Tag: Services Market

Significance of Services Market Consolidating | Sherpas in Blue Shirts

I’ve been blogging about the services market consolidating in the provider/delivery space. We’re seeing it with iGate, Dell and others. We believe that activity will accelerate. Here’s what’s new and significant: we’re also seeing it in the adjacent spaces of sourcing advisory and research.

In the heyday of the sourcing advisory space in the early 2000s, there were literally dozens of competitors in that space. There are now far fewer players, and consolidation is happening again. ISG has been consolidating the benchmarking services, for instance. It acquired Compass in 2011 and in December 2016 acquired Alsbridge as the next large installment in consolidation efforts.

The research space also sits adjacent to the services space, and it is consolidating. Right out of the gate in 2017, research firm Gartner announced it entered into an agreement to acquire Corporate Executive Board (CEB). For years, we’ve seen Gartner grow both organically and inorganically. This recent move represents a big step in market consolidation in the research space.

What does consolidation in these three areas mean for the services industry?

First of all, size matters, particularly for profitability. That applies to all three categories – service providers and the sourcing advisory and research firms. The market doesn’t want a single voice for advice or capabilities in these areas.

In the service provider space, key clients have been moving away from their risks in over-concentration with one provider. We’ve seen Cognizant and TCS and sometimes Infosys suffer from this. After a provider gets to a certain scale within a client, the client is reluctant is give the provider more work and actively starts to seek to find other delivery mechanisms.

In the research space, the market rewards Gartner because of its scale that allows better profitability; however, the market also wants contrary or other opinions, not just one opinion. Hence, companies like Forrester and, arguably, Everest Group, grow as alternate voices.

Yes, there is consolidation today; but there are multiple voices, which the market needs. Consolidation makes sense for the acquiring companies; it’s a substitute for organic growth, and they reap the rewards from scale and profitability. But consolidation results in something even more significant: it gives an opening to boutique firms.

Boutiques have an opening particularly in the large clients that are over-concentrated in one or two service providers. That’s where we see small digital players moving now and doing well. We believe the opening for boutique service provider firms as a result of consolidation also applies for research firms and potentially for sourcing advisory firms as well.

Testing: First Services Workload to Migrate to Cloud | Sherpas in Blue Shirts

The services market is aflutter with the coming impact of migrating work from legacy environments to cloud environments. Twenty-five to 30 percent of capacity in legacy environments today is utilized for testing, making it ideal as the first workload in services to migrate to cloud. We see signs that this migration is already underway. We believe the implications of migrating the testing workload are very significant.

Let’s look first at why testing will be the first big area to move to the cloud. Testing environments are low risk to be moved, and there are few production consequences. Testing is a really interesting first step and low-risk way to test cloud environments. Test environments are used intermittently, which makes them ideal workloads to move into a public cloud where you only pay for what you use. You can spin them up quickly and shut them down quickly. There is also a substantial cost benefit. And they’re a great test bed in that you can use them not only for the testing workload but also test your legacy applications running in these environments.

It will take some time to put the migration in place, but we think this is a natural grouping of things to move.

The implications, though, are fairly dramatic to the existing legacy workloads.

If a testing environment comprises 25 to 30 percent of the capacity moved, it means you’re left with excess capacity in your legacy environment. For organizations that are not in outsourcing relationships for testing, they won’t need to buy new equipment; the capacity can be used for production as production grows. But those that are in outsourced relationships, whether with asset-intensive or remote infrastructure management outsourcing (RIMO) providers, there will be a corresponding reduction in the invoice to the outsourcer.

At Everest Group, we’ve looked at the contracts for more than 300 outsourcing relationships to see what the implications would be as a result of the migration. We found that almost uniformly, if companies manage these migrations correctly, they can reduce their invoice by 25 to 30 percent without breaking banding or costing prices. So testing workloads certainly can be migrated.

This will result in a downward pressure in revenue for the incumbent infrastructure providers, so we think this has significant implications for the outsourcing industry. Whether it is the RIMO players or the asset-intensive players such as CSC-HP and IBM, migrating the testing workloads will impact 25 to 30 percent of the existing capacity in these providers’ invoices.

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