...by Daniel Szego
"On a long enough timeline we will all become Satoshi Nakamoto.."
Daniel Szego

Tuesday, August 4, 2015

Fundamental or qualitative analysis on the IT market

"Fundamental analysis, in finance, is the analysis of a business's financial statements (usually to analyze the business's assets, liabilities, and earnings); health; and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, and considers factors including interest rates, production, earnings, employment, GDP, housing, manufacturing and management...." - source WikipediA

Certainly IT market is a little bit different from the general financial market, despite I think it makes sense to speak about fundamental or quantitative analysis on an IT market as well. Let we imagine the following situation: we have a company that provides different IT services for different customers. The first is to identify is the service portfolio to be offered.

Service portfolio: considering an IT company it provides special services to the customers and from the possible services they create revenue. The service portfolio usually contains some of the following major sources:
-   License Business: like reselling the product from another vendor for a certain marge.
-   Consulting : in the sense of either Business consulting or Technology consulting.
- Training: Training can be related from classical end-user training, to a more deep dive infrastructure, customization or development oriented training. 
-  Projects or project development: means setting up end user use-cases with a small team of software developer, infrastructure experts, project managers and business analysts, 
-  Product development: setting up and bringing to the market individual products based on a given technology can be part of the service portfolio as well. It usually requires software development teams, product manager, sales and marketing experts.   

The portfolio categories can certainly be fine tuned considering a specific company. As an example let we say we have a small company creating a specific product. It implies that the company will have the most revenue from the product development source and perhaps a little bit from specific consulting and training service that are related to the specific product. 

Market event: Technology is changing practically every day. New solutions and platforms and trends are emerging and old ones are withdrawn. Typical market events might be the followings:
- New IT Trends: like cloud computing is being more and more popular. 
- Platform and technology changes of a "big player": like Microsoft announces a self service BI platform.
- Legislation changes: like changes in the direction that certain companies are allowed to store certain private data only locally or in the cloud as well.   

Forecast: The major challenge is to identify at fundamental or qualitative analysis how certain market events influence the general service portfolio. Certainly it is pretty much different to create exact figures, however the direction can be certainly pretty well identified. Examples are the followings:
- Cloud computing trends imply a decline in all of the infrastructure oriented services: like Infrastructure consulting, Training related to infrastructure topics and infrastructure parts of projects.
-  Having a new user friendly user interface usually implies that the new interface has to be learned once again. It implies an increase in the Training services. 
- Introducing self service IT from a "big player" usually implies a decrease in the classical IT consulting services revenue. It is a little bit more difficult question how it behaves on the project development part, as most self service IT, is self service only till a certain technology limit. If the limit has been reached, usually hard core development competence is required to develop use cases.