

segment, Kontrax's chief target market

Focuses only on key verticals


Forge proven partnerships with key brand

manufacturers

Tap into the continued investment in both the private

and public sectors aimed at developing the country's

infrastructure

Benefit from expected projects in ehealth due to

vertical specialization

Direct sales by technology vendors

Competition with international vendors for IT personnel

Further projects delays in the public sector

Margin pressures expected to continue

Economic uncertainty and volatility

Source: IDC, 2011

Printec

Printec Bulgaria became the fifth-largest IT services provider in Bulgaria in 2010 with

IT services revenue of $8.81 million and total revenue of $14.93 million.

Printec Bulgaria's main activities are oriented towards delivery, servicing, developing

software applications, and installation of equipment for non-cash payments in the field

of finance, banking, and retail. The company is part of the international corporation

Printec Group.

Services Overview

©2011 IDC #ES05T 73

F I G U R E 3 7

P r i n t e c B u l g a r i a : O v e r v i e w o f I T S e r v i c e s R e v e n u e b y I D C

E n g a g em en t T y p e i n B u l g a r i a , 2 0 1 0

Source: IDC, 2011

F I G U R E 3 8

P r i n t e c B u l g a r i a : O v e r v i e w o f I T S e r v i c e s R e v e n u e b y V e r t i c a l


Source: IDC, 2011

74 #ES05T ©2011 IDC


T A B L E 3 0

O v e r v i e w o f P r i n t e c ' s C o n t r a c t s , 2 0 1 0


Bulgarian National Bank Support of e -transaction infrastructure Finance Support and

Training

Installation and

Support

1 year

23 banks in Bulgaria Support of epayments, including maintenance of ATMs and

point-of-sale (POS) terminals.

Finance Support and

Training

Installation and

Support

1 year

Source: IDC, 2011

©2011 IDC #ES05T 75

SWOT Analys is

T A B L E 3 1

S W O T A n a l y s i s o f P r i n t e c , 2 0 1 0 – 2 0 1 5


Part of international group of companies with solid

portfolio and extensive client base

Focus on electronic transaction processing systems

Solid client base in the banking sector,

Extensive portfolio of security solutions;

Can rely on regional agreements from Greece to

provide support of banks

Countrywide support team

Brand name not recognized by some large companies on

the market

Lacking vertical diversity


Captitalise on the increasing use of epayment

systems, ATMs, and POS terminals

Take advantage of up sales in the financial sector

Profit from regulations in the financial sector and need

for better IT security

Captitalise on participation in government projects

Contracting margins in support services

Increasing competition from other local integrators and

technology vendors in regard to project-based services

Source: IDC, 2011

E S S E N T I AL G U I D A N C E

IT service providers should prepare for the transformation of the global and local

service delivery landscape. HP, IBM, Microsoft sell products and services directly

instead via their partner networks. The local partners are in a situation to compete

against the vendors, while basing offerings on prices, provided by their competitors –

with vendors. Locals have other advantages, but risk being push out by vendors. The

introduction of new cloud services; the emergence of telecoms as IT service

providers; and the entrance of global service providers. Suppliers need to decide

about their own role and value in the delivery chain in respect to target segments and

type of services and take steps to strengthen that position. Neglecting this trend may

have very negative effect for local players.

Investing into professional, industry, and vendor-=specific certificates should be

carefully planned. These certificates are de facto standard prerequisites for public or

private tender procedures. The acquisition and the support of these certificates is

quite expensive and vendors must chose which ones best fit their strategy for

development.

Suppliers should maintain the development of IT skills of key employees and the

managerial skills of project and finance managers. As the complexity of products and

projects increases, the need for managerial skills gains importance.

Keeping in mind the expected simultaneous launch of EAS, ERM, and CRM projects

with overlapping implementation cycles in 2012, suppliers of business software

customization and software development services must take measures to increase

76 #ES05T ©2011 IDC

their implementation capacity. Different measures can be considered, such as

partnerships, creation of pre-defined functionalities, standardization of procedures

and processes, advanced delivery models, contracting and training of pool of

freelancers, etc.

L E AR N M O R E

R e l a t e d R e s e a r c h

Adriatic Region IT Services Market 2011–2015 Forecast and 2010 Vendor

Shares (IDC #ES03T)

Austria IT Services Market 2011–2015 Forecast and 2010 Analysis (IDC

#ES17T)

Competitive Profiles and Analysis of Leading IT Services Players in Austria, 2011

(IDC #ES18T)

Baltic States IT Services Market 2011–2015 Forecast and 2010 Vendor Shares

(IDC #ES04T)

Bulgaria IT Services Market 2011–2015 Forecast and 2010 Vendor Shares (IDC

#ES05T)

Croatia IT Services Market 2011–2015 Forecast and 2010 Vendor Shares (IDC

#ES06T)

Czech Republic IT Services Market 2011–2015 Forecast and 2010 Analysis (IDC

#ES20T)

Competitive Profiles and Analysis of Leading IT Services Players in the Czech

Republic, 2011 (IDC #ES21T)

Greece IT Services Market 2011–2015 Forecast and 2010 Vendor Shares (IDC

#ES01T)

Hungary IT Services Market 2011–2015 Forecast and 2010 Analysis (IDC

#ES23T)

Competitive Profiles and Analysis of Leading IT Services Players in Hungary,

2011 (IDC #ES24T)

Poland IT Services Market 2011–2015 Forecast and 2010 Analysis (IDC

#ES26T)

Competitive Profiles and Analysis of Leading IT Services Players in Poland, 2011

(IDC #ES27T)

Romania IT Services Market 2011–2015 Forecast and 2010 Vendor Shares (IDC

#ES02T)

Russia IT Services Market 2011–2015 Forecast and 2010 Analysis (IDC #ES..T)

Competitive Profiles and Analysis of Leading IT Services Players in Russia, 2011

(IDC #ES29T)

©2011 IDC #ES05T 77

Serbia IT Services Market 2011–2015 Forecast and 2010 Vendor Shares (IDC

#ES07T)

Slovakia IT Services Market 2011–2015 Forecast and 2010 Vendor Shares (IDC

#ES08T)

Slovenia IT Services Market 2011–2015 Forecast and 2010 Vendor Shares (IDC

#ES09T)

D e f i n i t i o n s

Foundation Markets

Studying the IT services industry through an activities-based approach offers insight

into what a vendor does. This approach, however, does not necessarily represent

how IT services are actually purchased. Thus IDC introduced the concept of

foundation markets, or the contract view, which shows what a customer buys.

Foundation markets remain mutually exclusive and all-inclusive service categories.

For example, if a customer signs a systems-integration contract, IDC recognizes the

entire spending on the contract as systems-integration spending, without regard to

the underlying services actually delivered. However, if the customer manages the

systems-integration project in house and procures services such as IT consulting,

custom application development, and training separately, IDC recognizes the

spending for each of these activities separately within their respective categories.

The following 13 foundation markets in the IT-services industry primarily target

information systems and technology-enabled processes:

Hardware Support and Instal lat ion

This market captures hardware installation and support services. Hardware

comprises the following segments: client devices (desktops and notebooks), user

interface, "toward the edge of network," servers, storage, peripherals, and networking

equipment such as enterprise networking equipment, datacenter networks, and

telecommunications infrastructure.

For greater detail on the hardware categories, please see IDC's Worldwide Hardware

and Network Infrastructure Taxonomy, 2007 (IDC #206156, June 2007).

Installation services consist of configuration and installation (testing and debugging,

IT-site preparation, and IT installation). Configuration can be conducted either on the

customer's premises or on the vendor's premises. Examples of configuration on the

vendor's premises are HP's Factory Express offering and Sun Microsystems' Factory

Integration offering.

Decommissioning services include end-of-life services for IT hardware. The two main

services included in decommissioning services are data wiping and device removal

from networks.

Support services comprise telephone support, remote diagnostics, electronic support,

onsite support, predictive/preventive maintenance, repairs, and inventory/asset

management services. Hardware support services can be provided by either the

hardware vendor or a third party and are either attached to the hardware or included

in a site agreement.

78 #ES05T ©2011 IDC

Managed Support Serv ices

Managed support services refer to high-end or mission-critical support services.

Under the terms of a managed support services offering, the provider is responsible

for proactively alerting the customer about events or situations that occur in the

customer's environment or on discrete technology assets. Under the terms of a

managed support agreement, the provider's legal liability is limited to providing an

alert to the customer. After the alert has been sent, the provider may have additional

responsibilities under the terms of a traditional support agreement. For example, the

provider may be bound by response or resolution times as described in a support

agreement.

IDC excludes the base warranty purchased with the product from hardware-

deployment and support spending.

If a vendor or third-party assumes responsibility for a customer's entire IT help-desk

operations, this service is excluded because it is considered business process

outsourcing.

Software Support and Instal lat ion

Software support and installation services are activities, expertise, and systems

aimed at providing a customer with the proper installation and configuration of

commercially available packaged software. It also includes appropriate ongoing

support and access to resources.

Installation services consist of the basic installation of packaged software or

upgrades, including standard set-up and configuration. Configuration is limited to the

options and features available in the software package.

Typical activities associated with software support services are as follows: telephone

support, remote diagnostics and repair, electronic support, support-related software

maintenance, onsite software support, and predictive and preventive maintenance.

Support and installation engagements exclude support for custom-developed

software and support provided via another contract mechanism (e.g., outsourcing);

furthermore, it excludes traditional maintenance. Traditional software maintenance is

generally priced as a percentage of either the net or list license cost and includes

software updates, upgrades, and patches.

IT Education and Train ing

Training enhances general knowledge and expands capabilities for using IT. Training

involves learning new behaviors, skills, or actions that can be used to begin

performing job-specific tasks or to improve performance. IT education and training

services cover all technologies using all delivery media, with a particular focus on

packaged-software and data-communications training. This may include training for

IS/technical skills, desktop skills, and professional IT certification. This category

excludes business-skills training, learning services, or learning infrastructure

engagement, as per IDC Corporate Learning Taxonomy.

IT Consult ing

IT consulting is a professional services activity around information technology. It is the

delivery of advice to customers aimed at managing their IT organization and at

©2011 IDC #ES05T 79

improving their IT performance, infrastructure, and related processes. IT consulting

includes two main areas:

IT strategy consulting assists an IT executive with designing an IT vision and

goals for the entire organization, then aligning resources accordingly. This

includes IT strategic planning (including human resources, facilities, and financial

planning), IT road map design, governance, systems, enterprise application, and

infrastructure strategy.

IT operations consulting assists an IT executive with optimizing the company's IT

infrastructure and architecture, and its use of specific technologies. This includes

infrastructure management; IT road map implementation; hardware, software and

services procurement; vendor relationship management; IT infrastructure

performance; and performance engineering.

IT consulting engagements exclude spending on planning activities bundled with

implementation and operational services. Consulting delivered through these 'other

services' categories is captured as a part of the total spending in each category.

Systems Integrat ion

SI services include the planning, design, implementation, and project management of

a solution that addresses a customer's specific technical or business needs. SI

involves systems and custom application development, as well as the implementation

and integration of enterprise packaged software.

SI projects typically involve different platforms and technologies. The solution may

include hardware, software, and services. An SI project is formalized by a contract

constructed around solution specifications and often demands certain levels of

performance against technical or business goals. The end result of an SI project is

the delivery of a system that meets a stated objective and fulfills solution

specifications. In Central and Eastern Europe, the Middle East, and Africa (CEMA),

contracts of under $50,000 are not typically considered systems-integration projects

because most are delivered by small local resellers and value-added resellers, which

do not guarantee systems performance or computability across existing platforms.

SI projects can include any of the following activities: planning, design,

implementation, training, and support.

Network Consult ing and Integrat ion

NCIS services are defined as those activities associated with planning for, designing,

and building local-area networks and wide-area networks, commonly known as LANs

and WANs, including multi-service, converged wireless, and wireline networks, which

enable voice, video, and data applications (such as VoIP and unified messaging) to

be propagated across a single common infrastructure.

Specifically, the NCIS market includes services provided to the providers of

telecommunications networks for the planning and building of public integrated voice,

data, and wireless infrastructures.

This category excludes services provided for the planning, building, or operation of

traditional circuit-switched enterprise voice networks and their supporting devices

(e.g., traditional PBXs).

80 #ES05T ©2011 IDC

Applicat ion Consult ing and Customizat ion

Services in this category include modifying existing applications and the

customization of packaged applications for specific business requirements. Contracts

relating to software assessment are also included within this category. This category

excludes, however, contracts covering software development, the installation of

systems software, and the customization of IT operating environments, as well as

maintenance contracts covering the ongoing support of applications by maintaining

software code and providing bug fixes and enhancements on a continual basis.

Custom Appl icat ion Development

Custom application development (CAD) services focus on delivering standalone,

custom codesets to meet a client's business needs. CAD services can span the entire

application development life cycle, including requirements gathering and design,

solution build, testing and QA, and solution acceptance. CAD services include coding

for custom-developed applications as well as enhancements and modifications to

custom legacy applications. CAD services also include third-party development and

support (e.g., follow-on patches or enhancements) of custom applications that are

either designed or migrated to cloud-based platforms such as Windows Azure or

Force.com. Due to the complexity and evolving maturity of PaaS platforms, and the

ongoing need to integrate with internal back-end systems, discrete CAD or SI

services are being delivered to enterprises to support their PaaS initiatives, which can

include coding, construction, and integration support as well as process modeling and

system architectural design. IDC notes that CAD contracts can include requirements

for patches that are not considered part of a daily maintenance plan. Customization of

an existing custom application is also included within CAD (customization is defined

as implementing new features not available in the custom software application). CAD

services are delivered as part of a project with a defined beginning and end.

Although application development activities can be included in larger systems

integration projects, IDC classifies services as CAD if the final deliverable to a client is

a custom-designed application. Following table 32 highlights the distinctions between

systems integration, application consulting on commercially off-the shelf applications,

and custom application development, and software deploy markets.

T A B L E 3 2

D i s t i n c t i o n s B e t w e en S y s t em s I n t e g r a t i o n , C u s t o m A pp l i c a t i o n D ev e l o pm en t ,

a n d S o f t w a r e D e p l o y

Systems Integration/ACC

Custom Application

Development Software Deploy

What types of applications

are affected?

Either custom or commercial

off-the-shelf (COTS)

Custom COTS

What are the key activities

during the engagement?

Development (if custom)

and/or integration of

application with other software

or infrastructure components

Development or

maintenance of a custom

application

Deployment (including

configuration) of a COTS

application

Does the project involve any

integration work with other

software or infrastructure?

Yes No No

©2011 IDC #ES05T 81

T A B L E 3 2

D i s t i n c t i o n s B e t w e en S y s t em s I n t e g r a t i o n , C u s t o m A pp l i c a t i o n D ev e l o pm en t ,

a n d S o f t w a r e D e p l o y

Is the engagement limited to

defined capabilities of an

existing COTS application?

No No Yes

What is the size of the

engagement?

Typically $50,000+ Any Any

Source: IDC, 2011

Exceptions and Exc lus ions

Maintenance contracts that include 24 x 7 ongoing support and maintenance for

custom applications by maintaining the code and providing bug fixes and

enhancements on a continual basis are captured within other markets (e.g.,

application management). This definition also excludes support for standard

packaged applications, which is captured either in the software deploy and support

definition or in the IT education and training definition.

Application development that is performed as part of a broader SI, commercial off-the

shelf application consulting, or IS outsourcing engagement is also not included in the

custom application development segment.

Outsourcing (as an Engagement Type)

Outsourcing is the contracting by an organization of a third party for the management

and enhancement of ongoing operations for all or part of its IT infrastructure, IT

functions, business processes, or business solutions. Outsourcing involves a fixed-

term contractual arrangement that may involve the transfer of assets or people.

IDC separates the outsourcing market into two distinct categories: 1) custom

outsourcing, comprising information-systems outsourcing, application outsourcing,

and desktop and network management; 2) the hosted one-to-many model, which

consists of hosted application management and hosting infrastructure services.

IS Outsourcing

IS outsourcing services involve a long-term, contractual arrangement in which a

service provider takes ownership of and responsibility for managing all or part of a

client's IS infrastructure and operations based on a service-level agreement. Services

are provided in a one-to-one model. At the core of an IS outsourcing contract is taking

over management of day-to-day operations at a datacenter and its systems

infrastructure (either mainframe based or through a "server farm") and usually also

includes two or more of the following services:

Desktop management

Local and wide area network (LAN and WAN) operations management

Help desk support

Application management

82 #ES05T ©2011 IDC

Hosted application management

Disaster recovery services

Hosting services

IS outsourcing contracts can also include related consulting and systems integration

activities. Along with activities performed by the outsourcer's employees, an IS

outsourcing contract can include (though does not always include) ongoing capital

spending for new equipment and may involve the transfer of assets and people from

the client to the service provider.


To maintain consistent IDC definitions, if only the network and desktop environments

are outsourced, IDC captures the spending in the network management services and

desktop management services category (collectively known as network and desktop

outsourcing). Likewise, if only the application environment is outsourced, IDC

captures the spending in the applications outsourcing category. IS outsourcing

captures only those contracts for which a large portion of the IS environment is

outsourced, usually over a 5- to 10-year period. Spending on discrete hosting

services or other hosted, one-to-many service models is captured elsewhere in IDC's

spending methodology. The IS outsourcing category captures spending on

customized, one-to-one IS outsourcing engagements.

Network and Desktop Outsourcing Services

Network and desktop outsourcing services (NDOS) involve the set of activities

associated with outsourcing the support and management of one or more elements of

the client/server and network communications infrastructure of an organization.

NDOS may be further segmented into network management services and desktop

management services. The term desktop is used interchangeably with office

client/server environment (i.e., desktops, servers for print/file/messaging, storage, and

peripherals), therefore, NDOS = network management services + desktop

management services:

Network management services. Network management services are the

activities, skills, facilities, and network infrastructure captured within a contract

associated with outsourcing the operations of a specific segment or entire

network communication system of a company. The scope of work includes the

installation and management of network tools that automatically monitor active

nodes, traffic, revision management, and security.

The service supplier also assists with fault isolation and resolution and enables

the business to optimize the efficiency of the network and avoid any downtime.

As part of the network management contract, the service supplier installs and

configures the network management system and manages user moves, adds, or

changes on the network, network software, and hardware upgrades.

Desktop management services. A desktop management contract might include

needs assessment, asset management, systems management, procurement and

deployment, onsite hardware maintenance, and onsite software support services

for office client/server environments. As with the IS outsourcing category, IDC

views desktop management services from a contract perspective. Desktop

©2011 IDC #ES05T 83

management captures only those contracts for which several desktop services

are outsourced to the same supplier.


The network operations provided as part of a larger IS outsourcing contract are not

captured in the network management services category. Likewise, if the engagement

includes not only desktop environments but also business applications (e.g. ERP,

SCM, CRM, etc.) and the systems supporting them, then it would be captured as an

IS outsourcing engagement rather than as an NDOS engagement. Additionally, the

network equipment support and maintenance contracts that are not associated with

network operations outsourcing contracts are not captured in this category. The

hardware support and installation service category captures the majority of network

product support.

Applicat ion Management

Application management is a service designed to provide for the day-to-day

operation, support, and maintenance of enterprise applications. AM services contain

a number of discrete components, including end-user support, proactive and reactive

application maintenance/enhancements, and remote or onsite application monitoring,

whether on the customer's or the vendor's premises. For IDC to consider a contract

as AM, the contract must contain a minimum of SLA-driven operational responsibility

for application performance and uptime, plus some application maintenance activities.

AM engagements typically, but not always, involve the transfer of employees from the

customer to the service provider.

AM services are often embedded in far larger contracts, encompassing such services

as datacenter or infrastructure outsourcing, desktop and hosting services, and

business-process outsourcing (BPO). In such cases, IDC does not count the data as

a part of the discrete AM forecast.

Hosted Application Management

Hosted AM comprises services where a customer's packaged applications are hosted

and managed out of a vendor-managed datacenter and includes packaged

applications hosted either in a customer-dedicated or in a shared infrastructure

environment. There are major differences between hosted AM, which is a

standardized service, and traditional AM, which is a customized outsourcing

engagement. With hosted AM:

Customer applications are primarily hosted out of the vendor's datacenter.

Support resources and certain elements of the low-level infrastructure (network,

transport, and so on) are shared across customers (a one-to-many model).

The vendor uses automated provisioning, management, monitoring, and

maintenance technologies to create economies of scale in managing across

multiple customer environments, thus reducing costs when compared with

traditional outsourcing models.

Providers bring expertise in standardization of packaged application

implementations and may assist customers in reducing customization by

leveraging prebuilt template solutions.

84 #ES05T ©2011 IDC

In most cases, the vendor sets a flat price per user (depending on a host of

variables, including promised uptime and support response times), and contracts

are typically for a shorter time period.

Packaged applications are primarily sold traditionally, with a one-time license and

recurring maintenance/support fees. The software license contract is usually separate

from the hosting contract.

Most hosted AM contracts allow for customization of the packaged application,

usually for an additional charge to support the custom application over time in

addition to any professional service fees. While installation, testing, and maintenance

(including patches and fixes) are built into a hosted AM service, optional services can

include configuration, custom integration, upgrades, and modernization

enhancements. Remote monitoring as well as uptime and performance monitoring via

application SLAs are often sold as part of the service.

Some hosted AM providers provide more robust pre- and postproduction support

services at the application layer that address ERP suite configuration services,

patches and performance tuning services, technical upgrades, security

administration, SAP ABAP reporting support (RICEF), custom integration and month-

end and year-end closing support, among a long list of application-related services.

Other hosted AM providers, as seen in certain geographies, will offer infrastructure,

OS, and database layer management support and limit the application support to

application monitoring and instance availability and uptime SLAs. These providers will

not offer specialized application postproduction support (e.g., monitoring data loads,

scripting support, BI performance tuning, post-implementation enhancements, and

governance workflow and change management support).

The main value proposition of the hosted model versus traditional AM is that because

the vendor has complete ownership and control over the hardware environment,

customers are freed from the costs and time associated with managing the systems

upon which their applications are running. The vendor owns and manages the

infrastructure in addition to managing the dedicated customer application instances.

The differences between traditional AM services and hosted AM services are

highlighted in following Table 33.

T A B L E 3 3

D i s t i n c t i o n s B e t w e en H o s t e d A p p l i c a t i o n M an a g e m en t a n d T r a d i t i o n a l

A p p l i c a t i o n M an a g em en t

Hosted AM Traditional AM

Where are the applications located? Vendor datacenter Customer site

Who is responsible for hardware procurement, financing, and configuration? Vendor Customer

Who is responsible for hardware management and uptime? Vendor Customer

Is the infrastructure shared? Yes; one to many No; one to one

Are the applications shared? No; one to one No; one to one

©2011 IDC #ES05T 85

T A B L E 3 3

D i s t i n c t i o n s B e t w e en H o s t e d A p p l i c a t i o n M an a g e m en t a n d T r a d i t i o n a l

A p p l i c a t i o n M an a g em en t

Hosted AM Traditional AM

Is staff transferred? Never Sometimes

Source: IDC, 2011


IDC's Worldwide Software-as-a-Service Taxonomy, 2008 (IDC #211780, April 2008)

classifies hosted AM as one category within the broader SaaS umbrella. It is

important to distinguish between hosted AM, which is designed for the management

of traditionally licensed packaged applications, and SaaS. SaaS, as referenced here,

is a model of Web-delivered, shared-instance software delivery, offered with a

subscription instead of a traditional license. SaaS multitenant is typically run with a

single shared application instance and a range of configuration options, but no true

customization to the database schema and multitenant data model, whereas hosted

AM offers customers private application instances (single-tenancy applications) with

greater customization capabilities. IDC will be updating its SaaS taxonomy to

separate out hosted AM from the SaaS umbrella term in a forthcoming document. In

the existing IDC SaaS taxonomy, the term software on demand (SoD) is also used to

reference the SaaS multitenant model.

The hosted AM market excludes retail ecommerce portals and informational Web

sites.

Hosting Infrastructure Services

Hosting infrastructure services include the management of servers, networking, and

other infrastructure solutions in a third-party service provider datacenter. Hosting

infrastructure services encompass activities related to the provisioning, management,

and maintenance of the infrastructure that supports businesses' Web sites and Web-

enabled applications. The specific capabilities delivered under this umbrella are

typically delivered as part of larger hosting infrastructure deployments and include

support for associated application infrastructure platforms (e.g., ecommerce

packages, databases, and application servers), comprehensive Internet infrastructure

management, and systems-level (as opposed to server-level) administration in

support of large-scale Web sites and Web applications. Software-centric activities

(i.e., middleware/operating system/database) are often performed by service

providers as part of infrastructure-oriented hosting infrastructure services

engagement. Generally, the starting point is infrastructure management, and

management of infrastructure-related software is often part of the engagement.

Hosting infrastructure services also include any hosting services delivered on

virtualized infrastructure (commonly referred to as "private cloud"), in addition to

services supported on traditional dedicated physical infrastructure. Hosting

infrastructure services provided on utility or virtualized infrastructure are not

necessarily "cloud services," given that the delivery and consumption models may or

may not conform to all of the cloud services attributes specified in Worldwide and

Regional Public IT Cloud Services 2010–2014 Forecast (IDC #223549, June 2010).

86 #ES05T ©2011 IDC

Hosting infrastructure services may be further segmented as follows:

Legacy shared web hosting/virtual private server (VPS). These are legacy

Web hosting categories that often get confused with "cloud" but do not meet the

criteria established in the cloud model. Legacy web hosting and VPS are SMB-

oriented, low-priced, relatively simple offerings generally leveraged for basic Web

sites and/or reseller hosting and/or application development and testing. With

these services, customers' Web sites and applications are hosted on a single

physical server on which each customer has a fixed resource allocation (disk

space in the case of shared hosting; virtual machine environments in the case of

VPS). Cloud, by contrast, enables customer Web sites and applications to be

abstracted from predetermined physical servers and supports dynamic capacity

scaling.

Cloud hosting infrastructure services. This term describes a particular model

of hosting service delivery as specified in IDC's public cloud services definition in

Worldwide and Regional Public IT Cloud Services 2010–2014 Forecast (IDC

#223549, June 2010). Cloud hosting infrastructure services combine use of

multitenant (shared) resources, radically simplified (i.e., standard) packaging,

self-service provisioning, highly elastic and granular scaling, flexible pricing (often

pay-per-use/pay-as-you go), and broad leverage of Internet standard

technologies — to make offerings dramatically easier, cheaper, and better to

consume.

Dedicated hosting. These are dedicated servers but are unmanaged from the

service provider's perspective; essentially, this involves server hardware leasing

where the customer has full control over the hardware and root access.

Complex managed hosting. This includes n-tier environments up to the

application layer where the environment is managed by the hosting provider (or

comanaged with the customer) as an integrated Web application environment.

However, the service provider does not provide application management —

hence the distinction from hosted application management.

Colocation. This is commercial/retail colocation where the service provider

offers colocation services and related remote network and systems management.

Colocation services are defined as a customer's use of a third party's physical

floor/cage/rack space, network capacity, and HVAC/power infrastructure (i.e., the

listed equipment is owned by a third-party datacenter and is located at the third

party's facility) to support operation of the customer's servers/storage/network

equipment and other types of infrastructure.

Also included in the definition are value-added services offered as add-ons to

managed and colocation hosting services, such as managed storage and security.

Exceptions an d Exc lus ions

Colocation services provided by non-dedicated datacenters (e.g., office rental

companies providing access to the Internet as part of the charge for office space) are

not included.

Hosting infrastructure services provide infrastructure-driven management functionality

that is not specific to a particular type of application. The definition excludes

connectivity fees associated with remote access to the datacenter, professional

services billed on a time-and-materials basis, and the resale of hardware or software.

©2011 IDC #ES05T 87

It also excludes enterprise application management, business process outsourcing,

and application/business productivity functionality delivered via the software-as-a-

service or software-on-demand model. As such, hosting infrastructure services do not

include hosted management of enterprise application software but do encompass

management of middleware and other types of enabling, infrastructure-oriented

software. For example, if the starting point of a client engagement is a request to

"manage my SAP application instances," then IDC would define it as hosted

application management.

IDC's Worldwide and Regional Public IT Cloud Services 2010–2014 Forecast (IDC

#223549, June 2010) includes hosting infrastructure services that feature multitenant

platforms, pay-per-use pricing, self-service capabilities, and all the other attributes

commonly associated with cloud services. However, IDC's public cloud forecast is a

separate effort from the foundation markets defined in this taxonomy, and as such,

the precise level of overlap has yet to be determined.

S y n o p s i s

"Vendors have to prepare for continuing pressure on margins, as well as the gradual

transformation of user priorities from cost cutting to better alignment of IT with

business goals. Strong justification for IT investments will be required. Vendors

should prepare to offer impeccable reliability, flexibility, and a commitment to users'

concerns." – Neli Vacheva, Country Manager, IDC Bulgaria

C o p y r i g h t N o t i c e

This IDC research document was published as part of an IDC continuous intelligence

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Documents

Bulgaria IT Services Market 2011_2015 Forecast and 2010 Vendor Shares Draft