In our tracking of industry contracts and trends, we find that, in the infrastructure space, incumbent service providers now win recompetes 85 percent of the time. However, the ACV (annual contract value) is 27 percent less scope.
This means that the incumbent must be able to add new new logos.
The good news is the volumes in contracts have been growing at about five percent a year. So an incumbent can expect to have revenue growth once it has a contract. The bad news is that growth is unlikely to continue as cloud starts to take over. Workloads will migrate from the traditional infrastructure models to a public or private cloud model, which is both more efficient and outside of the purview of the infrastructure marketplace.
You may ask how we can reconcile the explosive growth of HCL, TCS, Cognizant, and other RIM providers with this bad-news picture. The answer is they’re not incumbents and they’re using a RIM management model to attack an asset-heavy model, which increasingly is losing out to the RIM challengers and is at a lower price point. The RIM model is more profitable and cheaper.
Bottom line: we expect disruption from cloud to further impact the difficult situation of decreasing ACV. The net result is we predict difficult times for incumbent infrastructure players.