One of the other forces in this upheaval is the diminshing returns of the labor arbitrage model. That is, the staff augmentation strategy has successfully wrung huge cost out of the IT budget. Each additional dollar reduction now has associated risk and hidden costs. If Indonesia is cheaper than India, is it worth the risk to lift and shift?
Now service providers have to find and deliver on a new platform of value. Finally, the labor and skill base advantage has to be translated to business value.
http://www.virtusa.com/blog/index.php/2010/06/the-next-frontier-in-it-tco-reduction/
The traditional IT services business model, which revolves around systems integration, big projects and a lot of consulting, is about to hit a decade of upheaval, according to a Forrester Research report.
Simply put, the validity of traditional IT services will be questioned with the evolution of cloud computing, automation and on-demand software.
In a recent report, Forrester analysts John McCarthy and Pascal Matzke argue that a prolonged “restructuring economy” will affect IT budgets, a move away from core applications to analytics, on-demand software and infrastructure and changing buying dynamics will force services companies to adapt.
Initially, services companies will see more money, but big deals will be hard to find as companies move away from fixed capital outlays. Toss in the commoditization of services and there’s an interesting brew underway. When the decade is done there will be new players that threaten established firms and new categories.
Today’s IT services firm focuses on:
- IT consulting such as strategy and business processes.
- Systems integration of applications.
- Outsourcing.
Emerging services will include:
- Security as a service.
- Data and business intelligence as a service and the implementations that go with it.
- Platform as a service seats and implementations.
- Public cloud consulting and implementation.
- Public cloud services.
- Services integration and orchestration.
- Product development and R&D.
That transition to newfangled services is going to create a few new winners. Indeed, Indian outsourcing firms are already focused on on-demand software and moving upstream to product development. In addition, new entrants such as Google and Amazon Web Services could be major players along with Salesforce.com.
Forrester said in the report:
In this new landscape, a range of vendor dynamics will play out. We will see consolidation among players, especially among the European, Japanese, and infrastructure players, as they build out scale to survive commoditization. Software and product players like Cisco, Oracle, and SAP will bolster their services play in search of new revenues as product and license sales slow. We also expect to see a whole new set of services players emerge. They will be companies that we do not think of as services providers today, such as Amazon and Google, or they will be relative newcomers that sell consulting around new areas like SaaS implementation — such as Appirio, Astadia, and Bluewolf.
Needless to say the IT services standings will change. Here’s a look at the standings today and what they may be in 2020.
Related: Consolidation in the Outsourcing and Consulting spaces
