Another point of interest from the research: enterprise customers tend to be very loyal customers and only consider switching from a specialist DSP to another provider if they believe the other can offer greater value or a higher level of technical expertise.
Partners as well as competitors?
Of course, enterprises will still engage the larger global systems integrators and digital consultancies for much of this work. The latter are seen as key providers for high-value, ‘bet the farm’ projects, but their limitations when set against the more nimble and flexible specialist DSPs will see them increasingly focused on acquiring these competitors or setting in place subcontracting arrangements with selected specialist DSPs.
The latter option can be a win-win — for both the specialist DSPs and their larger competitors. The DSPs receive regular, high-value projects from the larger providers and also present opportunities for these bigger players to acquire some or all of their specialised operations. The number and value of these acquisitions have grown considerably over the past five years, and this trend is set to continue across the rest of this decade. Careful due diligence is required here, to ensure the buyer is confident that a potential specialist DSP acquisition has the right mix of skilled staff, appropriate product and solution sets, and a business direction in place that ensures it will remain ahead of its other competitors in its chosen niche.
Public cloud vendors, such as AWS, Microsoft Azure and Google Cloud, also champion and support specialist DSPs, in part so that specialist DSPs can position the vendors’ cloud platforms with customers, leading to improved vendor revenues as a result of faster customer adoption of these platforms. To make this an easy play for themselves and those specialist DSPs they most want to get close to, public cloud vendors often provide specialist DSPs with attractive partnering programmes, including financial incentives for implementation and marketing, and recommend their favoured DSP partners to their enterprise customers.
An ever-evolving market for specialist DSPs
All these growth factors have seen the top specialist DSPs establish profitable niche services and markets in the past five years, along with a solid foundation of enterprise clients. This trend is likely to continue over the next five to seven years, as more enterprise businesses continue their digital transformations and embrace the cloud. In Australia today, approximately 30% of traditional workloads have been migrated to the public cloud. By 2027, this is expected to increase by another 15% to 45%, further fuelling the market demand for specialist DSP services.2
And, as cloud technology continues to develop and mature to match this growth, enterprise customers will continue to seek providers that can deliver the specialised services, proven expertise, innovation and thought leadership that they require for their unique needs. As a result, the specialist DSP market is likely to become even more competitive.
To remain at the forefront of their markets and ahead of their competitors, specialist DSPs will need to rapidly develop specialisation in other key areas adjacent to cloud services. Data and analytics, AI, and robotics are just some examples of these: the forward-thinking specialist DSPs will extend their competencies into these and other areas as they become increasingly relevant to customers’ businesses and as the cloud services market becomes increasingly mature. At the same time, a competitive DSP will need to maintain its specialised focus as a niche provider in one or two of these areas or else risk stretching too wide to become yet another generalist in a crowded market.
All this will most likely lead to increased consolidation and acquisition activity, with the larger IT businesses — consulting houses, global systems integrators and others — acquiring the best specialist DSPs while new players with even more specialised DSP services enter the market. Careful due diligence and expert advice from third-party advisors will be crucial for any acquisition play, to ensure buyers are clear on their target’s strengths: culture and retention of expert staff, high-quality track record and solutions, and a clear path towards a competitive position in the new areas opening up alongside cloud-based services.
Challenges on the horizon
Heading into the next five years, specialist DSPs will face several challenges, including increased competition, evolving customer needs, technology advancements and changing market conditions, particularly as the broader market for cloud services becomes less specialised and more mature in its outlook and operations. The success factors outlined above will be critical to their continued progress. Finding and retaining highly skilled professionals will continue to be an ever-present challenge in a tight international labour market. This factor, along with increased competition and more market players, will put pressure on profitability and performance. To remain relevant and successful in the changing landscape of the near future, specialist DSPs will need to continuously evaluate their offerings and make strategic investments in their own capabilities. They will also need to consider the options of partnering with, merging with or acquiring others, or even seeking to be acquired by larger market players.
The most successful DSPs will be alert to and ready to adapt to market changes and technology trends while maintaining their expertise, talent pool and internal culture (“it’s a great place to work”), and strong customer relationships. They will continue to maintain and grow their local presence while still being flexible and agile enough to compete against global players. And they will remain competitive on price and value for money while still delivering the high-quality services and results that have positioned them as the current providers of choice for their customers.
Getting all this right will require exceptional leadership and management, as well as the ability to pivot to succeed around the rapidly evolving cloud-enabled technology services sector. The smarter market players will continue to build relationships with their best and most loyal enterprise customers, with many entering acquisition and partnering arrangements to further enhance their business competitiveness. And to be successful, market participants will also need to seek — and will benefit from — advice from experienced external advisors that leads them down the right strategic path to a successful future in this ever-changing market.
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