What is Happening?   This Research Alert summarizes key findings from two recently published Strategic Perspectives, focusing on why SaaS and the Cloud will be used by the leading “offshore” services providers to build next generation IT and business process services, and what the short-to-mid term strategies are of the five leading offshore giants.

Readers who are interested in this topic can dig deeper by accessing the source documents from which it is derived Cloud Computing’s Next Stop – India  and http://www.saugatech.com/551order.htm.

Why is it happening?   Significant market pressures are now impacting the Indian IT services provider industry:

• After years of tremendous double digit growth, business is slowing.
• BPO margins are thinning, due to rising labor costs and high attrition, driving the need to establish greater operating leverage across customers.
• Deals are getting shorter and shorter in duration, reflecting changing enterprise requirements for increased agility and flexibility.
• Commoditized services are facing more cost pressures than ever during this economic slowdown with end users ready to (re)negotiate deals.
• Labor arbitrage is no longer a unique selling point for Indian vendors with legacy service providers able to provide global delivery capabilities.
• Profound questions are being asked about Indian corporate governance, ethics and accounting disciplines vis-a-vis Satyam’s financial scandal.
  

Cloud computing provides service providers with a very interesting set of new market opportunities, including:

• Cost Reduction. Inclusive of virtualization and SaaS, Cloud Computing offers dramatic improvements in operational costs, productivity across global operations, and – more significantly – competitive differentiation.
• “Asset Lite” Flexibility. “Asset Lite” outsourcing models allow vendors to bring new innovation and practices to customers as they are not burdened by acquiring a client’s existing infrastructure, technologies and processes.
• Financial value: SaaS (subscription/utility based) pricing models are complementary to new outsourcing models that reflect a pay-as-you-go pricing schema. Perpetual license models that push big-bang capital outlays are not well aligned to current trends in sourcing.
• “One-to-Many” Scalability. Hosted multi-tenanted offerings support a distributed client base (discrete businesses, SBUs or departments, even customers) as increased bandwidth make support from offshore a reality.
• More standardized services. Platform-as-a-Service (PaaS) offerings will become the basis for more standardized managed services as vendors leverage PaaS to extend SaaS solutions into niche verticals. Increasingly, service providers will wrap business services around SaaS solutions and platforms (created internally or when leveraging SaaS providers), helping to build out “packaged” BPO offerings.
  

During early-to-mid December, Saugatuck conducted a series of deep-dive briefings with five leading Indian offshore giants, Cognizant, Infosys, Satyam, TCS and Wipro. Interestingly, what we found was that across the board they are developing centers of excellence – to “SaaS-ify” existing customer applications (when appropriate), reuse and leverage their significant process and application knowledge, and productize services for the market. In addition, many have developed significant practices deploying leading-edge SaaS solutions such as Salesforce.com, as well as providing services to ISVs transitioning from on-premise to SaaS (either through virtualized versions of their existing offerings, or new multi-tenant solutions).

Cloud computing will help service providers reach small-to-medium businesses (SMBs) – a segment that has been underserved by most of the leading Indian providers that have traditionally focused on serving the Global 2000. An early leader in this regard is TCS with its’ soup-to-nuts “IT-as-a-Service” offering, which combines third-party SaaS solutions with newly built/ proprietary TCS assets and IP (horizontal and vertical). If the trial continues to go well in India, anticipate a broader roll-out in 2010-2011. If marketed and supported appropriately, Cloud and SaaS-based SMB initiatives like this could bear significant fruit in the longer term – so long as providers manage the cost of delivery carefully.

Interestingly, SaaS and Cloud changes the risk equation for end user organizations, as customers of offshore providers will now be able to at least see, if not even try out SaaS-enabled services before they buy – in contrast to the traditional custom development and SAP/Oracle application deployment model of the past. Further, in the world of SaaS and Cloud, offshore providers will need to “pay to play” in the key markets that they want to enter – which will require a significant investment strategy ahead of revenues that the conservative leadership of many offshore giants have often been reluctant to execute on in the past.

For more information, please visit www.saugutuck.com.

This BeyeNETWORK news item contains information from a recent press release by the company mentioned.