INTRODUCTION: How did it all start?
25 years ago when People & Computers (http://www.pc.co.il/), the Interdisciplinary Center for Technology Forecasting (http://ictaf.tau.ac.il) in Tel Aviv University together with IBM and Digital (I was in Digital at that time) tried to understand the Information Technology Market in Israel (with a clear focus on Hardware and Software Products).
The study highlighted the problems involved in making surveys in a small market with very few players. We received about 1000 interview results (by Tel Aviv University students) from vendors and users. We tried to get a result we could agree on but failed. The numbers showed that the procurement managers (although they agreed to the survey interview) distorted the truth. The vendors were sure to double or triple their sales numbers. If we added the “interview dollar results”; the amount that industries bought with what the vendors sold, there was a one to ten correlation.
After the unsuccessful first try, some of us (vendor marketing) decided to work together and try to share data that wouldn’t be used (by the others) except for the statistical results. So by 1986 we started sharing data for analysis (I am sure we all added a little to make our results better) and we started to get a picture of the market. Each one of us used the data together with their own analysis/methodology.
I tried to correlate data with account managers (sales) but found that when sales quotas are involved I couldn’t get a straight answer. I couldn’t get them to understand the difference between total IT spent and Digital’s sales potential in a certain account. Example: when an AS/400 or IBM Mainframe was in an account, Digital sales people didn’t count IBM sales in that account in their reports…. IT spent not relevant (they said).
Conclusions for the first Israeli IT Market studies:
1. Hardware and software could be checked (at that time) because there were import tariffs and they were in the public domain. The complication was that every vendor used different import categories for its products in order to minimize taxes.
2. Value added services were given as an add-on to hardware/software sales and was subsidized.
3. IT budgets sat on the table of CIOs and they were not going to share it with “students”.
4. Every vendor recognized revenue in a different way (i.e.: hardware/software recognized when installed or when used, project recognized when sold or when invoices are paid, percent of software recognized as revenue in Israel, percent of software maintenance recognized as revenue) and none represented the IT market that interested me .
5. Every user recognized his “IT expenditure” differently based on his financing, amortization and company budgets (i.e.: building, electricity, IT salaries and communication costs are not always in the IT books) and again none represented the IT market that interested me.
6. There were a lot of contractor/subcontractor relationships that blurred the real IT vendor in a project (a lot of double bookings). The vendor with the knowledge compared to the vendor that got the project.
7. Vendor evaluations in value added services should be done by a combination of the amount of employees in a certain area of expertise and the revenues in that area. Giving more value to “fixed price” projects than “cost plus with no SLA” project.
8. Israel has two areas where some of the vendors sell their products/services and none is really part of the IT Market:
a. Military Projects that are not IT projects had to be taken out of the market size. The IDF has IT units and those should be taken into account.
b. High Tech companies use computer professionals and buy software/hardware products to incorporate into their products (OEM) : this is not part of the IT Market. The same High Tech companies have IT departments and that should be counted.
9. The sum of all IT expenditures (from users) has to be equal to all IT sales (from vendors). This is called an EQUILIBRIUM MODEL. Most research firms are either a “demand-based” (market information based on data from users of IT) or “supply-based” (market information based on data from IT vendors). STKI is one of the only research firms using an equilibrium model in the world and the only one in Israel.
10. The three distinct markets (hardware, software and value added services) and their sub-parts have to be clearly defined (what it encompasses , the players and the buyers)
11. In some markets, international vendors sell direct and through partners that add value to the sale or not. We had to show the double booking and the value added.
12. This meant I had to define “Israel IT Market” so that it could be meaningful for both vendors and user departments.
13. We also understood that Public Companies presenting their annual reportsin good faith and under regulation but the financial reports do not show:
a. Real revenues of software licenses and maintenance.
b. Real revenues of hardware sales.
c. Differentiate between new projects and continuing projects revenues. New projects should count more.
d. Separate work/ products for OEMs and military non-IT projects.
e. Distinguish between work done by the vendor’s employees and work outsourced to another vendor.
f. Show the revenues from projects done in fixed price, cost plus (SLA defined) and staff augmentation (non SLA) projects.
g. Distinguish between work done by high level professionals in a project and staff augmentation employees in the clients IT department.
h. Distribution of profits between staff augmentation (highly profitable) and projects (less profitable).
STKI’s “Israeli IT Market” Definition & Model:
STKI definition of the Israeli IT market should include the following:
1. Basically we want to count everything that IT departments buy and vendors sell for the IT use in Israel.
2. While personnel expenditures of employees’ salaries is not counted, staff augmentation is counted.
3. Hardware expenditures are counted taking out any amortization and other financial amounts.
4. Software expenditures include licenses and maintenance costs.
5. Value Added Services had to neutralize contractor/subcontractor relationships and give credit for the project only to the vendor doing the actual work.
6. IT Market covers all “outside” expenditures of IT departments in Israel.
a. IT departments of multinational companies that have their headquarters in Israel are counted but not the expenses of subsidiaries outside of Israel that buy their products or services locally.
b. Only local expenditures of Israeli subsidiaries of multinationals are counted.
So what STKI analysts do during the year?
1. During the year STKI analysts meet with clients (users) and answer inquiries for them. 2010-11 we had over 600 meetings face to face with clients (CIOs and their managers) and answered over 2,000 inquiries. We also meet with groups of 15-30 users and discuss predetermined subjects (we call this round tables). Between 11/2009 till 3/2011 STKI hosted over 90 round tables. STKI runs about 30 surveys a year about subjects from security implementation to software development. In our interactions with IT users (e.g. CIOs, IT managers), our objective is to understand the role of IT in the organization and the corresponding IT strategy, as well as to gain an overview of ongoing and planned projects and strategic decisions. Furthermore, there is an exchange of thoughts on the users’ experience with IT vendors and their criteria for vendor selection.
STKI analysts are involved in:
a. Quality assessments of products and vendors
b. Strategy and architectural solutions
c. Procurement questions
d. Decisions on new technologies
e. Understand their budget
f. Help in best practices/staffing ratios for the Israeli Market
g. Much more
2. During the same time they meet with vendors and answer inquiries for them. During 2010-2011 we had over 500 face to face meetings and answered over 1,500 inquiries. We also met with over 60 vendors for vendor briefings (vendors describe their past performance and future strategies). Through the interactions with IT vendors we gain a profound understanding of the organization, portfolio, and the market positioning of the relevant vendors. This way we can assess the revenue information by different dimensions. Moreover, we discuss the market perspectives and outline our market development scenario.
STKI analysts are involved in :
a. Market understanding
b. Industries needs and projects
c. New products and services
d. Product packaging and marketing strategies
e. Much mor
So how does STKI deliver it’s research ?
To present our results we use several methods:
1. Trends and Technologies (look at STKI Summit presentations)
2. Round Table Summaries (http://www.scribd.com/drjimmys)
3. Israeli Vendor Tiers presentation s
4. Projects/services market positioning in over 100 categories
5. Israeli IT department Staffing Ratios