Economic crisis spoils business for IT service providers

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Due to the tense economic situation and geopolitical uncertainties, many user companies are currently reconsidering or postponing their investments in digital projects. This reluctance is now being felt by IT service providers operating in Germany. While they were still largely able to defy the decline in economic output in 2023, their turnover only increased by an average of 2.6% in 2024 instead of the hoped-for 10%. The 25 largest IT consulting and system integration companies recorded an average increase in revenue of 3.4 percent, while the 25 leading IT service companies achieved an average of 4.8 percent.

These are the initial results of this year's study "The market for IT services in Germany" by the consulting firm Lünendonk & Hossenfelder. With a domestic turnover of 34.4 billion euros, the 94 service providers analyzed represented around two thirds of the general IT services market in Germany. The fifty companies represented in the two top 25 rankings achieved a combined turnover of 31.6 billion euros or a good 61 percent of the volume of the German IT services market estimated by Bitkom at 51.6 billion euros.

Accenture ahead of Adesso and IBM

The provider with the highest turnover among the leading IT companies, which generate more than sixty percent of their revenue from IT and management consulting, software development and implementation as well as system integration, was once again Accenture in 2024 with a turnover of 3.4 billion euros (+3 percent) estimated by the market research company. Capgemini follows in second place with an unchanged EUR 2.25 billion, strongly challenged by IBM with EUR 2.2 billion (+10 percent). Dortmund-based Adesso achieved the one billion euro turnover forecast in the previous year with an increase of 15 percent and moved up two places to fourth place. In contrast, the Ismaning-based service provider msg systems, which followed in 5th place, just missed the expected leap over the one billion euro mark with 968.1 million euros (+10 percent).

T-Systems once again maintained its top position in the IT service ranking of service providers that generate more than 50% of their revenue from IT operating services (hosting, managed services, etc.) in addition to consulting and development. The Telekom subsidiary achieved a slightly improved turnover of three billion euros in 2024. In contrast, NTT Data in second place saw its revenue fall by three percent to EUR 2.3 billion. As in the previous year, the top 5 is completed by Atos with EUR 1.43 billion (-3%), DXC with EUR 1.32 billion (+2%) and Kyndryl with EUR 750.0 million (+7%). Arvato Systems (8th place; 494.7 million euros) and All for One (10th place; 382.8 million euros) are also newcomers to the ranking, as the focus of the service portfolio has shifted significantly from consulting and system integration to IT services such as managed services or data center operation.

Weakest year in a decade

The figures from the study reveal some fundamental trends in the IT services market. Firstly, the weak economic development that has persisted for three years is now having a delayed impact on IT investments. With an average change in turnover of 2.6%, last year saw by far the lowest growth rate in a decade.

The fact that the turnover growth of the top 25 IT consultants and service companies was on average higher than the general growth reveals that smaller market players were more strongly affected. According to the analysts, this is due to the fact that the higher-turnover providers at the application companies are often involved in larger modernization and transformation projects, which are continuing despite the recession –, albeit perhaps with the handbrake on.

In addition, the range of services in demand is changing. Demand for software development has therefore fallen, but remains at a comparatively high level. The need for consulting services and support with the integration of SaaS applications, on the other hand, is increasing. According to the analysis, providers specializing in IT services are benefiting greatly from the necessary IT modernization and high investments in securing company networks, i.e. cybersecurity.

Increasing demand for sovereignty

In the wake of the debate about US tariffs and data security, the desire for more data sovereignty is also growing among user companies. On the one hand, this development means that cloud projects increasingly include exit strategies. On the other hand, there is an increasing demand for "Made in Germany" and therefore for local IT service providers with their own data centers. In any case, half of the service providers surveyed assume that in five years' time, sovereign cloud offerings will account for more than half of the cloud resources used in German companies.

According to Lünendonk, IT service providers are counting on 2024 remaining an outlier. Geopolitical easing, an economy fueled by the special fund and general catch-up effects in the digital transformation are the factors that give providers hope. They also expect higher growth rates again in 2025 and 2026. Specifically, an average increase of 7.1% is expected for the current year and 10.4% for the coming year. Sales in the areas of data & AI (+18.5 percent), cloud transformation (+13.5 percent), cyber security (+11.4 percent) and managed services (+9.8 percent) are expected to grow particularly strongly this year.

(dahe)