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Data Processing & Hosting Services in the USJuly 2013 1

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

IBISWorld Industry Report 51821

Data Processing & Hosting Services in the US


July 2013 Andrew Krabeepetcharat
2 About this Industry
2 2 2 3 Industry Definition Main Activities Similar Industries Additional Resources 16 International Trade 17 Business Locations 30 Regulation & Policy 30 Industry Assistance

20 Competitive Landscape
20 Market Share Concentration 20 Key Success Factors 21 Cost Structure Benchmarks 22 Basis of Competition 23 Barriers to Entry 24 Industry Globalization

31 Key Statistics
31 Industry Data 31 Annual Change 31 Key Ratios

4 Industry at a Glance 5 Industry Performance


5 5 7 9 Executive Summary Key External Drivers Current Performance Industry Outlook

32 Jargon & Glossary

25 Major Companies
25 Hewlett-Packard Company 26 International Business Machines Corporation

11 Industry Life Cycle

13 Products & Markets


13 Supply Chain 13 Products & Services 14 Demand Determinants 15 Major Markets

28 Operating Conditions
28 Capital Intensity 29 Technology & Systems 29 Revenue Volatility

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Data Processing & Hosting Services in the USJuly 2013 2

About this Industry


Industry Definition
This industry provides specialized data processing or hosting activities. Data processing services provide specialized reports from information supplied by the clients. Hosting services can include web and application hosting. Services range from automated data entry to processing that data.

Main Activities

The primary activities of this industry are Application hosting Application service provider services Data entry services Data processing computer services Data processing Database management Web hosting

The major products and services in this industry are Application service provisioning Business process management and data processing Data storage and management services IT computer network and network management services IT technical support services Website hosting services Other services

Similar Industries

52232 Credit Card Processing & Money Transferring in the US The logistics involved in processing the transfer of funds is often better handled by companies with extensive experience in the process. 54121b Payroll & Bookkeeping Services in the US This industry provides outsourced payroll services for clients employees, including basic bookkeeping. 54121c Accounting Services in the US This industry provides a range of financial services, such as auditing of accounting records, preparing financial statements and preparing tax returns. 54121d Tax Preparation Services in the US This industry provides a range of financial services, such as auditing of accounting records, preparing financial statements and preparing tax returns. 54151 IT Consulting in the US IT consultants provide expert advice and assistance in the fields of writing, modifying, testing, and supporting software to meet the needs of particular customers.

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Data Processing & Hosting Services in the USJuly 2013 3

About this Industry

Additional Resources

For additional information on this industry www.aitp.org Association of IT Professionals www.itwire.com ITWire www.census.gov US Census Bureau

IBISWorld 

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

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Data Processing & Hosting Services in the US July 2013

Industry at a Glance
Data Processing & Hosting Services in 2013 Key Statistics Snapshot
Revenue

$83.8bn 2.4%
Profit Wages
Revenue vs. employment growth
10 5

3.0% $10.1bn $15.4bn 47,744


Businesses
Demand from internet publishing and broadcasting
25 20

Annual Growth 08-13

Annual Growth 13-18

Market Share

Hewlett-Packard Company  15.7%


% change

% change

International Business Machines Corporation  13.9%

0 5 10 15

15 10 5 0

Year 05 Revenue
p. 25

07

09

11

13

15

17

19

Year 06

08

10

12

14

16

18

Employment
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Products and services segmentation (2013)


IT computer network and network management services

Key External Drivers


Demand from internet publishing and broadcasting

7.4%

Website hosting services

5.2%

Price of computers and peripheral equipment External competition Percentage of services conducted online Private investment in computers and software Number of mobile internet connections
p. 5

IT technical support services

7.6%

25.3%
Other services

Data storage and management services

12.4%

Application service provisioning

18.3%

Business process management and data processing


SOURCE: WWW.IBISWORLD.COM SOURCE: WWW.IBISWORLD.COM

23.8%

Industry Structure

Life Cycle Stage Revenue Volatility Capital Intensity Industry Assistance Concentration Level

Growth Medium High Low Low

Regulation Level Technology Change Barriers to Entry Industry Globalization Competition Level

Light High Medium Medium High

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

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

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

Firms  

will increasingly outsource their IT needs, boosting demand for industry services
an estimated annualized rate of 2.4% to $83.8 billion, including expected growth of 1.5% during 2013. Investment in outsourcing application hosting to specialized firms has been the primary driver of growth, as it has been an alternative to local hosting of enterprise software. Because revenue depends on subscriptions, the pullback of IT spending during the recession slowed the rate of revenue growth. However, spending has picked up since 2011, and it

is expected to grow even faster in 2013 as firms increasingly outsource their IT needs to third parties. Mergers and acquisitions are anticipated to increase during the next five years as firms consolidate to increase the subscriber base over which they can allocate computing resources. Also, supply disruptions in the hardware space (such as the flooding of hard-drive manufacturing plants in Thailand during 2011) may push companies that managed their IT infrastructure needs in-house to opt for a third-party provider. Other factors will also play into growth in coming years. Consolidation within other industries will push businesses to outsource their IT needs as systems become too complex to maintain inhouse. At the same time, the exponential growth in complexity as scale grows will increase the expertise level needed to effectively manage large data centers. As firms begin capturing more data, they will increasingly require outside expertise to manage their data collection, hosting and processing. As a result, revenue is forecast to grow at an average annual rate of 3.0% during the next five years, reaching $97.3 billion in 2018.

Key External Drivers

Demand from internet publishing and broadcasting A significant portion of this industrys revenue comes from web hosting. As demand for hosting services increases, this industry will be called upon to supply the data infrastructure to make websites available to the public. The demand from internet publishing and broadcasting expected to increase in 2013, representing a potential industry opportunity. Price of computers and peripheral equipment Falling computer prices make purchases of equipment and other parts involved

with in-house data processing and hosting more manageable. Therefore, a decline in prices adversely affects industry demand. The price of computers and peripheral equipment is expected to decrease in 2013, representing a potential industry threat. External competition External competition for this industry largely stems from firms ability to provide for their own data processing and hosting needs internally. While trends in major markets favor a move away from internal provision of these services, events such as a major security breach at

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Data Processing & Hosting Services in the USJuly 2013 6

Industry Performance

Key External Drivers continued

an industry firm could skew the trend in the opposite direction. External competition for the industry is expected to decrease to 2013. Percentage of services conducted online Largely, this industrys role is to facilitate online transactions and services. A rise in percentage of services conducted online indicates increased usage of the internet and data usage, which increases demand for the industrys services. The percentage of services conducted online is expected to increase in 2013. Private investment in computers and software The industry is investing more resources in application service providers (ASPs). ASPs provide software as a service
Demand from internet publishing and broadcasting
25 20

(SaaS). SaaS involves using a server to remotely deliver software onto a desktop. ASPs and SaaS are part of data processing and hosting, so any investment in them will increase revenue for the industry. Private investment in computers and software is expected to increase in 2013. Number of mobile internet connections As the number of mobile internet connections increases, demand for services that take advantage of these connections rises. This number includes many location-based services that have not yet built significant delivery systems to take advantage of this industry. The number of mobile internet connections is expected to increase in 2013.
Price of computers and peripheral equipment
120 110 100

% change

15 10 5 0

Index

90 80 70 60

Year 06

08

10

12

14

16

18

Year 04

50

06

08

10

12

14

16

18

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Industry Performance

Current Performance

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

Demand  

for storage and hosting has grown in line with web video and music popularity
billion in the five years to 2013, including a 1.5% expected increase in 2013 alone. Profit, however, is expected to remain relatively constant at 12.0% during this period due to a high level of competition.

The cloud

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

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

Large-scale clients

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

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

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Industry Performance

Large-scale clients continued

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

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

Increasing relevance

Ultimately, the output of this industry appeals to two distinct groups. New firms demand data hosting to avoid the cost plateaus associated with internal investment in new hardware and software. Extremely large firms demand industry services because in-house management would be more burdensome than outsourcing. As a result, this industry depends on several factors, such as the enduring complexity of large-scale operations and the entrance of new enterprises, particularly those designed to operate via the internet. The recent spike in investment in internet firms, due to media shifting to online platforms, has been enormously beneficial to this industry. This speculation has driven significant money toward resellers and content purveyors that lease resources from data hosts. At the same time, larger firms have found that the resources required to manage data increase exponentially as the amount of data to be analyzed increases because that data requires increasing amounts of metadata, a term for the data that describes and gives information about other data. Eventually, this metadata requires its own metadata to keep track of it, and so on. As such, the only firms of scale that can handle the infrastructure and engineering required to manage huge amounts of data are those with an expertise in such activities; these include major internet firms or the

Average  

industry wages have risen as a result of a consolidation and fewer low-paid jobs
specialized hosts and processors in this industry. As consolidation has gripped most American industries, data hosting and processing firms have been major beneficiaries. Meanwhile, firms in this industry have also been consolidating to gain the infrastructure needed to manage newly consolidated firms immense IT needs. Most of the consolidation during the past five years has occurred among smaller, private firms. This consolidation has claimed a significant number of enterprises and establishments. Additionally, consolidation has weighed on employment. The industry now employs about 214,404 people, representing an annualized decrease of 4.0% in the five years to 2013, despite strong revenue growth. Many of these job losses have come from low-skill jobs ripe for outsourcing. In particular, many low-paid data-entry positions have disappeared from domestic labor statistics, which has contributed to the increases in average wages in the past five years, from about $67,800 per worker in 2008 to $71,888 in 2013.

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Industry Performance

Industry Outlook

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

Industry revenue
10 8

% change

6 4 2 0

Year 05

07

09

11

13

15

17

19

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Growth in major markets

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

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

Shift to online services

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

smaller and smoother increments and then expand or shrink their allotment as needed. This model will likely encourage investment in internet-based businesses and result in higher demand for industry products. Furthermore, businesses that planned on handling their own IT infrastructure may decide otherwise

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Industry Performance

Shift to online services continued

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

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

Organizational activity

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

Consolidation  

and employment declines will continue as companies pursue M&As


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

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Data Processing & Hosting Services in the USJuly 2013 11

Industry Performance
Life Cycle Stage

Industry value added (IVA) is forecast to grow faster than GDP from 2008 to 2018 Technology has progressed, and businesses need to store an increasing amount of data New products such as cloud computing continue to benefit industry operators

% Growth in share of economy

20

Company consolidation; level of economic importance stable

Maturity

Quality Growth

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

Key Features of a Growth Industry Revenue grows faster than the economy Many new companies enter the market Rapid technology & process change Growing customer acceptance of product Rapid introduction of products & brands

15

10

Internet Publishing and Broadcasting


5

Quantity Growth

Many new companies; minor growth in economic importance; substantial technology change

Credit Card Processing & Money Transferring


0

Data Processing & Hosting Services


Payroll & Bookkeeping Services

Computer Peripheral Manufacturing

Computer Manufacturing

Decline

Shrinking economic importance

10 10

10

15

20

% Growth in number of establishments


SOURCE: WWW.IBISWORLD.COM

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Data Processing & Hosting Services in the USJuly 2013 12

Industry Performance

Industry Life Cycle This  industry is G  rowing

This industry is in the mature stage of its life cycle. During the 10 years to 2018, IBISWorld forecasts industry value added (the industrys overall contribution to the economy) to increase at an average annual rate of 0.9%. During the same period, GDP is projected to grow at an annualized rate of 2.1%, indicating that the industry is growing but becoming a smaller share of the overall economy. A rapid rate of technological change is also indicative of a growing industry. Major players in this industry invest heavily in research and development to create new products that will improve

the efficiency of data processing and hosting services. Technological change for key buying industries has also contributed to demand, as new internet startups require massive hosting capabilities to run their sites. Cloud computing has become one of the fastest-growing products the industry offers. Major player IBMs cloud computing segment more than tripled its revenue in the past year alone. In the next five years, industry firms are expected to continue to demand more cloud-related services to meet the growing IT needs of their clients.

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Products & Markets


Supply Chain
KEY BUYING INDUSTRIES
51913b 52

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

Internet Publishing and Broadcasting in the US Internet publishers and broadcasters use data hosts to store and transmit content to users. Finance and Insurance in the US The finance sector is the single largest enterprise-level industry that demands data processing and hosting services, primarily in the form of market and transaction data. Public Administration in the US Government agencies demand industry services as part of outsourced contracts.

92

KEY SELLING INDUSTRIES


33411a 33411b 51121 51711c 54151 Computer Manufacturing in the US Computer manufacturers supply the industry with computers. Computer Peripheral Manufacturing in the US Computer peripheral manufacturers supply the industry with computer equipment. Software Publishing in the US Software publishers supply the industry with packaged software solutions. Wired Telecommunications Carriers in the US Wired telecommunications carriers supply the industry with telecommunications services. IT Consulting in the US IT consultants help the industry implement computer systems design solutions.

Products & Services

Products and services segmentation (2013)


Website hosting IT computer network and services network management services IT technical support services

7.4%

5.2%

7.6%

25.3%
Other services

Data storage and management services

12.4%

Total $83.8bn

Application service provisioning

18.3%

Business process management and data processing


SOURCE: WWW.IBISWORLD.COM

23.8%

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

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

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Products & Markets

Products & Services continued

About 54.5% of total industry revenue is derived from three services. The first is business process management and data processing, which use technology to improve business efficiency. The second is data storage and management services, which involve storing and accessing data. The third is application service provisioning, also called software as a service (SaaS). The industry also offers many other value-added services, including links to customer invoicing services and data warehousing and mining to assist in market and customer analysis. Website hosting services have also increased as an area of revenue, as companies require websites to operate and promote their businesses in an increasingly competitive environment. Application service provisioning Application service provisioning is growing in importance within this industry. To operate efficiently, many companies use SaaS, which allows single users to access computer software across a server. This strategy improves overall company efficiency because it avoids manually installing software onto each computer. However, SaaS increases companies risk of losing their data because all of

their information is processed and stored on a single server instead of on separate computers. Data storage and management services Data management and data storage is also becoming increasingly popular. As companies collect more information from customers, they require additional capacity to store and use that information. Smaller firms have dedicated information technology departments to (at least partly) oversee these operations, while other companies opt to outsource this function to thirdparty companies. However, some of this outsourcing will go to data storage companies abroad. Other services Other services offered by the industry, which compose 25.3% of revenue, vary greatly from document transformation to software publishing. These activities are not the main sources of revenue for this industry, but when they are combined, they provide a material part of data processing and hosting firms revenue. Nevertheless, none of these smaller segments represent more than 5.0% of revenue individually.

Demand Determinants

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

corporate profit, in part because businesses that perform well are more likely to update to the latest technology and software to maintain efficiency. For instance, well-performing companies need additional data storage to maintain customer lists and find customer purchase trends. This factor will increase the use of software as a service (SaaS). Cost of technology Demand for industry services is sensitive to developments in the global IT market. Cheaper hardware and software means

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Products & Markets

Demand Determinants continued

that data processing and hosting companies are able to deliver services to their customers at cheaper rates. Increasingly, data processing operations are being offshored to countries such as China and India, with highly skilled yet low-cost labor. The lowered cost through offshoring will be passed on to clients in the form of lower prices. In turn, lower prices will increase demand. On the other hand, as hardware and software become faster and more affordable, companies will likely undertake data processing and hosting services in-house. This trend would decrease demand for this industrys services from major corporate clients. However, the specialization of the

industrys major players ensures that outsourcing sporadic or major projects is more cost-effective than performing the task in-house. Price of existing services Providing application services is an important new technology for businesses. The ability to access software remotely from a companys server enables employees to work from any computer, regardless of whether that computer has the software installed on it. This factor significantly increases efficiency. Additionally, SaaS eliminates the need to purchase and install licensed software on every single computer, saving companies time and money.

Major Markets

Major market segmentation (2013)


Content providers

7%

Government rms

12%

Non-nancial enterprises

39%

Financial rms

16%

Total $83.8bn

Resellers

26%

SOURCE: WWW.IBISWORLD.COM

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

information, supply chain information and scheduling and so forth. Financial firms account for an estimated 16.0% of industry revenue, while nonfinancial enterprises account for 39.0% of industry revenue. Government firms make similar use of data processing and hosting, accounting for an estimated 12.0% of industry revenue. Meanwhile, content providers account for an estimated 7.0%

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Products & Markets

Major Markets continued

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

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

International Trade

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

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

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Products & Markets


Business Locations 2013

West
AK
0.1

New England Great Lakes


MN

MidAtlantic
MI
5.3

ME
0.1

WA
1.7

OR
1.0

Rocky Mountains ID
0.2 0.1

MT

ND
0.1

SD
0.1

Plains
IA
1.7

3.2

1 2 3 NY 5.8 5 4 6 7 8

WI
2.0

PA
3.2

WY
0.0

West NV
0.2

NE
0.8

IL
3.7

IN
1.4

OH
3.3

UT
0.9

CO
3.1

KS
0.6

MO
1.8

KY
0.5

WV VA 3.9
0.1

NC
1.5

CA
14.2

OK AZ
2.5 1.1

AR
1.0

Southeast
1.0

TN

SC
0.2

NM
0.2

Southwest
TX
10.4

MS
0.2

AL
1.0

GA
6.4

LA
0.2

FL
4.0

West

HI
0.1

Additional States (as marked on map) 1 VT


0.3 0.6

Revenue (%) Less than 3% 3% to less than 10% 10% to less than 20% 20% or more
SOURCE: WWW.IBISWORLD.COM

2 NH
0.2

3 MA
3.5

4 RI
0.1

5 CT

6 NJ
3.2

7 DE
0.7

8 MD
2.0

9 DC
0.5

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Products & Markets

Business Locations

The Southeast, Mid-Atlantic and West regions have a combined share of more than 50.0% of industry establishments. These regions make up the largest portion of establishments because they have the highest number of people in the United States. Other reasons include the geographic client locations in these regions. For example, California has a large number of industry establishments (and the highest share of revenue) because of the number of technology companies based in Silicon Valley. Additionally, most major international clients of this industry have headquarters in California. The Mid-Atlantic region also has a large number of establishments because many of the nations financial institutions are headquartered in New York. Even firms that work remotely want to stay close to their customers so they can provide quick assistance with any technical difficulties. The shift of employees to other countries is having a marked effect on the industrys geographic spread. As skills become more oriented toward sales and client services roles, US
Revenue vs. population
30

Employment and population (2012)*


Share of employment (%) 15.4 13.0 15.0 5.5 10.6 5.8 19.7 15.0 Share of population (%) 17.0 15.0 15.6 4.7 6.6 3.5 25.2 12.1

Region West Great Lakes Mid-Atlantic New England Plains Rocky Mountains Southeast Southwest
*Estimate

SOURCE: US CENSUS BUREAU COUNTY BUSINESS PATTERNS

employees will spend more time contacting current and prospective clients. IBISWorld expects that as computer technology becomes more mobile, there will be a minor shift of establishments away from large commercial centers, as industry firms attempt to minimize rent and other associated costs with maintaining establishments in major cities. Many
Revenue vs. establishments
30

20

20

10

%
10 0 Great Lakes New England Plains Rocky Mountains West Mid-Atlantic Southeast Southwest 0 West Great Lakes New England Plains Rocky Mountains Mid-Atlantic Southwest Southeast

Revenue Population

Revenue Establishments
SOURCE: WWW.IBISWORLD.COM

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Products & Markets

Business Locations continued

employees who work in this industry will be able to work remotely from home. IBISWorld research indicates that the main operations of many firms are located abroad. Many firms in this industry require large servers and database systems in order to operate.

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

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20

Competitive Landscape
Market Share Concentration
Level Concentration  The level of concentration in the Data Processing and Hosting Services industry is low, primarily due to the range of services that data processing and hosting service companies can provide. In 2013, IBISWorld estimates that the four largest operators in the Data Processing and Hosting Services industry will account for about 33.5% of industry revenue. In terms of the size of establishments according to staff levels, the industry is highly fragmented, with 56.9% of all establishments employing fewer than five people in 2013. Large establishments of 100 or more employees represent just 8.6% of total establishments. These numbers may be skewed due to outsourcing; some firms may have more employees overseas that are not included in the data for this industry. While market share concentration is low, it is gradually increasing because of a number of recent acquisitions. Most notably, HewlettPackards recent acquisition of Ability to quickly adopt new technology Because of the rapid pace of technological change in the information technology industry, many industry companies must quickly adopt new techniques in order to remain competitive. Access to multiskilled and flexible workforce It is necessary to have access to a large pool of labor with varying levels of skills, from data processing to programming. This helps companies stay competitive and adopt new technologies more quickly. Ability to manage external (outsourcing) contracts Most industry operators outsource several operating functions. In order to continue to deliver quality services, managing external contracts properly is essential.

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

Enterprises by employment size (2013)*


No. of employees 1 to 4 5 to 9 10 to 19 20 to 99 100 to 499 500+ Total
*Estimate

Share (%) 56.9 11.6 10.2 12.8 4.1 4.5 100.0


SOURCE: US CENSUS BUREAU

in this industry is L  ow

Electronic Data Systems, formerly one of the largest operators, has made HP the largest player in the industry. The industrys smaller operators face increasingly difficult competitive conditions, as large companies with falling costs look to control broader segments of the market. These smaller firms are likely to target niche providers for acquisition over the five years to 2018 and increase their market share. Effective quality control Many of the industrys services require strict quality control because clients rely on companies to keep data secure. Ensuring pricing policy is appropriate With price-based competition occurring on some outsourced contracts, it is important to ensure that the organizations pricing policy is reasonable. Having a cost-effective distribution system Having a cost-effective delivery system allows companies to better compete on price. This is becoming progressively important as more companies provide similar services at affordable prices abroad.

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

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21

Competitive Landscape

Cost Structure Benchmarks

Costs related to this industry and, by extension, profitability, have remained relatively stable in the five years to 2013. Despite the continuous advancement of technology, established firms have fallen into stable spending patterns. One of the primary benefits this industry offers its customers is the availability of pooled resources to handle unexpected spikes in demand. Profit The net effect of this business model is that industry firms have relatively stable and predictable needs going forward, particularly since this industrys pricing scheme is subscription-based. Thus, revenue is growing while technological advances allow for increased output at constant spending levels. Though pricing is competitive among providers with less brand recognition, firms with significant visibility can charge a premium for their Sector vs. Industry Costs
Average Costs of all Industries in sector (2013) 100

services. Profit, measured as earnings before interest and taxes, amounts to about 12.0% of industry revenue in 2013. While some costs may decrease over time, competition will likely force other costs to increase as well, keeping profitability at about this level for the foreseeable future. Other This industrys overall cost structure is difficult to gauge due to the high level of corporate activity, such as large one-time capital investments and mergers and acquisitions, which can dramatically impact costs from year to year. As a result, miscellaneous costs make up 41.0% of industry revenue. Other costs include expenses associated with research and development, restructuring, write-downs of acquired intangible assets, and acquisition costs paid to firms no longer in the industry. Acquisitions designed to build

Industry Costs (2013)

14.7
80

12.0 18.4 4.2 12.4 3.0 9.0

21.0 24.2

Percentage of revenue

60

Profit Wages Purchases Depreciation Marketing Rent & Utilities Other

40

20

8.0 7.4 5.1 19.6

41.0

0
SOURCE: WWW.IBISWORLD.COM

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Competitive Landscape

Cost Structure Benchmarks continued

market share often include overpayment for things such as customer lists or goodwill, which are routinely written down upon testing for impairment. Wages Following the other cost segment, the single-largest cost is wages, despite significant layoffs in recent years. Wages are estimated to account for 18.4% of industry revenue. Though industry employment has fallen to a level much lower than before the financial crisis, wages as a percentage of revenue have not declined dramatically because the majority of the jobs shed were at the lower end of the pay scale. These jobs included data entry keying and customer service representation, which have been largely relocated abroad where low-skill labor is cheaper. Depreciation, rent and utilities, and purchases After wages, depreciation is the nextlargest expense, amounting to an

estimated 12.4% of industry revenue. This industry requires significant capital investment in property and computer hardware, the latter of which has a short useful life and depreciates rapidly. As a result, industry firms continuously invest in new hardware and software to stay competitive. Rent and utility expenses are fairly small as a portion of overall industry revenue, at about 5.9% and 3.1%, respectively, but they are still significant for businesses in this industry. Data centers can spread across large swaths of land and consume buckets of electricity; therefore, they are often situated where these two costs can be minimized. Purchase costs are primarily composed of internet connectivity charges, or the money that industry firms pay to telecom firms for bandwidth. Though crucial to this industry, regulation and competition have ensured that connectivity costs do not overwhelm data hosts and processors.

Basis of Competition
Level & Trend  ompetition C

in this industry is Highand the trend  is I  ncreasing

This industry has a high level of competition. Companies compete with each other (internal competition) and with customers who may choose to move their data hosting and processing services in-house (external competition). In both cases, the competition involves four key factors: reputation, utility, cost and support. Reputation is the most important competitive factor because the nature of the industrys output makes shopping by comparison difficult. Reputation includes factors such as the firms track record and the perceived financial stability and viability of vendors. Firms are wary of the costs of moving providers, and investing their resources in a firm perceived to be stable is viewed as an acceptable cost.

Utility refers to the value a hosting or processing service offers to its customers. This factor can include the speed and ease of implementation, the functionality of its products, its performance, security, scalability, flexibility, and reliability, and the ease with which it can be integrated into existing services. Industry firms become more attractive to clients if they are able to offer a wide variety of services to handle a full spectrum of needs. New trends in cloud computing are making industry firms compete in the quality and value of the service they offer (e.g. Google offers five gigabytes of free cloud storage compared to Dropboxs two gigabytes). Cost is relatively self-explanatory, though the nature of how costs are computed in this industry can be somewhat complex. Firms competing on

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Competitive Landscape

Basis of Competition continued

price often cut costs by outsourcing labor or through mergers and eliminating redundant positions. Support refers to the level and quality of support services firms offer. Support services can refer directly to customer support but also to consulting and training services. It also includes assistance in

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

Barriers to Entry
Level & Trend  arriers to Entry B

in this industry are Mediumand S   teady

The industrys largest players have considerable capital investment, including server farms with incredible processing power. However, thousands of smaller companies perform some form of data processing outsourcing for smaller clients. As such, for those wishing to enter the industry at its bottom end, the barriers do not pose a significant challenge. The cost of establishing an operation in this industry is high due to the cost of computing and other equipment. For data hosting companies, the leasing of space on other companies servers may offer a lower short-term initial cost solution to establishing a firm in this industry. Nevertheless, data processing and application service providers have a lower need for capital. They mostly rely on labor to develop software and process information through computers. Basic equipment costs are declining while providing faster processing power. However, the industry will likely expand its reliance on such technology, possibly increasing future capital costs for startup companies. The use of appropriate equipment on a leased basis can lower the initial establishment costs. Larger players have an advantage, benefiting from economies of scale. Larger data storage companies are able to use their data servers to host information for many clients rather than just one. Larger application service providers and data processing companies are also able to benefit through outsourcing. By taking

Barriers to Entry checklist


Competition Concentration Life Cycle Stage Capital Intensity Technology Change Regulation & Policy Industry Assistance

Level High Low Growth High High Light Low


SOURCE: WWW.IBISWORLD.COM

the operations portion of its business abroad, industry firms are able to save labor and material money. Aside from the start-up capital costs to obtain computers and servers, new entrants to this industry must also obtain business contracts. New entrants are more likely to target smaller firms in the region because they lack the means and reputation to service larger clients. Start-up companies must spend a relatively large amount of money advertising their business to clients. New entrants also need to manage their labor costs effectively. Therefore, companies are taking some aspects of their businesses to low labor-cost companies in India or China. Low wage costs in these regions allow companies to have larger servers and data storage areas. Smaller companies that first enter the industry often do not have the luxury of outsourcing their entire operation. Therefore, they will either rent servers from abroad or buy servers domestically to service their clients.

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Competitive Landscape

Industry Globalization
Level & Trend  lobalization G

in this industry is Mediumand the  trend is I  ncreasing

Historically, US-based companies have dominated the industry, with firms in lower labor-cost countries abroad offering some competition. However, the technology revolution that India has been experiencing during the past decade has caused a seismic shift in the industry, and there is now a burgeoning data processing sector in India. Neighboring countries are attempting to recreate its success. While there are still data processing and hosting firms on US soil, the rise of Indian companies such as InfoSys and the propensity for US firms to outsource their work abroad is creating a more globalized industry. Data processing

and hosting firms will have their sales and client relationship in the United States, while outsourcing the main operation abroad to cheap labor. This trend is even truer for data storage and hosting companies. In the future, more technology companies based in foreign countries will likely gain industry prominence with a larger share of revenue. However, a fundamental physical restriction, particularly the speed at which electrons or light can traverse the globe, will mandate that companies maintain operations somewhere near their customers.

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Data Processing & Hosting Services in the USJuly 2013 25

Major Companies
Major players
(Market share)

Hewlett-Packard Company | International Business Machines Corporation | Other Companies

International Business Machines Corporation 13.9%

70.4%
Other Hewlett-Packard Company 15.7%
SOURCE: WWW.IBISWORLD.COM

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

Hewlett-Packard (HP) is a global technology corporation that specializes in the manufacturing of computers, data storage, network hardware, software and a variety of technology-related services. The company was founded in a one-car garage in 1939 by two Stanford electrical engineering graduates, William Redington Hewlett and David Packard. Headquartered in Palo Alto, CA, the company provides services to more than 160 countries around the world and now employs about 350,000 employees. HP operates in this industry through its services division, which provides technology and application services, as well as information technology (IT) and business outsourcing. The IT outsourcing segment provides services that streamline and optimize infrastructure through data centers that improve efficiency and reduce costs. The

companys technology services aim to keep clients infrastructure running by providing networking services, in addition to infrastructure services for storage, server and unified communication environments. Applications services provide technology consulting and integration solutions and services that use cloud computing, information management and analytics. Financial performance In August 2008, the company made the major acquisition of Electronic Data Systems (EDS) for $13.8 billion. EDS provides services in systems infrastructure, application development and business-process outsourcing. The transaction significantly increased HPs industry-relevant revenue in 2009, when HP announced that EDS would be changed to HP Enterprise Services.

Hewlett-Packard Company (US industry relevant) financial performance*


Year 2008 2009 2010 2011 2012 2013
*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD

Revenue ($ million) 7,342 12,383 12,435 12,584 12,652 13,159

(% change) 36.8 68.7 0.4 1.2 0.5 4.0

Operating Income ($ million) 881 1,786 1,981 1,802 1,808 1,853

(% change) 41.2 102.7 10.9 -9.0 0.3 2.5

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Data Processing & Hosting Services in the USJuly 2013 26

Major Companies

Player Performance continued

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

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

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

Founded in 1919, International Business Machines Corporation (IBM) is a USbased multinational technology consulting and software development firm headquartered in Armonk, NY. IBM manufactures and sells high-end computer hardware and software and also offers consulting, IT and hosting services. IBM has operations in most major cities worldwide and employs more than 430,000 employees. IBM competes in this industry via its global technology services (GTS) division, which provides IT infrastructure services and business process services. This segment provides strategic outsourcing services using cloud computing, analytics and virtualization to help businesses meet their IT needs. In addition, this division includes GTS services delivery, which is responsible for the global delivery of process-based services. The fastest-growing portion of this division is cloud computing. The IBM SmartCloud delivers business and IT services over the network, changing the way that businesses use and store data.

In 2012, an estimated $35.0 billion in commerce transactions were conducted in the IBM SmartCloud. IBM has helped clients integrate cloud computing into their business by making IT resources highly automated and virtualized. Amid increasing demand for cloud computing, IBM has made itself a leader in the industry by heavily investing in this technology. The company holds more patents than any other US-based company, investing $6.0 billion annually in research and development (R&D). Financial performance Industry-related operations grew at an annualized rate of about 2.1% to $11.6 billion in the five years to 2013. This growth is a result of clients requiring more data processing and hosting as they integrate more IT into their business processes. This segment benefited from investments in R&D during the past five years, as IBMs new cloud-computing technology helped spur growth within the segment.

IBM Corporation (US industry relevant) financial performance*


Year 2008 2009 2010 2011 2012 2013
*Estimates

Revenue ($ million) 10,475 10,067 10,278 11,111 11,436 11,635

(% change) 8.9 -3.9 2.1 8.1 2.9 1.7

Operating Income ($ million) 1,257 1,409 1,541 1,583 1,715 1,730

(% change) 0.6 12.1 9.4 2.7 8.3 0.9

SOURCE: ANNUAL REPORT AND IBISWORLD

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Data Processing & Hosting Services in the USJuly 2013 27

Major Companies

Other Companies

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

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

GoDaddy.com

Salesforce.com

Estimated market share: 2.3% Salesforce is a leading application service provider. The company provides ondemand software as a service (SaaS) to corporations around the world, mainly through customer relationship management (CRM). Founded in 1999, the companys initial objective was to provide business applications through the internet. At the end of 2010, Salesforce had 87,200 clients, a vast increase from its 2005 total of 20,500 (latest information available). Salesforces flagship CRM application helps companies record, track and manage customer information, including sales and customer service. It is considered a form of data processing because the customer enters data into the software and the system delivers vital customer information back to the client. Within the CRM segment, Salesforce focuses on four particular services: automation, partner relationship management, customer service and support and marketing.

Estimated market share: 1.6% GoDaddy is a private online websitehosting company established in 2001 that has grown significantly since its inception. The company is headquartered in Scottsdale, AZ, and employs about 3,341 people. The main service lines for GoDaddy include web hosting, domain name registration and reselling of domain names. Within those segments, domain names generate the most revenue for the company, with more than 60.0% of GoDaddys sales. Hosting only makes up about 20.0% of the companys revenue. Like most web-hosting businesses, repeat business is an important revenue generator. In December 2011, other companies and the online community criticized the company for supporting the Stop Online Piracy Act, while major sites like Google and Wikipedia strongly opposed the act. In protest, Wikipedia moved all of their domains away from GoDaddy. Despite the negative publicity, it is expected that the company will continue to perform strongly in the future due to repeat business from other existing customers. Revenue totaled an estimated $1.3 billion in 2013.

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Data Processing & Hosting Services in the USJuly 2013 28

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

Capital Intensity | Technology & Systems | Revenue Volatility Regulation & Policy | Industry Assistance

Capital units per labor unit 1.0 0.8 0.6 0.4 0.2 0.0 Economy Information Data Processing & Hosting Services

Capital intensity

of capital intensity is H  igh

Dotted line shows a high level of capital intensity


SOURCE: WWW.IBISWORLD.COM

Tools of the Trade: Growth Strategies for Success


New Age Economy Recreation, Personal Services, Health and Education. Firms benefit from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation. Investment Economy Information, Communications, Mining, Finance and Real Estate. To increase revenue firms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Capital Intensive

Labor Intensive

Payroll & Bookkeeping Services

Credit Card Processing & Money Transferring

Internet Publishing and Broadcasting Computer Peripheral Manufacturing


Old Economy

Traditional Service Economy Wholesale andRetail. Reliant on laborrather than capital to sell goods. Functions cannot be outsourced therefore firms must use new technology or improve staff training to increase revenue growth.

Computer Manufacturing

Data Processing & Hosting Services

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

Change in Share of the Economy

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Data Processing & Hosting Services in the USJuly 2013 29

Operating Conditions

Technology & Systems


Level The level 

of Technology Change is H  igh

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

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

Revenue Volatility
Level The level 

of Volatility is M  edium

The industry has a moderate level of revenue volatility, although that volatility has largely been due to positive growth. During the five years to 2013, the year-on-year revenue changes averaged 2.7% per year. Customers typically subscribe to hosting services, meaning that revenue is steady and constant. Price declines are typically
A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment. When a firm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.

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

Volatility vs Growth
1,000

Hazardous

Rollercoaster

Revenue volatility* (%)

100 10 1 0.1

Data Processing & Hosting Services


Stagnant
30 10 10 30 50

Blue Chip
70

Five year annualized revenue growth (%)


* Axis is in logarithmic scale
SOURCE: WWW.IBISWORLD.COM

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Data Processing & Hosting Services in the USJuly 2013 30

Operating Conditions

Regulation & Policy


Level & Trend  he level of T

Regulation is Lightand the  trend is S  teady

The industry is not strictly regulated. Standard intellectual property regulations exist to ensure a companys proprietary software is not lost to competitors. There is also considerable pressure to create a legislative framework

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

Industry Assistance
Level & Trend  he level of T

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

Industry Assistance is L  owand the trend is S  teady

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Data Processing & Hosting Services in the USJuly 2013 31

Key Statistics
Industry Data
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Sector Rank Economy Rank Revenue ($m) 60,111.8 62,932.7 67,036.8 73,667.3 74,520.8 76,758.4 77,062.8 78,277.3 82,638.5 83,845.5 86,312.3 89,768.3 89,930.3 94,451.2 97,336.7 5/93 113/1272 Industry Value Added ($m) 32,223.7 32,542.6 33,628.3 35,879.2 36,024.1 36,102.5 35,408.6 36,362.6 35,626.1 35,871.4 36,083.2 36,984.4 37,184.2 38,479.3 39,229.7 5/93 75/1272 Establishments 46,987 48,038 52,000 57,628 58,190 58,082 57,829 55,587 52,746 50,620 45,747 43,362 41,463 40,082 38,750 3/93 140/1271 Enterprises Employment 40,804 264,980 41,224 265,260 44,149 264,320 49,324 266,130 49,800 263,140 49,721 254,140 49,522 239,850 47,529 245,573 47,239 215,797 47,744 214,404 44,789 204,318 42,621 199,729 40,916 196,393 39,847 192,978 38,514 188,712 1/93 5/93 127/1271 172/1272 Exports ---------------N/A N/A Imports ---------------N/A N/A Wages ($m) 17,556.4 17,187.0 17,271.4 17,904.3 17,841.0 17,373.4 16,605.3 17,263.0 15,462.3 15,413.1 15,023.0 15,080.9 15,241.2 15,433.2 15,479.5 4/93 99/1272 Domestic Demand N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Corporate Profit ($b) 1,246.9 1,456.1 1,608.3 1,510.6 1,248.4 1,362.0 1,800.1 1,928.0 1,942.5 1,960.1 2,031.8 2,134.9 2,221.2 2,275.6 2,446.1 N/A N/A

Annual Change
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Sector Rank Economy Rank Revenue (%) 4.7 6.5 9.9 1.2 3.0 0.4 1.6 5.6 1.5 2.9 4.0 0.2 5.0 3.1 67/93 923/1272

Industry Value Added (%) 1.0 3.3 6.7 0.4 0.2 -1.9 2.7 -2.0 0.7 0.6 2.5 0.5 3.5 2.0 66/93 971/1272

Establishments (%) 2.2 8.2 10.8 1.0 -0.2 -0.4 -3.9 -5.1 -4.0 -9.6 -5.2 -4.4 -3.3 -3.3 87/93 1239/1271

Enterprises Employment (%) (%) 1.0 0.1 7.1 -0.4 11.7 0.7 1.0 -1.1 -0.2 -3.4 -0.4 -5.6 -4.0 2.4 -0.6 -12.1 1.1 -0.6 -6.2 -4.7 -4.8 -2.2 -4.0 -1.7 -2.6 -1.7 -3.3 -2.2 38/93 69/93 574/1271 1046/1272

Exports (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Imports (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Wages (%) -2.1 0.5 3.7 -0.4 -2.6 -4.4 4.0 -10.4 -0.3 -2.5 0.4 1.1 1.3 0.3 67/93 1021/1272

Domestic Demand (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Corporate Profit (%) 16.8 10.5 -6.1 -17.4 9.1 32.2 7.1 0.8 0.9 3.7 5.1 4.0 2.4 7.5 N/A N/A

Key Ratios
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Sector Rank Economy Rank IVA/Revenue (%) 53.61 51.71 50.16 48.70 48.34 47.03 45.95 46.45 43.11 42.78 41.81 41.20 41.35 40.74 40.30 53/93 390/1272

Imports/ Demand (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Exports/Revenue (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Revenue per Employee ($000) 226.85 237.25 253.62 276.81 283.20 302.03 321.30 318.75 382.95 391.06 422.44 449.45 457.91 489.44 515.79 37/93 440/1272

Wages/Revenue (%) 29.21 27.31 25.76 24.30 23.94 22.63 21.55 22.05 18.71 18.38 17.41 16.80 16.95 16.34 15.90 58/93 608/1272

Employees per Est. 5.64 5.52 5.08 4.62 4.52 4.38 4.15 4.42 4.09 4.24 4.47 4.61 4.74 4.81 4.87 80/93 1003/1271

Average Wage ($) 66,255.57 64,793.03 65,342.77 67,276.52 67,800.41 68,361.53 69,232.02 70,296.82 71,652.06 71,888.12 73,527.54 75,506.81 77,605.62 79,973.88 82,027.11 48/93 229/1272

Share of the Economy (%) 0.26 0.26 0.26 0.27 0.27 0.28 0.27 0.27 0.26 0.26 0.25 0.25 0.24 0.24 0.24 5/93 75/1272

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

SOURCE: WWW.IBISWORLD.COM

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Data Processing & Hosting Services in the USJuly 2013 32

Jargon & Glossary

Industry Jargon

APPLICATION SERVICE PROVIDER (ASP)A business that provides computer-based services to customers over a network. CLOUD COMPUTINGComputing model in which companies computer applications are hosted in outside servers accessible via the internet and managed by third-party firms. DATA WAREHOUSINGThe collection of data and the establishment of a common format for different data sets to allow them to work together and be stored in one place.

INFORMATION TECHNOLOGY (IT)The acquisition, processing, storage and dissemination of vocal, pictorial, textual and numerical information by microelectronicsbased computing and telecommunications. OUTSOURCINGTo procure goods or services under contract with an outside supplier. SOFTWARE AS A SERVICE (SAAS)Software that is deployed over the internet and runs behind a firewall in a persons local area network or personal computer.

IBISWorld Glossary

BARRIERS TO ENTRYHigh barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry. CAPITAL INTENSITYCompares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor. CONSTANT PRICESThe dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the real growth or decline in industry metrics. The inflation adjustments in IBISWorlds reports are made using the US Bureau of Economic Analysis implicit GDP price deflator. DOMESTIC DEMANDSpending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports. EMPLOYMENTThe number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry. ENTERPRISEA division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control. ESTABLISHMENTThe smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise.

EXPORTSTotal value of industry goods and services sold by US companies to customers abroad. IMPORTSTotal value of industry goods and services brought in from foreign countries to be sold in the United States. INDUSTRY CONCENTRATIONAn indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%. INDUSTRY REVENUEThe total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded. INDUSTRY VALUE ADDED (IVA)The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industrys contribution to GDP, or profit plus wages and depreciation. INTERNATIONAL TRADEThe level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%. LIFE CYCLEAll industries go through periods of growth, maturity and decline. IBISWorld determines an industrys life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industrys products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.

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Jargon & Glossary

IBISWorld Glossary continued

NONEMPLOYING ESTABLISHMENTBusinesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals. PROFITIBISWorld uses earnings before interest and tax (EBIT) as an indicator of a companys profitability. It is calculated as revenue minus expenses, excluding interest and tax.

VOLATILITYThe level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than 20%; high volatility is 10% to 20%; moderate volatility is 3% to 10%; and low volatility is less than 3%. WAGESThe gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.

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