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Impact of India IT Services on Cloud Services

by Frances Karamouzis  |  December 23, 2009  |  15 Comments

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:  

Global delivery:

  •  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.  

Approach:

  • 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.

 Financial viability:

  • 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.

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Frances Karamouzis
Research VP
10 years at Gartner
23 years IT industry

Frances Karamouzis is a research vice president in Gartner Research and Advisory Services. Ms. Karamouzis focuses on the IT services and outsourcing market and is also the lead analyst for global sourcing research in North America. Read Full Bio


Thoughts on Impact of India IT Services on Cloud Services


  1. Here is my perspective on the Cloud Computing scenario as it unfolds going forward. Cloud Computing, by virtue of its dynamic, real-time upward and more importantly, downward scalability with a pay-per-use costing model, is particularly useful where there is significant inpredictability of demand for computing and storage resources or a large (though at times predicatble) variation in computing and storage activity through the year. Example of the former could be that of an Anti-virus software vendor and of the latter could be online retailer or online travel booking portal.

    Organizations that typically do not have such a significant predictable or unpredictable variation in demand may not have much use for the dynamic scalability of demand. However, they may be able to set up “Private Clouds” with a significant rationalization of their computing and storage assets with substantial cost benefits and dynamic provisioning of resources for different parts of the organization on need basis. Management of applications also becomes much easier on a private cloud.

    “Cloud Computing” essentially comprises the following key components:

    * Storage Infrastructure
    * Connectivity Infrastructure
    * Computing Infrastructure
    * Applications

    * Storage

    For storage we have seen emergence of some significantly large enterprises who have “storage” as their core business with huge investments in storage infrastructure and offer storage as a service on a cents per GB kind of pricing model.

    * Connectivity

    Hand-in-hand with the evolution of the offshore delivery industry and with advancements in communication technology, we have seen emergence of large global connectivity providers, that focus on offering connectivity services to enterprises across the planet on either “fixed-cost-unlimited-usage” or “Cost-per-use” basis.

    * Computing

    We have observed emergence of enterprises that have invested in HUGE server farms and offer “computing as a service” where customers are either charged on “cents per cycle” or “dollars per server” / “server on rent” basis. The provisioning is done dynamically and charges are made on a pro-rata basis.

    * Applications

    On the one hand we see large applications vendors like Oracle, SAP & Microsoft and on the other we see numerous small ISVs that operate in their own niches. A large number of “Opensource” application writers also form a formidable force on the Cloud scene. We are seeing all these types of application vendors having a Cloud strategy in some form or the other.

    All of the above are the “Spade Vendors In a Gold Rush” who will end up making money as Cloud Computing hype rises and is followed by the inevitable adoption cycle. It is interesting to note though, that one cannot see many Indian Offshore Services Providers in either of the above. Also, considering the HUGE investments required in setting up computing and storage farms, it is unlikely that Indian Offshore service providers would go that way.

    An opportunity for those who are not on any of the above is to become a “Services Aggregator”, by offering services / platforms that help organizations connect the dots seamlessly and have access to the power of cloud computing. Service providers also have the opportunity to offer to set up private clouds for large global enterprises that may already have huge sunk investments in computing and storage infrastructure.

    Services aggregators may either choose to be the thin layer above the “spade vendors” and earn annuity revenues them by way of pass-through commissions / tolls and from the user organization as a management fee or completely white-label the “spade vendors” and become the “Cloud” for user organizations. An icing on the cake in this case would be by way of “domain expertise” premium that these aggregators / “white clouds” may use as a differentiator over the spade vendors.

    It is this space where service providers would have a significant play. While it is true that leading US-based service providers have not worked towards creating significant visibility for their cloud computing offerings, we do not see any aggressive activity from India-based providers either.

    My sense is that it is still a very level playing field and most providers may be playing safe in the current economic scanario and may be waiting for application vendors to take the lead and evolve standards or at-least some solid Cloud-ready offerings before they can jump in with their services portfolio. I certainly do not see any major distinct advantage to India-based providers though I would expect them to go more aggressively on the Cloud front as it presents a strong opportunity to leverage the cloud to further reduce costs of their “Offshore development factories” through a virtualized environment.

    End user organizations may also be waiting on the fence to ensure things have stabilized significantly for them to risk moving to Cloud.

    My expectation is to see selective cloud-leverage by user organizations to beging with in 2010, followed by a “Private Cloud” way in the second half of 2010 and all of 2011 and then a shift to mature Public Cloud wave by late 2011 and through 2012 in the enterprise user space.

    I am however expecting to see a much earlier adoption of Public Cloud in volume terms by individual / retail users and by the SMB sector through 2010.

  2. Frances, great topic for discussion. The cloud (infrastructure, platforms and software as a service) has already fundamentally disrupted the traditional SW sales and delivery models. What has been talked about less is how cloud creates the opportunity for new service providers to change the service delivery model.

    At Appirio, we have demonstrated over the past few years that a fundamentally different services model is needed for success with the cloud. At its core, the difference are the following:
    1) Smaller, more agile teams
    2) Business process rather than infrastructure-oriented skills
    3) Iterative development in collaboration with business and IT stakeholders
    4) Understanding of the cloud ecosystem and how different cloud apps can be connected/extended to create solutions
    5) New staffing models that extend beyond an enterprise

    The skills and capabilities that made service providers successful with on-premise development and outsourcing are completely different than those required to succeed with cloud services. It’s anyone’s guess whether traditional providers can or will be inclined to reinvent themselves but it’s an exciting time for those of us who want to disrupt the status quo.

  3. The cloud fundamentally offers decoupling of infrastructure and IT services. This provides a level playing field giving no significant advantage to organizations which offer infrastructure as part of the offering. In a cloud model, not only the infrastructure is a commodity but also the ability to scale or switch infrastructure based on demand, geography, cost is an optimization handle.

    The domain experience, innovation, agility, IT delivery excellence and ability to offer end to end service offerings would be the primary levers which would shape the market share of the IT services delivered on the cloud.

  4. A question very often asked internally is what is what the impact of the cloud on a service provider. I will set aside the infrastructure layer, as connectivity, storage and computing power are poised to become commodities (if they are not already in that category), where scale, technical proficiency and financial muscle define the winners, but adding little “disruptive” value to organizations and end users (besides cost-relief and convenience).

    So what will happened to IT services providers focused on application services? There are many angles, subtleties and taxonomies to start addressing the question, so I frequently find myself going to the basics and asking myself what is the simplest definition of Cloud Services (infrastructure put aside). One such definition could be:

    Simplest Definition: “Cloud application services are services in which the software functionality or software solution is fully owned by the providers.”

    The important aspect in the definition is that the end users do not own any of the underling assets (this includes patents, code, hardware, storage and sometimes the connectivity).

    Given this definition, we can separate cloud application services into two buckets.

    In the first bucket, we group all solutions that can be hosted remotely, and charged on a monthly basis on either fixed price schemes or per seat schemes. But these hosted (or even rented) applications are not really something new, it’s just a bundle of what we already knew, where a provider coordinates all the tasks that an end user could do by himself.
    Will providers of these bundles be able to charge beyond cost (determined by salaries)? It’s rather unlikely, unless they own the application code and intellectual property. The infrastructure will be a commodity, and if the code’s not theirs, the value these providers can add will be limited. So while alliances, partnerships, etc. may get service firms into the cloud picture, not much changes, except the need to become more influential and closer with the software makers, or to become software makers themselves.

    In the second bucket, we have solutions such as Google Apps or Apple’s MobileMe, and online applications or functionality such as Facebook, eBay, LinkedIn or Crossgate, to name a few, showcasing delivery rooted in the cloud. These firms own the code, patents, trademarks as well as the API and terms of service. They typically leverage (own?) the user base and the network effects associated with it. This group of firms is the one that is going to have the most impact for application service providers.

    So what do this cloud solutions have in common? Some of the most obvious characteristics are:

    • Are massively interconnected
    • Feature large user bases (early mover on a shared need)
    • Leverage economies of scale (hardware, provisioning, etc)
    • Are easy to use and have the right functionality (and not much more)
    • Solve very specific problems, but very well
    • Feature well exposed APIs (to build upon the functionality)

    As more services featuring the mentioned characteristics gain traction, where user can’t buy the assets that provide the functionality/solution, the size of traditional service delivery shrinks. And with it, application services providers are challenged to adapt, change or perish. But the path is not fixed, and there are several path for change:

    Paths for service providers

    1) The first path is sharpening the skills to develop and maintain cloud infrastructures and code, and to target those services to the high tech firms delivering the cloud service. I have seen many IT services providers grow in the high tech vertical, and this trend will continue to accelerate.

    2) The second path is focusing on the end users changing requirements. This means mastering configuring, maintaining and managing cloud services end user relies on. Even if the functionality has moved to the cloud, there is always new versions, new functionality to deal with, personnel changes, new policies to enforce, and updated business processes to map.

    3) The third option is to become the “new” middleware. As the move to cloud services progresses, so will the need to more tightly integrate the services from different cloud providers, and to add custom code or interfaces to internal systems that help the firm differentiate.

    4) The last path is to develop or buy software products that are great candidates for cloud services. I already shared some of the aspects that make for good candidates, but through in your own. The risk of this approach is that, traditionally, IT and application service providers are good at finding the right talent at the right time and at the right cost, while making sure the talent pool grows. In a knowledge economy, this means mastering the art of “know-who”. But mastering the “know-who” and having strong processes for service delivery doesn’t necessarily translate into being able to attain a first mover advantage in the cloud, nor it translates into being able to position a solution in time, nor it translates into getting the functionality and scope from day one.

    Service firms are usually great at adapting to ideas their clients already have in mind. They can solve problems fast, efficiently, and on time. But this does not necessarily translate into having the right vision. Moreover, most of the time, they operate with little risk, and relatively lower margins. High margin adventures are not usually favored when faced with high uncertainty.

    For all the reasons above, I think Indian service firms will easily adapt to the service needs brought by the cloud. Some will venture and acquire already established software products and service them through the traditional, hosted way. But very few will become the owners of important parts of the cloud. If the cloud moves fast, 20% may be just the baseline!

    The fundamental question for a service provider is, do you know with high certainty what’s missing that BELONGS to the cloud? Can you dominate the niche? If the answer is not a resonating “yes”, path one to three offer plenty of opportunities, without the risks inherent to the cloud.

  5. Sanjay Gupta says:

    Very topical subject on the eve of 2010

    The two points which are most striking in the research mentioned by Fran are the completeness of the service portfolio’s of companies like Wipro, and their lack of incumbency in long term contracts which bind them to traditional infrastructure.

    The completeness of service portfolio’s will allow a similar completeness in the ability to participate as service providers across the layers of the cloud, be it in Business process as a service, Software as a service, Platform as a service, and Infrastructure as a service.

    In the lower two layers of infrastructure and platform as a service the opportunity for the India origin services players may lean more towards providing services around technologies originating from leading platform providers like Microsoft, EMC, IBM, and HP.

    The greenfield opportunity may lie at the upper layers of SaaS and Business process as a service. In the former, the ability to construct industry unique SaaS solutions, and distribute ithem effieciently across global markets will be key differentiators. This will test the strength of the Indian companies against the more established software application providers. It may well be the battleground where the challengers will face off with the incumbents most. In my mind its an even battle. The incumbents have experience on their side, but also the drag of protecting existing revenue. The challengers can build ground up but will need to understand that software written for direct distribution requires significantly different usabiity and user friendliness compared with that written as a service to a corporate client. This latter skill can be learnt and the winners could be those which have truly wide distribution networks, particularly in the emerging markets.

    The business process as a service area is where the service breadth of all the players will be tested. It will take considerable system integration and delivery capability to construct and deliver solutions which are a combination of business process service, software platform, and infrastructure below. That said, this area, could potentially differentiate those who will lead in the cloud services vs. those who also play in it.

    The well managed and financially sound services players are all at the starting block of this emerging services opportunity. In many ways this is Y2K again which brought new players onto thw world stage. The better ones are still around, while many fell by the wayside as soon as the party ended. It will be interesting to see which ones lead the next decade and the race to enable the cloud

  6. Frances Karamouzis says:

    Reply to Ravi Datar

    Ravi – thanks for your extensive, the two big items from your post that resonated for me

    Item 1 — Service Aggregators. In the section where you discuss Service Aggregators. As you may now this is a term that Gartner IT services team coined and wrote extensive reserach about in 2001 & 2002 time frame. However, it did not immediately become prevelant in the market. And now its coming to fruition. Similar to the use of India offshore resources which dates back to the late 1970’s early 1980 time frame, but did not explode in growth until 2001 to 2007 timefame when there was a perfect storm ( namely the confluence of Internet connectivity, telecom deregulation and enough security levels) which allowed for the true execution of the global delivery model. Here Service Aggregation concept that we wrote about so long ago is now experiencing the early stages of the perfect storm where Cloud Computing technology will help make it a reality.

    Item 2 — The areas of potential Growth for IT service providers
    I think your points are valid but I think that you limit the potential to what we are seeing today. My position is that many IT service providers are planning lots of stuff but its just not yet visible in the public domain. Most IT Service providers have not made many public annoucements about their plans for Cloud enabled Outsourcing because similar to any other major offering — IT Service Providers spend alot of time “authenticating” their offering, figuring out SLA’s and figuring out their risk so they can appropriately price the offerings. As such, it might be apparent but I predict lots of announcements will appear soon. Thanks for your post

  7. Frances Karamouzis says:

    Reply to Jitendra Pal Thethi (Jitendra_thethi@infosys.com)

    Thanks for your post. A few comments to your entry.
    First, I think your statement indicating that “This provides a level playing field giving no significant advantage to those vendors offering infrastructure’ is RIGHT ON THE MONEY !!! This is the most significant impact on where the money flows. Everyone has long since talked about how infrastructure services is commoditized and there few new entrants. However, the cloud and all its promise truly makes the ‘acquisition’ (or now “access) and ongoing maintenance and management of infrastructure a true commodity from end to end. The most significant change is that now there will be much more CHOICE with regard to who supplies it and how they make money. And the other significant change is that it can be purchased in a much more granular (bite sized) manner. Thus, gone are the days of mega deals that sometimes exceeded USD $ 500 million or even a billiion dollars (including assets). Thus this foundational part of the attraction and IT service deal is forever changed lowering the barrier to entry for lots of other IT Service providers as well as unusual suspects.
    The cloud fundamentally offers decoupling of infrastructure and IT services. This provides a level playing field giving no significant advantage to organizations which offer infrastructure as part of the offering. In a cloud model, not only the infrastructure is a commodity but also the ability to scale or switch infrastructure based on demand, geography, cost is an optimization handle.

    On this part of your post — > ‘The domain experience, innovation, agility, IT delivery excellence and ability to offer end to end service offerings would be the primary levers which would shape the market share of the IT services delivered on the cloud.” While I agree with the first part of your sentence, I don’t agree that cloud gave rise to this. This statement was true about IT services for many years especially for certain offerings. Domain skills, agility, innovation and customer service will always be important regardless of whether cloud takes hold

    Finally, I am not sure about your statement that ‘the cloud fundamentally offers decoupling of infrastructure and IT services. ” I think there has been decoupling of IT services for years — long ago, client would buy the server, operating system and applications all from Wang (and other like them). And over time, there was a decoupling of layers that gave rise to Infrastructure Outsourcing, Applicaitons Outsourcing and BPO as well as lots of hybrid options within each one. As such, decoupling has already happened. I think Cloud allows for much effective modularity of mixing and matching different IT service offerings with lots of different software options, application infrastructure (platform) and infrastructure solutions.

  8. Quite an interesting discussion to clear the air in the cloud.

    Players are going to define their contributions based on the external forces. Furthermore, the current recessionary status of the market will also drive some of the decision making. Often during these times, we see that organizations tend to make cost reduction efforts which are almost short-term.

    In this dynamic and sometime unpredictable market, Cloud computing does offer ways to reduce infrastructure costs, introduce efficiencies (lower energy, minimize hardware, scalability etc.) and thus promise a global outsourcing model. However, there is another school of thought which states that Cloud computing services like the one offered by Amazon can actually charge more to corporations for services which they could do it cheaper by themselves by using the traditional data centers. The rationale being that the traditional data centers can implement virtualization which can boost the utilization.

    I think hence the reason that many (like you pointed Accenture’s initiative) are taking this with a grain of salt.

    Furthermore, there are business models which are affecting this. With the advent of folks like Facebooks and Twitters of the world, it is evident that one doesn’t need to be holistic in terms of offerings. There could be an eco-system where one partner provides the infrastructure and the other is providing the service or what we call xAAS for Cloud. I think such eco-systems will drive the value rather than individual players since differentiating on infrastructure alone is going to be tough!

    The Indian IT services organization like Tech Mahindra have grown year over year providing services and it could be termed as linear growth or a linear proportion since the cost has been linear as well. The question in front of us is Can cloud computing be deemed as “Infrastructure-As-A-Service”? And what does that entail?

    I think it is a creation of a different business model by the Indian IT services companies through which corporations get a handle on a cloud offering infrastructure, software solutions and even manpower. Does this require investment into the infrastructure itself? Probably not, rather a push towards an eco-system of partners is a better choice.

  9. Vijaya Kumar Ivaturi (ivk) says:

    I have the following points to add to the discussion here.

    1. In cloud, everyone’s end point may be the same but the starting point is not. This is the reason why many of the IT services firms like Wipro have got a better view and position to take on this. Cloud removes or deskins many branded gear and converts it into a service on demand. Hence the solution is also situational in nature than a standard fix.

    2. Having spent more than a year in developing a private cloud solution at Wipro under my perview, I have to say that there are many nuances in delivering cloud solutions which go beyond the standard IT procesess and technologies. It has got an intricate relationship with the kind of system design to make it so abstract to the IT applications layer above. A deeper understanding of application loads and their profiles is needed to design a cloud solution which goes beyond infrastructure layer. As many organizations want to try their cloud experiements behind their firewall ( private cloud), it is important to know the applications in an enterprise which can move into it.

    3. Cloud as a programmable platform is just taking off and there are many challenges here which are not related to infrastructure but they are closely linked to IT process layers. One cannot implement a solution on cloud platform unless it supports integration with engines like a commerce engine or a workflow engine. These nuances lend to a service business delivery rather than a product based delivery model.

    4. One of the biggest challenges in Cloud is related to the intergration or correlation of application loads to commercial models. How well can you predict an application load for signing on a commercial model as many CIO cannot predict the this at the time of signing if apps belong to LOB’s. The current practice is driven by peak load design and not load shaping model.

    5. In my view, cloud does not remove vendor independence fully as the current cloud designs across vendors are not completely interoperable. Hence, the cloud exit concern overrides the entry concern here. This is one of the hot topics to debate and one of the highly reserached areas as well.

  10. Gaonkar says:

    Cloud will integrate infrastructure to business process (Infrastructure, DC, App, BPO) in standardized, optimized way. Which is going to challenge traditional sales of solutions (only infra, services, bpo etc). i have my own definition of ‘Flat World’ in these scenario. There are s/w layer and h/w layer, and today, h/w layers are moving towards s/w layer and s/w layer is moving towards h/w layer (Oracle, Sun aquisition is very strategic in that sense).

    Biggest success factor for any company is to get the following right in these cloud offering (i call it as platform).

    1. pricing (pay as you go model)
    2. Offering (meet client requirements and SLA)
    3. Continues best practice sharing due to multi-tenant architecture
    4. Lower client TCO

    Typical distribution of cost is as below

    1. Infra cost will be about 50% of total cost
    2. App cost will be about 30-35%
    3. BPO cost is about 10 – 15%

    If a company achieve this, big deal will follow and it will change market dynamics. It is all about blue ocean!!

  11. Gaonkar says:

    Cloud will integrate infrastructure to business process (Infrastructure, DC, App, BPO) in standardized, optimized way. Which is going to challenge traditional sales of solutions (only infra, services, bpo etc). i have my own definition of ‘Flat World’ in these scenario. There are s/w layer and h/w layer, and today, h/w layers are moving towards s/w layer and s/w layer is moving towards h/w layer (Oracle, Sun aquisition is very strategic in that sense).

    Biggest success factor for any company is to get the following right in these cloud offering (i call it as platform).

    1. pricing (pay as you go model)
    2. Offering (meet client requirements and SLA)
    3. Continues best practice sharing due to multi-tenant architecture
    4. Lower client TCO

    Typical distribution of cost is as below

    1. Infra cost will be about 50% of total cost
    2. App cost will be about 30-35%
    3. BPO cost is about 10 – 15%

    If a company achieve this, big deal will follow and it will change market dynamics. It is all about blue ocean!!

    gaonkar_k@hotmail.com

  12. Ken Schulz says:

    I second the notion that strong R&D capabilities will likely give service providers an edge when it comes to innovation and entering the Cloud with marketable solutions and services. Wipro is often cited as having a head start in the race to offer Cloud Services. As one of many factors, I think it is no coincidence that they have been historically known for, in relation to both domestic and global IT Service firm peers, a strong software product engineering services offering. Many other players – the leading global services players in particular – have tended to focus on moving up the services value chain or offering a complete spectrum if IT services that includes everything from commoditized infrastructure to prized consulting offerings. Taking a leadership stance in Cloud Services would present a challenge to their business portfolio.

    Another point to consider is the potential impact of government involvement in Cloud development. We’re all familiar with how the government-sponsored ARPANET initiative eventually led to today’s Internet. Could it be that similar government initiatives will help drive development and adoption of the Cloud? DARPA was military spending by the federal government. Today, we find central and local governments investing in civilian computing initiatives around the concepts of intelligent cities, urban intelligence, etc. If government investment in this space can influence the speed of reaching Cloud Services capability maturity, then it stands to reason that providers based in countries with relatively heavy government investment in Cloud initiatives (assuming that investment goes to local providers) will derive benefit. Not sure about India, but China is widely recognized as having a modern infrastructure in additional to increasing government support for sourcing initiatives. Several major cities have already launched or are planning to launch Cloud projects in partnership with service providers. This may be another dynamic, in addition to R&D prowess and other factors suggested in Gartner research, that gives players from emerging economies a leg up in the Cloud Services race.

  13. VSR, Mahindra Satyam says:

    CLOUD COMPUTING – View Point
    ————————————————
    The Indian IT industry has grown from USD 2 billion in export revenues in 1998 to nearly USD 50 billion today and the target for 2020 is USD $175 billion. Last Decade was a Golden Age for Indian Inc, which has seen more than 30% year-on-year growth.

    The situation got changed now and present situation of global economy might not provide opportunity for India Inc to grow at the rate of ~30% per year. Industry experts say that, the growth rate of India Inc could be in single digit or slightly higher than 10%.

    Before I share my views on Cloud computing, let us first understand what the customer expectations from IT services. There is no point India Inc spending millions of dollars without understanding the demand from customers.

    As per my understanding, CIO Organizations have been spending nearly 80% on IT Operations (Data Center, Applications Life Cycle Management etc) and probably 20% on Innovation to help delivering business value.

    CIOs are under tremendous pressure to deliver value from IT. The era of CIO organization as ‘Cost Center’ is gone and now the CIO organizations have to be the ‘Strategic Growth Engines’ which will enable the growth and transformation of business.

    In this new decade, the CIOs pay package also would be linked to delivering Business Value rather paying based on ‘traditional’ metrics like reducing TCO, % off-shoring, and availability etc. This would demand for expanding the bandwidth of CIO organization to spend more time on innovation and business value enhancement initiatives.

    Partly (if not significantly) India Inc’s Global Delivery Model (GDM) has helped Global CIOs to optimize their operations. In my view, the current GDM model has NOT COMPLETELY relieved CIOs from their day-to-day transactional/operational issues.

    CIO Organizations – The effort distribution
    ——————————————————-

    Business & IT Alignment (20% of CIO Organization’s effort)

    1) IT strategy & business value management (Business and IT alignment)

    2) Enterprise Technology Blue Print, Architecture and Innovation
    IT Operations Management (80% of CIO Organization’s effort)

    3) Computing Power as per Demand (Data Center Management) – enable performing business transactions

    4) Application Life Cycle Management (develop, implement, integrate, upgrade, maintain and retire) – to support complex and ‘time to market’ needs of business users

    Can India Inc help CIO organizations to spend 80% of their effort on high end activities like Business & IT Alignment rather spending most of their effort on IT Operations Management? Ideally it is possible — Cloud Computing is the new delivery model which seems to be very promising in relieving the CIO organizations from transactional and operations Management issues.

    My views on Cloud Computing:
    ————————————————
    The three important ‘X’ as a Service (XaaS) models of Cloud computing are

    1) Infrastructure as a Service (IaaS) – Just in Time Elastic Computing: Partner/Service Provider provides Hardware, Networking, switches, routers and bandwidth, Storage Space

    2) Platform as a Service (PaaS) – Agile Application Life Cycle Management: Partner/Service Provider provides Application Servers, Application Development Environment, Enterprise Applications Integration platform, Operating Systems etc

    3) Software as a Service (SaaS): – Partner/Service Provider provides access to readily available business applications to use them

    By looking at the above mentioned models (IaaS, PaaS, SaaS) the CIOs could pass the ownership of managing their IT Operations to IT Service providers/vendors. This would help CIO Organizations to spend 80% of their time on Innovation and business value management.

    One caution is that, Cloud computing is still evolving and it is not an easy task and involves many constraints, challenges and limitations.

    India Inc & Cloud Computing – My views
    ———————————————————-
    Cloud Computing Business Model:

    India Inc has to devise a business model for Cloud Computing. This means the following elements have to be considered:

    1) Partner Network (What partnerships to be maintained by India Inc for delivering Cloud Computing services)

    2) Core skills (what skills India Inc has to built to succeed in Cloud Computing

    3) Cloud Computing Service Delivery Model/ Processes (India Inc has to re-engineer and redesign some their delivery processes for Cloud Computing services – how to leverage current Global Distributed Delivery Model)

    4) Cloud Computing Service Offerings/Solutions

    5) Customer Segments (Enterprise scale, Mid and Small businesses)

    6) Pricing Models

    7) Cost/Investments to introduce Cloud Computing

    8) Revenue Generation Models for Cloud Computing services

    9) Differentiators for Cloud Computing Services

    Cloud Computing Service Delivery Standards:

    1) In my view, India Inc has to come together and form a consortium and devise ‘CLOUD COMPUTING SERVICE DELIVERY STANDARDS. Especially in Cloud Computing, customer might end up with many service providers – Unless there are Cloud Computing Service Delivery standards, customers might end up with complex integration challenges.

    Cloud Computing Service Delivery Models which India Inc could implement are:

    1) IaaS
    a.Option1: Own Infrastructure/Computing platform
    b. Option 2: Partnership with Amazon, Rack Space etc

    2) PaaS
    a. Option 1: Own Application Development/Integration platform
    b. Option 2: Partnership with Sales Force (Force.com), Microsoft (Azure), Google (App Engine)

    3)SaaS:
    a.Option 1: Own Applications Platform (Own Products or Licenses from Software Vendors like Oracle, etc)
    b. Option 2: Partnership with Salesforce.Com, Oracle, NetSuite, Google Apps.

    Key Challenges to be addressed
    ———————————————–

    CUSTOMER
    1. Application Portfolio Analysis and Cloud Friendly Applications identification – ‘Cloud Service Path Finder’

    2. Security: Still evolving in Cloud Computing Environment

    3. Private vs. Public Clouds: Choice, ROI Analysis

    4. Private Cloud and Public Cloud Integration

    5. Industry Clouds – Government Cloud, Communications Cloud, Clinical Cloud etc (Regulatory compliance, standards etc)

    6. Regional Clouds – India Cloud, North America Cloud (Localizations)

    7. Leveraging existing IT Infrastructure

    8. Architecture support of Enterprise Applications (SOA, Mutli Tenant) to introduce SaaS offerings

    9. Single Customer, but Multiple Cloud Service Providers and Integration Challenges

    INDIA INC

    10. Business Case for India Inc to introduce Cloud Computing Services – Is it really attracting and brings the required profitability, revenue and value to customers

    11. Ad hoc vs. Business Aligned Cloud Services: Understanding Customers IT Strategy, IT Architecture and aligning Cloud Services – Consulting mind set

    12. Pricing Models and Supporting Tools/Software (Meters to identify the usage by users)

    13. Contract content, SLAs, Legal Issues

    14. New Partners, Alliance Management – Alliance Strategy (example: Amazon, Salesforce.com etc)

    The investments made by India Inc in Infrastructure Management Services (IMS/ITO), Strong foot print in Enterprise Applications services, Industry/domain expertise, business processes knowledge etc might help India Inc to introduce Cloud Computing Services at a faster pace.

    In my view India Inc has to introduce Cloud Computing Services in an evolutionary manner. India Inc has to start with small Proof of Concepts with existing customers and learn the challenges and complexities before investing heavily on Cloud Computing Infrastructure.

    VSR
    Mahindra Satyam

  14. Doug Gattuso says:

    Thanks Frances, it´s a really interesting discussion. Cloud Computing seems far from mature but a vast majority of the industry considers 2010 as an inflection point in the area of Cloud Computing. India IT services companies may be well positioned to address the new challenges and opportunities that Cloud Computing brings to the IT industry, but this market is still taking shape. Many players are working hard on their strategies to reap the benefits from it. Nonetheless, this outsourcing paradigm will expose the strengths and weaknesses of IT services companies from all around the world, whether large or small, Indian or non-Indian, and nearshore or offshore service providers. Since moving to the Cloud delivery model can lower Capital Expenditures (CapEx) and shift this to Operating Expenditures (OpEx), the attraction is real, but there is a long road ahead of us. Currently, I think many IT services companies are dealing with, and investing, in the following areas:
    – Strategic alliances and partnerships
    – IT services offerings definition
    – Standardization and cloud brokerage

    STRATEGIC ALLIANCES & PARTNERSHIPS
    Things are definitely heating up. Nobody wants to lose business to Cloud Computing, and all companies are looking for their role in the Cloud Computing ecosystem. Many companies will be combining asset-led marketing strategies and market-led marketing strategies in order to define their cloud computing services portfolio. Most likely, they will make the best use of their core competencies on any of the three main areas (SaaS, PaaS, IaaS) taking advantage of their strengths and compensating their weaknesses trough partnerships or acquisitions. In this scenario, big players such as IBM, HP and Oracle will be likely set the agenda and other niche players will spark the innovation thanks to their know-how and agility.

    In the near future, we may see a substantial number of partnerships, acquisitions and alliances in order to provide more robust and innovative services. For instance, in the case of Neoris, as a provider of nearshore outsourcing services through a global delivery model, we have already taken steps to improve our cloud service offerings by partnering with Google and Microsoft. There will also be providers of cloud computing services willing to acquire companies that deliver a business process as a shared service. More alliances will be created like the recent one between Microsoft and HP, for a three year engagement focused on the SMB market.
    In regards to the SMB segment; during year 2010 IT services companies will target the this segment by bringing the benefits of Cloud Computing to the SMB space by offering enterprise functions at reasonable prices. The SMB segment is very significant in Europe and many IT services companies will take the SMBs into consideration when setting up their Cloud strategies. In the US, for example, Google, Salesforce.com and Intuit are positioning themselves as clear specialty SaaS providers for SMB companies.

    IT SERVICES OFFERINGS
    It is still difficult to find a clear definition of Cloud Computing but there is consensus on what it means as a new IT paradigm. Cloud Computing nurtures from other IT paradigms such as pervasive computing, Internet, SOA, Composite Applications, Virtualization, Grid computing, Collaboration, and Services computing. Since Cloud Computing can be seen as a melting pot of so many knowledge areas and paradigms of IT, many current IT services skills can be offered and tailored specifically for Cloud Computing. Services that IT services companies could provide:

    • Hosting services: web site hosting was an early precursor of Cloud Computing and today Cloud Computing can enable companies looking to offer their products in a Software as a Service model and optionally offering software developers a PaaS model
    • Consulting services: operation process consulting, Cloud Computing assessment (helping companies assess where they stand when it comes to adopting Cloud Computing and helping them successfully develop a Cloud IT strategy)
    • Design, development and systems integration services: implementation of services, architecting Cloud Computing solutions
    • Service management services: it is a key to any successful enterprise cloud computing project and requires specialized resources. MaaS (Monitoring as a Service)

    Also, we could differentiate cloud applications or solutions by following three types:
    • Social applications: examples of these applications are Facebook, Twitter, GoogleApps, online games such as World of Warcraft. They have in common a large user base thus needing large computational power
    • Public sector applications: local, regional, federal, and central administrations will make use of the Cloud to provide citizens with fast, pervasive and reliable applications that make their lives easier
    • Business driven applications: specialized vertical applications, cross-industry applications

    STANDARDIZATION & CLOUD BROKERAGE
    The Cloud computing ecosystem is still shaping itself, and year 2010 will be key in areas such as standardization – which is critical in order to address enterprise-to-cloud and cloud-to-cloud integration, thus preventing vendor lock-in. Stiff competition between the big players and their mind share strategy might impact the standardization of cloud technologies, yet competition will drive innovation and fuel growth in this market.

    Besides standardization, brokerage might also gain some momentum since one of the main drivers of cloud computing is avoiding fixed asset costs related to peaks of demand in business. In order to remain efficient, organizations with excess capacity will have to offer it to the market. This will require putting in place automatic, anonymous and secure mechanisms in order to seamlessly buy and sell these capacities.

    If we think in pure economic terms, typically, the market refers to the aggregate of possible buyers and sellers, and the associated transactions between them. In the future, if Cloud Computing is to achieve what it is envisioned to be, it will require its own market. Possibly, this market would have similarities to the our financial markets were commodities are being traded. This global Cloud market would provide the means to match demand and supply of cloud computing capabilities, and facilitate the transfer of risk, international trade, and price determination of services, liquidity of computational capabilities, and the reduction of transaction and information costs.

  15. aarti patil says:

    Thanks Fran for the extremely detailed and well covered information piece.

    Hope this disruptive technology continues to top the priority list of global CIOs and the hesitation of keeping things under lock and key and not in the open along with other current security concerns, not hinder the adoption of this truely beautiful technology.

    Hope the ideology percolates…



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