As Europe awakens to the first signs of economic recovery, the IT sector is reconsidering its role in the continent’s leasing industry. From the cloud to software as a service, transformation is in the air. Isabella Grotto and Jonathan Minter talk to industry experts at Société Générale, Dell and CHG Meridian.
‘Small but feisty’ is the impression of IT leasing one gets from speaking to some of the industry’s biggest players. Despite making up a relatively small portion of the overall leasing industry in Europe, IT finance is both growing in importance and changing in nature.
As Nicholas Gallop, marketing director for Dell Financial Services in the EMEA region, tells Leasing Life: "IT as a whole is not huge compared to cars, buses, trains, aeroplanes and office buildings, and all sorts of stuff, but if you look at financing of IT, that for us is definitely growing, and for the industry as a whole it seems to be growing too."
And there is reason to believe the popularity of IT financing is set to increase across the board. Richard O’Donaghue, business development director at Dell Financial Services EMEA believes both SMEs and larger companies are likely to move towards IT financing, albeit for different reasons.
While in many countries the main drivers towards IT leasing for smaller businesses are likely to be the challenges surrounding credit availability and finance raising, he says, when considering larger businesses "what they are more interested in is the flexibility that leasing gives them. They’re also interested in leasing helping them make best use of their budgets to get the latest technology.
"So we see growth in all areas, I would say, but possibly for slightly different reasons, depending on which segment we’re looking at."
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Jürgen Mossakowski, chief executive officer of German technology manager CHG Meridian, says in light of recent significant increases in the company’s performance he’s optimistic about the future: "We have increased our lease origination, which is our indicator for future profitability from 804 million to 1 billion for the group. So that was a significant increase and I have to say it’s coming from all our countries."
Software is the new hardware
Though everyone seems to agree that the IT leasing industry is on the rise, which direction is it set to take? According to the experts, the answer lies increasingly in software.
"Software is the fastest-growing part of the IT leasing market globally," explains O’Donaghue, "so being able to finance and support customers who want to buy software from Dell, that’s a really good growth opportunity for us."
From Dell’s perspective, he says: "We’re seeing growth in areas like financing software, which is something that traditionally hasn’t been a factor for a lot of leasing companies. Customers are buying and using technology in other ways, and they’re also buying new types of technology like software, that we’re now starting to finance, when perhaps 10 years ago they would not have been financed."
Olivier Delière, senior sales and operations manager at Société Générale Equipment Finance’s (SGEF) high tech division, adds: "I have been in IT leasing for over 20 years, and for the last couple of years software financing has been much more important than pure hardware leasing.
"Twenty years ago, when we were talking about big deals in IT, it was mainly hardware. Now the hardware proportion within big deals is so low – big infrastructure deals still occur, but it’s less and less hardware," he says.
"Customers are buying services – and in these services, there’s more and more software. The hardware portion probably makes up no more than 25-30% of the total services."
In response to the shift within the industry, Delière says SGEF is moving with the times: "We are working very hard, not only with our IT manufacturers, but also with some competitors, in transforming our offerings to the customers."
He adds that although the move towards software in itself isn’t new, what is new is software editors’ attention to the financing solutions extended to the customers.
"Software financing is our main target and our main opportunity to grow," Delière says.
Mossakowski confirms that software is growing in the face of struggling hardware: "We have a lot of software projects which we’re financing," he says.
However, the shift to hardware has not been entirely smooth, nor does it terminate at software. Delière explains: "It’s much more complex and difficult in terms of the opportunities offered by vendors of pure hardware.
"Above that, what’s much more important is infrastructure as a service (IAAS). We have to consider that more and more big customers are requesting from the vendors contracts in which the type of relationship entails buying the services at a flat fee rate."
What shape IT leasing should take in the future is a debate that’s yet to be settled within the industry according to Mossakowski.
"There is an ongoing discussion right now in the whole industry about how shall we position leasing in the future," he says.
"It’s very clear to most of the leasing companies that just offering a leasing factor, leasing rate, is certainly not enough for the customer, because customers have learnt the lesson from the financial crisis," he adds. "They have found other ways of financing; they finance themselves, especially in Germany.
"They have much more own-cash through which they operate, so when you want to be successful in the market today you have to offer more, and that’s what we call ‘efficient technology management’.
"This means we don’t just lease, we take full responsibility for the whole process of how customers uses their assets," he explains. It begins with implementation, or the installation of a new product, and continues until the equipment is taken back and a secure data erasure is offered.
"And that’s what customers are looking for, and I think that pays back in the meantime."
And CHG Meridian isn’t alone in positioning itself at the forefront of the ‘software as a service’ offering.
"What we’re really becoming now is much more of an end-to-end solutions-type provider," says Dell’s O’Donaghue, "I think what we’re seeing is the traditional way of buying IT changing, as IT is changing, and people want more flexibility.
"With technology changing so rapidly, the rationale for a customer to pay cash for a solution and then hold onto that solution, or that asset, is really changing rapidly, because in two-to-three years’ time that technology could have completely changed, and therefore customers are much more interested in a solution that allows them to upgrade, to migrate to something new."
As such, he says: "They’re much more interested in leasing solutions because it means that at the end of year three they can give back the solution and they can upgrade to the latest technology and get something new.
"So the pace of change again has a big impact on that."
Delière adds: "The ICT business is getting more and more complex in terms of the commitment to running services tailored for each customer, and we’re facing more IAAS, which is a significant service area for us.
"It’s not just a question of operational risk we could have with the vendor," he explains, "It’s also a contract between the vendor and their customer. We’re increasingly supporting big transactions where the primary contract is no longer a lease contract to a service contract."
As a consequence, according to Delière: "More and more structure is going into IAAS", and with the growing need to help customers build their business models accordingly, he says, IAAS will become an increasingly important focus for SGEF in the next couple of years.
Although the delivery methods and conditions for IT service are certain to play a role in the future of IT leasing, no overview of the industry would be complete without a consideration of the new technological developments set to occur within the industry.
CHG Meridian’s Mossakowski says: "You will see that the PC is more or less coming to its end."
In its place, changing patterns in customer IT use are fostering the rise of new priorities within IT leasing. Among them, O’Donaghue, is data analytics, which he believes will become increasingly important for companies, and international businesses in particular.
"I think using data in multiple countries, on multiple systems, in a much better way, is going to be an essential differentiator going forward," he says.
"If you look at the recent acquisition we made of a company called StatSoft, it’s all about data-mining, it’s all about data analytics.
"We’re hoping to leverage a lot of those kinds of tools, and actually use the customer data we have, so that when a customer in France rings our support people, they know exactly what our relationship with that customer is in Germany and Italy as well. They can see the information live and give the customers a much better experience."
Another development increasingly likely to impact the world of IT leasing, according to the experts, is cloud computing.
Mossakowski says the cloud trend has been an object of discussion "for the past years", and "financing the service to provide all the data is something we’re in".
In particular, he sees opportunities for IT in the trend towards privately-built clouds, particularly in the wake of concerns surrounding privacy: "With all the discussion about the National Security Agency and how easy it is to get access to data, what we see is more and more private clouds are built up, where the company still tries to get the data or keep the data under their control."
Dell’s Gallop says although cloud technologies are not currently "dramatically huge", they are growing faster than the industry. He explains: "If you’re using a cloud service and you’re a subscriber to it, you don’t need cloud financing.
"But the guys providing the cloud itself are now investing in servers, storage and so on, on the basis of a future revenue stream."
He continues: "Quite a lot of them are small companies which have the financing they need to run their day-to-day business, but don’t have the funds to invest.
"So I think the ability to make judicious investments, and appropriately judge which of these companies, which are brand new and growing fast, we can support from the financing perspective, is going to be a critical differentiator for IT financing in the future."