As we approach the end of the year, I thought I take the opportunity to launch this blog with a question and hopefully engaging discussion about the extensively hyped topic of Cloud. As a Gartner analyst, clearly our organization has put forth lots and lots of research regarding Cloud Computing. However, I want to focus on “IT Services” and the Cloud. Within Gartner, we are referring to this as Cloud enabled Services or Cloud enabled Outsourcing — or just Cloud Services for short. Regardless of the name — the question on the table is how much money, marketshare, channel mastery and MOST importantly in the first 18 months (how much MINDshare) will be commanded by IT services companies (whether its some of the traditional providers like Accenture, Capgemini, ACS, CSC, or some of the Indian vendors (TCS, Wipro, Infosys, Cognizant, HCL, and the other 40+ Indian vendors OR other offshore vendors (Softtek, Neoris, EPAM, CPM Braxis, iSoftstone, VanceInfo, etc. or some of the smaller emerging providers like AppsLabs, Appirio, Torry Harris etc.))
Please weigh in with your thoughts, comments, challenges …
To get the ball rolling, here is a prediction that I recently published along with European colleague (and veteran) Gatner analyst, Mr. Claudio Da Rold: By 2012, India-centric IT services companies will represent 20% of the leading cloud aggregators in the market (through cloud service offerings).While in some ways, this can be perceived as bold prediction, we did analyze alot of different factors and while I feel that several Indian centric IT service providers will clearly have some challenges in truly driving sales and marketing of their Cloud service offerings — I do feel that there are some very interesting market forces on their side. Pasted below is an excerpt from the published reserach that supports some of the thinking of the prediction — LETS HEAR BACK what you think…. I also challenge companies like Accenture, IBM, HP, Capgemini, CSC and others to also weigh in. The primary reason is that while I think some of the traditional outsourcing have some incredible assets (including clients, industry expertise, strong client base etc.) in their favor as well as some strong leadership and experience — I look at a bellwether company like Accenture and I find myself asking some interesting questions. Accenture is a strong company and always a formidble competitor, however, when it comes to Cloud – they have not been very Accenture-like. Specifically, I mean they have not visibly and prominently stepped out in front as a thought leader, a market maker in this arena. They seem to want to take a “follower” approach. Maybe its because they have never had a big footprint in infrastructure and some of the earliest elements of cloud are mostly in the infrastrcture space. Thus you see companies like IBM and CSC taking a more visible and “louder” stance with regard to cloud. Clearly they have a much larger footprint in Infrastructure and IBM also has a big stake in software producsts as well. Lets hear from you on this interesting debate…
Excerpt from Gartner research — supporting our prediction above
Gartner’s presentation in India at the annual NASSCOM event in 2006 declared that India-centric IT services companies have a Strategic IMPERATIVE to focus on exploring nonlinear revenue growth models (which are not directly correlated to labor-based growth). Finally, in late 2008 we came to see that many Indian vendors have embraced this. Thus cloud services is an very interesting area to explore. Therefore, the collective work from India-centric vendors represents an important segment of the market’s cloud aggregators, which will offer cloud-enabled outsourcing options (also known as cloud services).
A significant number of vendors from the infrastructure, software and IT services arenas are investing in R&D and seeking to monetize a share of cloud-based solutions and offerings. This investment fervor indicates that cloud services, which consist of automated technology (services) and IT services (labor-driven managed service), will represent a substantial portion of the overall market. It is also likely to constitute the most lucrative portion of the profitability margins that vendors attain (see the cloud-computing predictions report that investigates this in more depth). Within the overall spectrum of vendors in the IT services landscape, India-based IT services company are interesting for the following reasons:
- These vendors were instrumental in commercializing the global delivery model, which involved the use of virtual decentralized teams across the globe. This model separated where providers create IT services from where organizations consume them.
- These vendors succeeded in recalibrating the price points to address the long-standing enterprise demand for lower costs and in expanding the supply-side spectrum beyond the borders of individual local domestic markets to global markets for specific IT skills.
- The software engineering background of many of the India-centric vendor leadership teams has infused a different mentality and approach to upfront R&D investment in the IT services industry (especially in new disruptive technologies). Compared with the approach of traditional IT services firms, Indian providers tend to aggregate IT services, software and infrastructure in much more holistic ways with fewer internal barriers for developing solutions.
- Many of these companies first introduced themselves to buyers in the U.S. and the U.K. as software companies rather than as IT services companies, which indicates their mind-set in both IT services and software solution development.
- Many of these vendors have always sought out new and innovative delivery models that differed from large asset-intensive outsourcing approaches common to the longstanding IT services provider incumbents. For example, many of these vendors never focused on the transfer of employees or other capital-intensive assets.
- A huge majority of these vendors have little to no debt, and many have significant access to capital. In addition, the opportunity cost for these companies to develop their solutions is usually much lower, given the labor rates in India and the organizational structures of these companies.
- These providers have grown their businesses through a linear business model, oftenposting more than 30% growth on a compound annual basis for more than seven years. This growth required the hiring of tens of thousands of net new employees per year, which is unsustainable for the long term. A new business model demands that some portion of the portfolio include nonlinear revenue that is unrelated to a labor rate per hour. Cloud service represents a valuable opportunity to achieve this.
- Indian providers do not own huge investments in traditional IT infrastructure and do not have a large portfolio of traditional infrastructure outsourcing deals. Therefore, their existing revenue and margins are less vulnerable to the displacement of revenue via cloud-based offerings than traditional large outsourcers are. Indian providers are more likely to invest in offerings that clients interested in migrating to private, public or hybrid forms of cloud services will demand. These vendors will likely offer strategic business and IT consulting services around the impact and deployment of cloud-based solutions. IT services providers that deliver professional services to help enterprises evaluate and assess cloud-based options, develop and integrate these solutions within the enterprise, and manage the company’s transition into new, more industrialized services and solutions are in a unique position to build viable cloud service offerings, given their intimate knowledge of enterprise preferences and strategic approaches. Therefore, Gartner feels that the Indian providers are uniquely positioned to go beyond just assessments and integration services, and that they will develop and grow extensive cloud service offerings in the form of cloud-enabled outsourcing.