The news media a couple of days ago reported – not entirely unexpectedly – that Wipro is in talks to sell the U.S.-based data center assets it acquired when it purchased Infocrossing for US$600 million in 2007. Interestingly, the business was referred to as “non-core.”
The message the acquisition at that time sent to the market was that buyers are more comfortable in outsourcing end-to-end infrastructure to providers with their own data centers.
But the infrastructure outsourcing (IO) market has changed quite a bit in the past four years. Indeed, our Decline of Traditional Infrastructure Outsourcing research highlights the challenges in traditional IO and discusses the fundamental shift wherein newer and nimbler models such as RIMO and other next generation infrastructure services are outpacing and outsmarting the conventional IO strategy. With this news, it appears Wipro’s management agrees that the dynamics of IO have changed and that it has become largely immaterial whether or not offshore providers own a data center. And coupled with industry developments in which Indian IT providers are partnering with local data center providers to win IO deals against MNCs, Wipro seems to understand the broader strategic fit of these assets.
Other Everest Group research (e.g., Remote Infrastructure Management – “RIMO Strategy – Stick to the Basics, but Fine-tune Too”) has emphasized that Indian providers should focus on their core competencies of simpler engagements, global sourcing, resource management, flexibility, and asset-light strategy as the core of their IO services. This is not to say they should not move up the value ladder, just that they should not fundamentally alter the DNA of their infrastructure business.
Will this change the basic nature of the outsourcing deals in which Wipro can participate? Not really. Wipro saw early gains leveraging Infocrossing and, subsequently, carved out its place among traditional IO providers. After exploiting Infocrossing’s potential in traditional IO by providing integrated infrastructure services, Wipro is divesting out of the non-core assets, and that makes real sense. It appears Wipro has realized that the value proposition of Indian infrastructure service providers is different from that of typical MNCs and, therefore, is realigning its strategy.
While it does impact its business in terms of offering large end-to-end complex IO deals, we need to be careful in generalizing this as a hindrance toward its growth. Indian providers should walk away from deals that require them to perform tasks that are not in sync with their core DNA, rather than attempt a dangerous straddling strategy. Therefore, although Wipro may no longer be willing to offer hosted IO, we believe it is better off focusing on typical offshore infrastructure offerings augmented with its integrated infrastructure services through Infocrossing.
Will this impact Wipro’s cloud play? Not really. Most of the Indian providers are targeting cloud IT service/ orchestration/platform BPO to drive their cloud revenue than offering their own, in-house hosted cloud solutions. Moreover, if Wipro plans to develop its own data centers specifically for in-house cloud solutions, nothing stops it from doing so (e.g., Infosys earlier offered its SaaS-based iEngage platform through partner data centers and is now offering the solution in its own data centers as well).
Overall, divesting Infocrossing’s non-core assets could be a great help to Wipro, as the growth of its infrastructure business has lagged its Indian peers. We can count on Wipro’s management to ensure that the strategic advantage Infocrossing brings, especially in key verticals, such as healthcare, will continue. This will make more management and operational bandwidth available to focus on the core capabilities needed in infrastructure services that are fine-tuned with the general strengths of Indian infrastructure service providers.