Analysis of the Brazilian Internet Technology (IT) Infrastructure Outsourcing Services Market

Analysis of the Brazilian Internet Technology (IT)

Infrastructure Outsourcing Services Market Mature and New Business Models are Driving Data Center Service Investments

NCB6–72

November 2013

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Contents

Section Slide Number

Executive Summary 4

Market Overview 8

IT Infrastructure Outsourcing Services Market -

• External Challenges: Drivers and Restraints 11

• Forecasts and Trends 17

• Market Share and Competitive Analysis 27

The Last Word 31

Appendix 34

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Executive Summary

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• The IT infrastructure outsourcing market in Brazil is mature; companies understand the

benefits of outsourcing services, focusing on the core business, and reducing costs.

• The market reached 1.79 billion in 2013, and it is expected to reach 2.88 billion by 2018.

• There have been a considerable number of mergers and acquisitions in the Brazilian

market over the last few years; further, private equity funds have been buying participation

in data center companies.

• Dedicated hosting was the most demanded service in 2013, with 45.2% of market,

followed by disaster recovery with 23.2%, storage with 22.8%, and colocation with 8.8%.

• Banking and finance comprise the vertical that demands most in the market. IT and

telecom comprise the 2nd largest market, followed by manufacturing and industry.

• The top-5 companies in the Brazilian market have decreased market shares as new

companies are entering the market, increasing the level of competition.

Key Findings

Source: Frost & Sullivan

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Market Overview

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Market Overview—Definitions

Due to the weakened Brazilian economy, companies in the market are looking for cost

reductions, and this means outsourcing information so that focus can remain on the core

business. All this movement is to the increasing maturity regarding data centers’ offerings

that, in the last few years, received capital from private equity firms and several mergers and

acquisitions among foreign and local companies.

Although there are still some concerns over the companies in outsourcing, most are

realizing the cost reductions and focus on core business. There is still demand for

colocation, but the market is moving to more value-added services.


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Market Overview—Key Questions This Study Will Answer

What are the main drivers and restraints for the growth of the IT infrastructure outsourcing services

market?

Will the market continue to grow? At what rates?

What is the percentage of the revenues that corresponds to the different vertical markets?

Which is the most demanded data center service? Is this expected to change?

What is the current market concentration? How will this change by the end of the forecasted period?

How will this market behave in the future?


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External Challenges: Drivers and Restraints—

Total Market

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Drivers and Restraints

IT Infrastructure Outsourcing Services Market: Key Market Drivers and Restraints, Brazil, 2013–2018

Energy and connectivity can be variable. H H H

Complexity and transaction cost reduction is a restraint to an

outsourced work environment. M M M

There are clear vertical restrictions. M M M

Cultural barriers can be a restraint within companies. M L L

1–2 years 3–4 years 5–6 years

The Brazilian market is mature in terms of buying data center

services. H H H

Customer focus is on the core business of companies. H H H

Cost reduction is appealing. M M M

Increased foreign investments drive the market. L L L

Impact: H High M Medium L Low Note: Drivers & Restraints are ranked in order of impact. Source: Frost & Sullivan

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Drivers Explained

The Brazilian market is mature in terms of buying data center services.

The Brazilian market—especially in big market centers like São Paulo and Rio de Janeiro—is

more likely to invest in outsourcing. Large enterprises and, more recently, small and medium

businesses (SMBs) are better understanding data centers and are finally understanding the

benefits of such business models and trusting service providers’ capabilities to guarantee

availability and service-level agreements (SLAs). Best sellers and regular services, such as

co-location, are still in demand, but data centers add more value to the offering with dedicated

hosting, disaster recovery, and storage.

Customer focus is on the core business of companies.

Due to the dynamic nature of the market, companies must be constantly updating and ready

to respond quickly to demand changes, competitor changes, or even by regulation changes.

For this to happen, companies have sought service providers to outsource infrastructure

management and monitor control. Thus, IT executives take on a more strategic role within the

company, assisting in the organization and optimization of business processes and leaving

the focus on operational work.


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Drivers Explained (continued)

Cost reduction is appealing.

The strategy to turn capital expenditure (CAPEX) into operational expenditure (OPEX) is a

great option to reduce costs. Instead of investing money in expanding capacity and having

to manage and control it, companies are willing to invest in services. IT means that

outsourcing is a valuable option to reduce costs because companies will not have to spend

their own money in servers just to host emails.

Increased foreign investments drive the market.

The Brazilian data center market has received several investments from foreign companies

that are in the technology sector; investment funds are aimed at the growing opportunities in

this market in Brazil. Over the past 2 years, not only international companies invested in

Brazilian companies, as well data center began building their own structures in the country.


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Restraints Explained


Energy and connectivity can be variable.

The major cost for an IT company that is outsourcing to keep information internal is

energy and connectivity. When outsourcing, energy and connectivity services help reduce

costs because there is a monthly fee for the space used, which is similar to a fixed

revenue; meanwhile, the actual cost of energy and connectivity can be variable.

Complexity and transaction cost reduction is a restraint to an outsourced work

environment.

When outsourcing is complete, an important issue for IT executives to address is the

period that the infrastructure and applications might be unavailable during the transaction;

further, there is the potential for loss of information.

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Restraints Explained (continued)


There are clear vertical restrictions.

For some verticals, such as governments, information is the main market asset. As a

result, some companies prefer to keep the infrastructure and managerial operations

internal so that monitoring is easier. This is usually due to the fear of theft or loss of

information.

Cultural barriers can be a restraint within companies.

Infrastructure outsourcing refers to loss of control for some IT executives. The fact that the

management and monitoring of the infrastructure under the responsibility of another

company can generate mistrust, especially in a market like Brazil, which has a cultural

characteristic of centralized control. Moreover, the vast majority of IT executives have

managed infrastructure and, when it comes to outsourcing, need to take a more strategic

role within the company.

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The Last Word

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The Last Word—Predictions

2

3

1


Brazil is developing the Internet civil mark that will oblige companies to

host data centers within the country. This will stimulate the offering of data

center services.

Although colocation services are in demand, the market is moving to more

value-added services, such as dedicated hosting, due to the availability of

back-up services, security and maintenance, or full outsourcing of

information.

Telecom operators will have a stronger presence in data centers, due to

important factors such as billing, customer support, infrastructure, and

connectivity.

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Analysis of the Brazilian Internet Technology (IT) Infrastructure Outsourcing Services Market

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