There was an interesting piece in the Financial Times recently which speculated that Cloud Computing is a threat to the business model of the Indian IT outsourcing industry. It's a point which has made before, summed up nicely by NetSuite CEO Zach Nelson when he noted that “There will be an Accenture of The Cloud; whether it will be Accenture remains to be seen.”
The FT article was based on an interview with the chief executive of Infosys, Kris Gopalakrishnan who noted: "The slowdown has forced companies to look at Cloud Computing seriously . . . it is a change that is happening and if we are not adapting to that change we may get caught out. The question is how much the market will move to the new form of computing."
Certainly there's plenty of activity going on among the outsourcing providers to position themselves within The Cloud. Recent interviews with senior executives of Patni, for example, have seen that Indian firm laying out its credentials to stake a claim on Cloud-based services revenues. Among the Western outsourcing firms, the likes of Capgemini already has a strong SaaS offering while BT is building its own Cloud Computing portfolio out from multiple perspectives – applications, consulting and infrastructure.
So is Cloud a threat or an opportunity for such firms. Well, it's interesting that if you talk to a typical XYZ outsourcing/consulting firm, the people in the embryonic Cloud practices are evangelically enthused by the opportunity. Those in the Oracle practices sort of get it, recognise it's going to happen, but would rather we didn't raise the subject right now. Those in the SAP practices want little or nothing to do with such heretical talk and would rather you just went away.
What is certain is that the emergence of Cloud Computing does mean an end to the site of coachloads of consultants turning up in the car park on day one of a major ERP implementation and that has serious implications for the revenue model of many outsourcing/consulting firms. It's akin to the challenge that faces the ERP application vendors such as SAP. Shifting to a Cloud-based subscription model will impact irreversibly on the business model they're used to.
On the other hand, as Gopalakrishnan notes that Cloud Computing could also lead to new opportunities for firms such as his own, enabling it to reach down into the mid-market companies that currently do not feature greatly on Infoysys balance sheet. There's also an enormous need for infrastructure to accommodate multi-tenancy and that means work for data centre management firms and by extensions outsourcers. There's also change management and strategic planning implications to be taken into account for any significant move to The Cloud and that's bread and butter stuff for an Accenture or an IBM. Then there's the G-Cloud initiative and all those lovely contracts still to come from the outsourcer's happy hunting ground of the public sector.
What will be interesting to observe is to see how the leading firms respond to the challenges and opportunities they face. If the Tories win the next general election it's likely that large parts of the hopeless NHS National Programme for IT will be torn up and replaced with a Cloud alternative. What that means for the existing contracts with the likes of BT and CSC remains to be seen. Will they be ready to renegotiate for a Cloud-based alternative or will they want a pay-off? The contractual aspects of the NHS programme have been cloaked in controversy all the way through; a move to The Cloud may do little to change that state of affairs.
But that's for the future. For now, it's clear that the savvy outsourcing/consulting firm should be ramping up its Cloud credentials and putting in place the skills and capabilities necessary to exploit what could be a fantastic new set of markets for them. There will still be a role for the outsourcing old guard and the old way of doing things – we still haven't seen the back of mainframes despite the number of predictions of its demise and they all still need managing! - but what we will see is the emergence of new demands on outsourcers from Cloud-hungry end users.
There will be an Accenture of The Cloud. Who it is remains to be seen.
Friend or foe? Cloud and outsourcing...
Posted by cjwarnock on Tue, 25/08/2009 - 12:58The level of threat, opportunity or otherwise that cloud presents for outsourcing firms needs to be considered within two different timeframes.
In the next 12 months or so opportunity abounds. The confusion about exactly what Cloud is and what benefits it may or may not provide for the adopters, and the different models of services and service charges mean that low cost exploration offered by offshore outsorucing will be attractive.
There are unclear technology, security and quality of service issues that may or may not limit what can be run "in the cloud". Separating the chaff from the grain and laying out a clear path of "cloudification" for customers, demonstrating clear cost-benefits presents a clear opportunity for the outsourcing firms.
This is not to say it will be simple for early cloud outsourcing partners. Migrating computing into the cloud will be a significant challenge - even if it can be proven to create benefits - both from technology and business perspective. But with such challenges of value creation and execution comes another significant opportunity for outsourcing firms.
In the long term - cloud computing evolution into a threat or a improved opportunity (or indeed a bit of both) depends on several factors. Critically w need to try and understand how exactly will the cloud and its use evolve?
This is anybody's guess but broadly I believe there will be 3 layers.
(a) At the bottom- Cloud as a virtual data center
(b) In the middle - Cloud as a platform or pre-fabricated components to develop/compose a custom applications in the cloud
(c) At the top - cloud as a complete enterprise application or business process
Amidst a recession an immediate response is to say that no enterprise will have its own private data-centers, its own private instances of ERPs, its own custom-built applications running on its own severs in its own data centers. But then the same forecast was made once about mainframes - they are still around, applications are still written in COBOL and PL/1 and a good amount of dollars is still being spent to support them.
From a outsourcer's perspective, several scenarios are possible. All of them threaten current business models IF they refuse to evolve service offerings to account for cloud computing.
In some scenarios the target customers for an outsourcing company may differ but the services remain the same. For example, providing computing infrastructure management services may have to target the "Cloud Computing providers" instead of the end users of computing as they do now.
In some scenarios outsourcers will have to create capabilities on a new breed of platforms, solutions and enterprise applications in order to stay in the business of outsourcing. This is a huge opportunity in itself.
In some scenarios, outsourcing companies will need to evolve to become providers of an entire business process as a service instead of being the builder of a custom application to support a business process that is then run and managed by the end-user. Again there is huge opportunity here to become a partner, deploying cloud to get closer to your customer.
Satish Joshi - Global Head of Technology, Patni Computer Systems
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