Clear skies ahead - data processing


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Revenue growth in the Data Processing and Hosting Services industry is forecast to continue to expand swiftly over the five years through 2019-20. Improving business conditions, a greater understanding of the potential of new technology and an exponential growth in the amount of data collected by businesses are expected to be the main factors behind the growth.

Business confidence is expected to remain elevated over the coming years as the UK economy strengthens and higher average business profit supports investment in new technologies. Despite expanding margins, savvy businesses are also likely to seek cost-efficient solutions, which is especially promising for industry operators.

Over the five years through 2019-20, industry revenue is forecast to increase at a compound annual rate of 5.7% to top more than £10.4 billion. In 2015-16, revenue is anticipated to grow by 5.8% as secondary adoption increases rapidly and the number of new users expands.

Currently, it is major IT players like IBM, Amazon and Microsoft that are making headway in providing industry services, but over the coming years more and more small operators are also expected to get on-board. Industry enterprise numbers are forecast to expand at a compound annual rate of 4.3% over the five-year period. This is likely to flow through to employment numbers, which are expected to grow at a compound annual rate of 5%.

Growth in enterprise numbers will be slightly limited as larger companies compete for market share by acquiring specialist cloud service providers. These acquisitions may also help boost profit levels in this segment, as economies of scale can be achieved despite cut-throat competition expected in the wider industry. There is also an indication that the price of cloud services will continue to be a major point of competition in the coming years.

The industry's future lies in providing computing as a utility. Just as businesses subscribe to telecommunications, power and water, they could also subscribe to a computing provider. A subscription could dictate the size and speed of computer resources and applications available. Looking at the industry's services in this way gives a clearer view of the advantages they can offer to small and medium-size businesses. Computing tools give smaller businesses access to centralised resources and the ability to achieve economies of scale in their IT costs. In the past, only larger corporations have managed this. Cloud computing will continue to benefit from its reputation as a cost-cutting method even as the economy and business profitability recover.

Industry operators are likely to need to invest significantly in order to expand services at rates that will drive revenue growth of more than 5% a year over the next five years. Whilst cloud computing considerably reduces the need for many businesses to invest in computer hardware, the providers in this industry will need considerable server power to meet forecast demand. This will be reflected in higher rates of depreciation across the industry over the coming years