The future for services companies and systems integrators in a world of Cloud has long been a subject of debate. I've used the quote before many times, but it's still a great one: Zach Nelson, CEO at NetSuite, stated: “There will be an Accenture of the Cloud; whether it will be Accenture remains to be seen.”
For decades, the large services firms have made hay with near never-ending implementations of enterprise applications. On Day One, a coach load of consultants turns up in the car park; on Day 100, three coach loads of consultants turn up in the car park. Dammit, it's a roach infestation!
But in the Cloud, this 'recurring revenue' model is undermined. Just as the on premise enterprise apps firms have had to accept and adapt to a new business model, so too do their systems integration buddies (and paymasters).
So I was interested in the remarks from CSC Chairman and CEO Mike Laphen on how he sees the Cloud side of his business developing. CSC hasn't had its troubles to look for of late: the US Securities and Exchange Commission has launched an informal civil investigation into some of its accounting adjustments in CSC's managed services sector (MSS), primarily in Europe's Nordic region; it's inevitably suffering from delays in decisions over US federal government spending; and in the UK its relationship with the NHS seems to be worsening.
But CSC does have a damn fine Cloud story to tell. If you attended the Business Cloud Summit in London last year, you'll have heard part of it from the perspective of Royal Mail, where CSC has been working with Microsoft on a massive Cloud migration programme.
It's clear from Laphen's comments this week that Cloud is seen as a major potential revenue generator against an often troubled macro-economic backdrop. He notes:
“Across our markets, we're seeing a constructive shift in buying motives from cost avoidance to capability expansion and from build to buy. In particular, Cloud-oriented business services are becoming more prevalent. To serve this growing demand, we are promoting our expertise and credentials in trusted systems operations, global reach, service integration and business process orchestration. Our business is navigating significant shifts in the outsourcing market to take advantage of innovations and virtualizations, applications migration and Cloud Computing. ”
This is showing results, he reckons:
“We're pleased with the traction being achieved for our offerings in these categories as evidenced by the sequential year-over-year revenue growth. Year-to-date, we have signed a number of new clients for our Cloud offerings. These clients represents an almost equal distribution between new logos and an extension of our existing relationships. While these projects tend to be small, they are important first steps for companies in evaluating the merits of Cloud Computing and a relationship with CSC...We believe that CSC is competing for the market of tomorrow. We are Cloud-enabling our data centers, leveraging strategic alliance partners, supporting multiple development platform environments and generally enabling the ambitions of our clients.”
As pitched by Laphen, CSC is going to market in three main Cloud-markets: infrastructure as a service, platform as a service and software as a service with IaaS seeing the strongest demand from the customer base:
“To support this demand, we've invested in and deployed seven Cloud-enabled data centres around the world. We support most of the market's leading operating platforms, including Force, Azure, SpringSource and Cordys. These platforms are the targeted operating environments for the mobility and modernisation strategies of our demanding clients. At the top end of the business service stack, CSC is generally recognised as a leader for the Financial Services and Healthcare industries. With IT-based solutions, application and infrastructure offerings, we operate end-to-end business processes for insurance, banking and Healthcare. As the market moves towards and as a service orientation, we are well-positioned to serve the modernization agenda of enterprises in these industries.”
But in a week in which Wall Street sent CSC's share price tumbling on the back of guidance of a weaker quarter to come, the challenge for CSC lies in leveraging these early successes and coming up with a business model that provides for its own fiscal needs. This does mean a change of thinking, admits Laphen, and that change is ongoing:
“You have to understand that the real purpose of Cloud is to give more flexibility in terms of access to volume when and if needed. And that's a trade-off of a higher price for that flexibility versus a fixed annuity price. We're still at early stages of Cloud. A lot of the contracts we're signing right now are evaluation assessment, Cloud assessment programmes and orchestration, designing the Cloud environment for our customers. It's still early stages. I really don't think it's appropriate at this point to get into the whole pricing mechanism around that. I think it's still evolving.”
