Less than three years back, there was widespread excitement (and alarm and despondency) in many quarters about the impact of cloud computing on traditional IT outsourcing providers.
Cloud computing was predicted, though not by us, to greatly disadvantage the incumbent players, but as of today, such a prediction is difficult to stand by (just take a look at TCS’s and Accenture’s results since then). Sure, public cloud providers continue to grow rapidly, and the traditional license model is increasingly giving way to the pay-as-you-go paradigm. Yet most leading providers of outsourced IT services seem to be adapting well through a combined strategy of alliances, acquisitions, and in-house cloud solutions. Cloud computing appears to be increasingly well integrated as part of the delivery model for most traditional ITO providers. Consider the following statistics from our recently released report, Enterprise Cloud Adoption: Role of Cloud in Global Services:
- In the second half of 2011, approximately eight percent of all ITO/BPO deals serviced by traditional outsourcers (excluding SaaS product companies, and public cloud and hosting providers) included cloud delivery models or platforms within their scope. This is up from four percent in the first half of 2011.
- The average total contract value (TCV) of 2011 global services deals with cloud delivery in scope was US$168 million, compared to US$95 million for deals without cloud in scope.
- Cloud deals seem to be more transformational in nature, almost at the cutting edge of ITO capabilities if you will. 53 percent of all ITO deals with cloud delivery in scope involved significant infrastructure transformation of test, development, and production environments. Clearly, traditional ITO providers view cloud computing as an important solution component for large, transformational deals.
- Cloud computing seems to be helping service providers get access to markets that were previously unprofitable or too complicated to serve. Approximately 38 percent of all global services contracts with cloud in scope were awarded by enterprises with less than US$500 million in revenues. And government and non-profit sectors together account for 20 percent of all global services deals with cloud delivery in scope.
Clearly, there’s a big pot of gold somewhere amidst all these clouds, but what’s interesting to note is that few service providers have all of what it’s going to take to win all of it:
- Design and Consulting – Service providers, such as Accenture, with a consulting legacy and orientation are going to have an advantage when it comes to advising clients on how to build their cloud solution from scratch.
- Host and Implement – Players like IBM and HP with a deep legacy of asset-based infrastructure transformation will have an advantage in providing these services
- Management and Professional Services – Offshore players such as TCS, with their global delivery models, have an advantage in offering the “cloud management” role
The problem is that these activities are seldom commissioned in isolation. This is not something where a best-of-breed approach always works, despite buyers being wary of lock-in risks. The opportunities are tightly coupled, and service providers need intelligence on the characteristics of relevant opportunities as they are torn between focusing on what they have, and plugging the gaps through alliances and acquisitions.
The fact of the matter is that there will be winners and losers, and the market today is too dynamic to predict who will play which part. It will be interesting to see if there are ground-breaking disruptions (e.g., a major public cloud provider making a headline acquisition of a giant system integrator, thereby making its move in the private cloud market, potentially disintermediating a lot of other system integrators, and at one stroke making a deep thrust in the enterprise market) as the stakes get higher. Or an asset-light provider marking a strategic u-turn by investing in physical infrastructure to build its own cloud solution, complete with consulting, system integration, and management services delivered through a global platform?
To learn more about the nature of cloud-related opportunities for providers of global services, check out Enterprise Cloud Adoption: Role of Cloud in Global Services.