About Services Companies…..Is Cloud an opportunity or threat?
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.