Aug 19 2020
Growth in the Data Processing and Web Hosting Services industry has been punctured by the COVID-19 pandemic. Businesses have cut expenditure on industry services, with the pandemic putting new data-based projects on hold. However, this disruption is not expected to prevent robust growth in the long term, and may indeed accelerate it. Demand for ecommerce platforms and services has been enhanced by the social distancing restrictions and behavioural changes brought about by the pandemic.
The major services on offer by data processing and web hosting services companies are:
- Hosting services
- Application service provision
- Business process management and data processing
The COVID-19 pandemic has had a devastating impact on the global economy, causing a worldwide recession and the first in Australia in almost 30 years. In reaction to the downturn and the unique uncertainty arising from the pandemic, businesses have cut spending and cancelled projects. Households have been forced to cut leisure and other discretionary spending as well as to divert shopping to online platforms away from bricks and mortar retailers.
The Data Processing and Web Hosting Services industry was not spared by the virus. While revenue is forecast to grow at an annualised 3.9% over the five years through 2020-21, revenue declined by 10.8% in 2019-20, with businesses cutting back spending in the face of weaker global demand and tighter profit margins. Cost cutting has included spending on data processing and business process management services provided by industry operators. This is due particularly to the cancellation or deferral of major projects by companies that typically outsource data services to the industry.
Demand for hosting services
However, demand for the industry’s hosting services has increased significantly following the COVID-19 outbreak. Businesses in the Online Shopping industry rely on the Data Processing and Web Hosting Services industry’s hosting and infrastructure services to remain operational. Sales via online channels have increased significantly as the government’s COVID-19 social distancing measures have encouraged consumers to shop online rather than in stores. Additionally, demand from food-service businesses for industry services has also significantly increased, as businesses shift their operations online to remain compliant with the government’s lockdown measures. Work from home requirements have also hastened demand for cloud-based services. The IT and telecommunications adoption index, which is a measure of business (and household) technology uptake, rose by 2.4% in 2019-20. This trend suggests that more small to medium enterprises are establishing a web presence for their operations and larger companies are migrating more of their operations to cloud servers. Government departments have increased their use of the online delivery of services and therefore their reliance on the industry. Consequently, industry revenue is expected to rebound in the current year, growing by 2.4% during 2020-21, to total $1.8 billion.
Revenue for the Data Processing and Web Hosting Services industry is forecast to grow at an annualised 6.7% over the five years through 2025-26, to $2.4 billion. Underlying demand for hosting and cloud-based services is anticipated to remain strong over the period as more businesses realise the benefits of the industry’s services, even after public health and the economy recover from the COVID-19 pandemic. Furthermore, as previously deferred projects resume, corporate and government entities are anticipated to continue outsourcing their data processing requirements. In particular, government departments relating to the banking, medical and education sectors are projected to undergo significant structural changes as the National Broadband Network (NBN) is rolled out, supporting industry growth.
IBISWorld reports mentioned in this release: