About the Service 50 Index
Since 2005, TSIA has been closely tracking service revenue and profit trends for 50 of the largest global providers of technology services and solutions, which we call the Service 50. The Service 50 consists of a diverse mix of hardware, software, and pure service companies, which give us a detailed representation of how the industry is performing overall. We aggregate the financial performance of these companies from public record in order to identify trends and provide critical observations based on the current quarterly updates.
What We’ve Learned
Earlier in the year, we discussed our observations on two trends that we refer to as the “Q2 Bump” and the “Q3 Splat.” Year over year, the Service 50 companies experienced a significant increase in revenues in Q2, creating a noticeable spike, or the Q2 Bump.
This increase is always followed by a significant dip in revenues in Q3, the Q3 Splat. While this considerable drop in revenues might look alarming, it is a recurring and predictable trend that we can expect each year.
Factoring in these drastic increases and decreases with the Bump and Splat, we’ve found that product revenues are steadily shrinking while service revenues continue to rise. Service revenues have been growing faster than product revenues for quite awhile and will continue to do so as more companies begin shifting their focus on selling more subscriptions than products.
Unfortunately, selling traditional products and traditional services (e.g., support, implementation, technical training) will continue to lead to decreased revenues. The best solution is to continue developing your services portfolio to incorporate a healthy mix of product- and service-based offerings, including ones that are not dependent on product sales. This will allow your organization to make the transition from a Level 2 supplier to a Level 3 or Level 4 supplier, ensuring a more sustainable business model going forward.
Find Out What’s In Store for Technology Services
Join us on January 22, 2015, for our TSIA Service 50 Q4 webinar, where we will talk about what we’ve observed in the last quarter of 2014 that can give us hints of what we can expect heading into 2015. Key conversation topics will include:
Overall revenue and profit trends for technology companies.
Service revenue and margin trends.
How business models for hardware and software companies are shifting.
The growing influence of cloud computing on the financial results of the Service 50.
Watch our on-demand webinar to get a close-up look at what’s currently happening in the technology services industry.
About the Author
Thomas Lah is executive director of TSIA. Since 1996, he has used his incisive analysis, strategic thinking, and creative solutions to help some of the world’s largest technology companies improve the efficiency of their daily operations. He has authored several books, including Bridging the Services Chasm (2009), Consumption Economics (2011), and B4B (2013).