About Services Companies.....Is Cloud an opportunity or threat?
Sunday, March 28, 2010
And then we have the services providers… the companies who dot the i’s and cross the t’s, who fill in the gaps, who fix the missing pieces, customise the software, integrate the hardware, ease out the wrinkes and finally help to make it all work for the CIO.
The IBM Global Services and HP-EDS are the 2 big daddies and Accenture, CSC, Cap Gemini, Unisys, Wipro, TCS, Infosys, Atos, Logica are the other players in this space. Then we have the Network services providers like AT&T, Verizon and niche BPO providers like ADP, Genpact, Xerox.
They have generally lived in the shadow of their better cousins, the product vendors. Technology Companies almost always meant the glamorous product companies and services companies were the ones who implemented,supported or fixed these products. The current shift in the CIO posture is a mixed blessings for the services companies.
The good part is that with increasing complexity of technology, they won’t be starving for projects.
As the focus will be on making the existing stuff work better faster and cheaper than investing in brand new hardware or software (unless ofcourse you can prove it is a must and will yield dramatic improvements), CIOs would first turn to the service provider for making the necessary changes required to keep the lights on efficiently before buying any new stuff.
The bad part is that the margins will continue to come under pressure as the CIOs will ask for more for less. So many of them might have to run to stay in the same place.
The other interesting phenomenon for services companies is the sudden interest from product vendors ( Xerox buying ACS, HP buying EDS, Dell buying Perot) so one will see their valuations going up.
However the biggest thing which they have to worry about is cloud computing in the long term.
While the shift to Cloud computing offers a lot of system integration and consulting opportunities for services companies in the short and medium term, in the longer term it sounds the death knell for the steady stream of annuity business for development and support revenue of on-premises IT landscape.
According to Mckinsey, 95% of CIOs talk about moving all their infrastructure off their premises into the cloud in next 3-5 years.
If that indeed happens, what it means is a dramatic shrinkage in the customer base for services companies.
It means that instead of serving thousands of enterprises, they will now be serving primarily the SaaS vendors and the DataCentre vendors who host all the hardware and software. It is a distant future, and it is not happening tomorrow but the writing is on the wall…and services companies which do not preprare themselves for this future will be caught reacting to change then shaping the change.
posted by Anirudh Joshi @ 8:22 AM,
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About the "iron" boys...the gear providers...
Sunday, March 14, 2010
The big iron boys , companies who sell the boxes required for computing, storage, networks – The IBM/HP/Dell/CISCO/EMCs of the world don’t have it any easier….
As their software brothers get hit by open source, SaaS and third party support models, the “big iron” boys are hit by 2 big trends, virtualisation and the cloud. Enterprises were used to buying servers whenever they needed it, and if the utilisation across the board was 10-15% only per server, tough luck.
Virtualisation changed that a couple of years back and rapid advent of cloud is making it harder. 90% of CIOs have gone on record in surveys to say that they want to move 80-90% of their assets from their data centres to the hosting vendors/Cloud vendors in next 3-5 years.
Datacentre vendors and cloud providers are volume buyers and though they buy big numbers, those sales also mean lower margins. Some of the larger cloud providers are going for large numbers of cheap commodity servers as against high end specialised servers.
The scenario on desktop computing side is no less brutal. Desktop Virtualisation and move of non critical Apps to cloud will change the enterprise game, reducing the number of full fledged desktops being bought by enterprises. The entertainment devices like ipad, kindle, and smartphones will change the consumer PC business.
So the big iron boys are equally on defensive and they are going to turn in all directions for solutions. They will acquire service providers (aka Dell or Xerox)) or form tight alliances for new opportunities (CISCO-EMC-VMWare) or get into areas which were not their charter before ( HP acquires 3COM/CISCO launches UCS servers).
The fun has started…
posted by Anirudh Joshi @ 8:14 PM,
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