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.”
Editor's Letter - Outsourcing version 2.0
Posted by Stuart Lauchlan in on Wed, 05/08/2009 - 01:03
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Friend or foe? Cloud and outsourcing...
The 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