The contact center outsourcing (CCO) marketplace is mature. It’s a large market, and companies across a wide number of industries and geographies use the services. The market is now $70-75 billion, which is approximately 20 percent penetrated by third-parties vendors and 80 percent by in-house captives. Now that this space is mature, what will happen to the industry? I believe that there are three likely directions.
As in similar mature marketplaces, customers are looking to extract more value from the service. One way to optimize it is to embrace new disruptive technologies such as social media and analytics.
Alternatively the market is increasingly recognizing that not all work should be in low-cost locations. Consequently, they’re repatriating some of the work from low-cost locations such as India back onshore and matching it with workloads that demand more intimate services with better language skills or local knowledge requirements.
As the CCO market further matures, I believe providers have three choices.
1. Stay the course
Providers that choose to stay the course will need to meet customer demands by continuing to refine the model through actions such as embracing the multi-channel social media and integrating analytics. They will also need to add more value to the existing offer base and further optimize it. In this world, providers can expect ongoing pressure on margins and on price, increased requirement for investing in technologies and also can expect slow growth.
This is a fractured industry now with few large players, and the large players control only a small portion of the total volume. So I expect industry consolidation. Providers will get big or sell and go home. I also expect that several players will execute a roll-up strategy where they build economies of scale and economies of presence.
The third possible direction for the mature CCO space is to be disruptive. I believe a segment of this market will follow the path that data centers have gone in that there will be a cloud or cloud-like as-a-service offering that will bring a different business model to this segment.
New providers coming in and disrupting the space will likely capture high rents far exceeding those of the first two alternatives. Like their cloud and SaaS counterparts, they will operate very different business models with much more focused value propositions. These business models will deliver similar as-a-service benefits that SaaS and cloud deliver. However, they will accomplish this not by building a multi-tenant platform but by turning every aspect of the supply chain into a consumption model. This service model will be much more finely targeted at a customer’s needs rather than the service components such as people and technology, and it will allow customers to move away from the FTE take-or-pay model that currently dominates the industry.
2015 will be an interesting year for contact center outsourcing, as we’ll see segments of this market diverging on all three paths.