T services are poised to become high tech business’s first trillion-dollar market. If your firm isn’t participating fully, you could find yourself on the short end of the revenue stick. Here’s why.

The market research firm IDC recently issued a report forecasting that companies and government agencies will spend more than $746 billion on external services in 2008, representing a growth rate of 6.8 percent over 2007. And this is going to happen despite (and in some cases as a result of) a weak U.S. economy!

Turns out there are multiple market forces that are driving businesses to continue to turn to service vendors for assistance. Additionally, increased customer use of new and often disruptive delivery options (like hosting, SaaS, and utility computing) encourage service providers, especially outsourcers, to focus their investments in these areas.

And that means a major opportunity for you and your firm, according to IDC program manager Marianne Hedin. “The worldwide services competitive landscape keeps intensifying with many new entrants with new business and pricing models as well as the strengthened capabilities of up-and-coming players that are extending their reach into new markets,” she explains. “This is a time for service vendors to aggressively review their portfolio of offerings, account targets, investment strategies, business processes, and delivery practices.”

Highlights of IDC’s report include:

• Hosted applications will experience big growth. Though representing the smallest outsourcing market, hosted application management is expected to grow the fastest at a five-year compound annual growth rate (CAGR) of 15.9 percent, followed by business outsourcing services at 10.4 percent.
• IT Services are the largest market segment. In 2007, IT services continued to represent the lion’s share (74 percent) of the overall services market. But the business services market that IDC tracks is slowly catching up, with a much faster CAGR of 9.6 percent compared with the IT services market’s CAGR of 5.6 percent.
• Service providers are rapidly going global. Service providers continue to aggressively pursue a geographic expansion strategy to increase their footprint across the globe. While service vendors based in the United States and Western Europe are focusing on building their presence in the emerging markets, service companies based in those geographies are expanding into Europe and the United States.
• CIOs are trying to align business and technology. The growth of outsourcing of non-core processes and the adoption of service-oriented architecture (SOA) are prompting enterprises to shift toward tighter alignment of business and technology. Ultimately, organizations will seek to eradicate any distinction or separation between IT and business in order to obtain convergence between them.

If IDC is correct, the IT industry is likely to be moving away from traditional software licensing schemes and development efforts that require on-premise software development within the customer’s IT shop. In the new landscape, software will be primarily delivered as a service, which means that you need to be positioned to sell software in an entirely new way.

To take advantage of these trends, your software firm will need to take active steps to provide higher value-added services and innovation to your clients, according to IDC. Specifically, you should be looking at different delivery models and tuning your sales processes to emphasize the development of an ongoing relationship rather than a period sale of software upgrades.

In addition, your firm should be investigating new types of partnerships with other service vendors in order to deliver best-of-breed offerings and full-service capability at the lowest cost. It’s going to be a brave new world out there, but one where software sales is likely to become ever more important.