Canadian tech market: billions of dollars   |  November 17, 2008  

Tougher times are ahead, but ICT still seen as an economic strength

By Jason Rodham

If you’re worried about the economy, and about the tech sector in particular, IDC Canada wants you to know that there is some reason for concern, but overall the picture is a good one. And the tech outlook is especially rosy.

Following a sweeping study based on more than 10,000 survey respondents and follow-up interviews, IDC Canada’s Vito Mabrucco, managing director and senior vice-president of worldwide consulting, recently said Canada’s ICT industry is in an exceptionally good state of health and will grow by approximately four per cent annually, almost double the current rate of increase in Canada’s GDP. Although recently outpaced by China, Canada remains firmly in the worldwide top 10 and its hardware, services and software sales will contribute upwards of $40.5 billion to the economy in 2008.

Called the ICT Market Forecast and covering the period from 2008 to 2012, there was one large cautionary note within the good news: like most economic forecasts, IDC’s predictions are dependent upon U.S. economic performance, and an extended recessionary malaise there will affect us here.

The economic woes of the U.S. aside, IDC predicted that the drive for increased productivity and the need to generate higher revenue among businesses, coupled with the increasing move to a “digital lifestyle” among consumers, will ensure the ICT industry continues to expand over the next five years.

Keep an eye on wireless
Mabrucco stressed the importance of the wireless sector, proclaiming it is now “the crown jewel” of Canada’s entire ICT industry. He said the long-term potential of the industry was recently underlined by the federal government’s sale of new wireless spectrum, “which has fetched twice the amount for licenses as expected.”

While the wireline services market will contract significantly in coming years, the wireless market is growing at a phenomenal 9.6 per cent annually and already accounts for half of all telecom spending in Canada. The accompanying lower prices for both hardware and services are, in turn, spurring the development of new applications and leading to better service bundles for both consumers and businesses.

With only 62 per cent of the Canadian population currently owning a wireless phone, he said “there is significantly more head room available” in wireless hardware, service and application sales.

In a follow-up interview with Backbone, IDC’s wireless specialist Lawrence Surtees said he’s been arguing for many years now “that wireless represents the very future of the entire global telecom franchise.”

Surtees said a profound shift occurred in the market in 2007 when, for the first time, the number of wireless subscribers exceeded the number of wireline subscribers. There are more than 20 million wireless subscribers in Canada, he said. To understand this market, Surtees recommends “following the money” and pointed to the fact that one-third of all ICT revenue in this country today is derived from wireless, more than wireline’s entire local and long-distance businesses combined. He then added that Canada’s wireline industry “is in need of a defibrillator.”

Surtees said that when you pull up a graph of revenue at Telus and Bell Canada, it reveals an “extraordinary story” of success versus failure in embracing a wireless business model. Last year, for example, 48 per cent of all revenue at Telus was derived from wireless, “which is what one should expect from a healthy and integrated player,” Surtees said. Bell, on the other hand, milked just 24 per cent of its revenue from wireless and this “represents a big ugly story” for Canada’s biggest telecom player.

He believes that, in coming years, growth in wireless will be spurred not by the “old surf and search” data applications but by wireless media and entertainment and from the fusion with other technologies, like GPS.

Despite Canada’s “antiquated and expensive” wireless data prices, Surtees said the launch of the next generation iPhone will touch off a revolution in the use of data services in this country. iPhone users, he pointed out, use wireless data four times more than users of any similar device on the planet, and it’s this type of aggressive usage that will spur a major drop in wireless data prices.

When wireless data costs finally start to decline, this country will experience a renaissance in its use of wireless technology, particularly among older adults who are just as keen as young folk to try new applications “but who dread using fancy features that will ultimately bankrupt them.”

With “dynamics and forces” like these, Surtees said, “wireless is where it’s all going to be happening.”

ICT to take centre stage
During his presentation, Mabrucco suggested that business owners and leaders in Canada are finally recognizing ICT is not just a cost of doing business but a way “to operate differently, while still growing their mature market business.”

This statement, he maintained, was borne out by IDC data, which showed that chief information officers, once relegated to the second team, are now appearing at the executive table in much greater numbers.

Bernard Courtois, president and CEO of the Information Technology Association of Canada, agreed and said the ICT industry will have a greater impact on society than any technology had until now. Courtois noted the sometimes uneven growth of ICT has been similar to the experience of the fledgling train and automobile industries, each of which went through a spectacular business collapse early in their development, before rising into a predominant industrial position.

“With the advent of the Internet, everyone got excited but no one really knew what the business model would be.” This, he said, led to the spectacular dot.com business failures of the late ’90s.

“If you draw a line through the dot.com bubble and telecom crash, we’ve been on a very steady climb ever since.” Revenue growth and employment in high technology businesses has already surpassed those dizzying days, and the ICT industry is “now beginning to bear fruit” for Canada’s economic future.

To remain competitive in coming years, he said Canadian businesses need to understand that ICT will change the way companies develop and distribute products. As an example, Courtois pointed to companies like GoldCorp, which recently posted data online detailing all-but-exhausted mining sites. This allowed independent experts to access this data and dream up new and innovative ways to extract the remaining gold, and the plan was very successful.

Like GoldCorp, the successful companies of the future will be those that treat technology providers as partners, not just as vendors, and that are willing to leverage these relationships to find creative ways to transform their business. “It’s not just about buying equipment and sitting it in the corner.”

But while this move is important, Canada still has a way to go. Unlike our cousins to the south, who have traditionally been willing to adopt new technology, Courtois said many small to medium-sized Canadian businesses don’t yet understand the potential of ICT. Perhaps more importantly, they often lack the time and human resources to examine their options closely and consider alternatives.

“Smaller businesses really have to see other businesses like them in their industry do certain things… and then find the people who are excited about changing the ways they do business.”

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From IDC

The trends IDC Canada’s Vito Mabrucco said to watch for in the next several years include:

> services like unified messaging, instant messaging and audio and video conferencing will be the second-fastest growing market in enterprise-wide applications, stimulated in part by the increased cost of both airline and road travel

> businesses will adopt smartphones more aggressively to boost the productivity of their sales forces and other mobile workers

> the need for greater information security will increase in both wireless and wireline, adding an additional $150 million in new spending to this segment despite a general reluctance to invest in the technology. Security, Mabrucco said, “is like insurance: you know you need it, but you don’t want to buy it”

> businesses will invest in more Customer Relationship Management tools to “reduce churn and capture new market share”

> sales of major pieces of network equipment, such as switches and routers, will remain “the strongest and fastest growing hardware market.” Sales of small high capacity “blade servers” will grow by 10 per cent this year

> although sales are already significant, Canadian businesses will increasingly adopt Web 2.0 to increase collaboration across the enterprise

> ICT outsourcing is growing by about four per cent annually. Since slowdowns in the economy have traditionally meant businesses seek more outsourcing options, “this is one of the few markets where what’s bad for the economy may be good for outsourcing”

> this year, shipments of portable computers will exceed desktops and by 2012, three-quarters of all computer shipments in Canada will be laptops

> a “war on talent” is occurring in the industry, spurred on by the need for companies across all industries to secure and retain talented employees who can transform business objectives into reality



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