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Business Outspends Gov't When It Comes To Info-Tech Services

A Census Bureau survey says 60% of revenue for IT services came from business in 2Q. Agency buys accounted for just 37%.
Nearly 60% of the revenue the IT services sector garners comes from business buyers, compared with 37% from the government, according to an analysis of results from a Census Bureau survey.

The Quarterly Services Survey doesn't cover all sectors of the service economy, but it does include three related to IT: computer-system design and related services (often called IT services); data-processing services, such as companies that provide computer time-sharing resources; and software publishers. It's the bureau's first new indicator in nearly four decades and is based on data culled from 5,000 large companies.

The government only collected data for the past three quarters, so comparisons to previous years can't be made. Still, the numbers suggest sluggish growth in the IT-related fields. Such a slowdown shouldn't be surprising. Before the government released the numbers, one venture capitalist--Ron Harris, general partner of Southwest Capital Partners--told an IT-economics conference at the Federal Reserve Bank of Dallas that IT spending has become less discretionary, resulting in CEOs limiting new IT expenditures.

"We've declined back to the pre-1998 [IT spending] levels, and that's healthy and sustainable," Harris said.

According to preliminary figures, IT-service firms generated $47.07 billion in revenue during the second quarter, up 0.5% from the first quarter. That was down from a 1% gain in the first quarter.

Second-quarter revenue among service firms derived from business customers fell by 1.9%, to $27.8 billion, versus a gain of 4.2%, to $17.4 billion, from government customers. The numbers don't add up to 100% because estimates for other categories--such as household and individual consumers--have high sampling variability or poor response quality.

Second-quarter revenue for data-processing-service companies topped $14.14 billion in the second quarter, up 4.5% from the first quarter. That followed a 5.9% decline in the first quarter.

The data-processing sector received three-quarters of its revenue from business customers, 16% from governments, and 7% from individuals. The Census Bureau defines data-processing services as primarily involved with electronic data-processing services. That includes establishments that furnish complete processing and preparation of reports from data supplied by customers and specialized services, such as automated data-entry services. This group includes companies that sell data-processing resources to clients on an hourly or time-sharing basis.

Business buyers also provided 84.1% of the $25.4 billion generated by software publishers in the second quarter; government purchases accounted for 7.6% of the sector's revenue. Software revenue inched ahead 0.6% in the second quarter, following a 14.1% first-quarter drop.

Revenue from government buyers rose 6.6% in the second quarter following an 11.2% fall in the previous quarter; similarly, business revenue gained 2.0% in the second quarter following a first quarter plunge of 14.7%.

In its report, the Census Bureau didn't explain the quarter-to-quarter shifts; however, the numbers aren't seasonally adjusted, so they don't account for seasonal fluctuation, such as the possibility that buyers spend more on IT in the spring than they do in the winter.

It also didn't explain why government spending on IT services is proportionately higher than the proportion of revenue government spends on software--37% versus 14%. One possible answer: Government--especially the federal government--have been a longtime outsourcer of IT services, while it has trailed business on adoption of IT best practices, such as purchasing enterprise software packages rather than developing its own apps.