India IT Services Cloud Computing cometh for Indian IT! Rain from the cloud will pour for select players

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India IT Services
Cloud Computing cometh for Indian IT! Rain from the
cloud will pour for select players

We expect acceptance of Cloud computing to go mainstream in 2011 even if
associated revenues do not hit the inflection point this year. We see a
significant market opportunity for Tier-1 Indian IT and offshore-centric
service providers over a 3-5 year timeframe. TCS, Infosys, Wipro and
Cognizant are all developing coherent strategies around the cloud in preparation.
The beauty of cloud computing is that virtually any productized service or
product can be offered as a service through the cloud with much improved
economics, granularity, and dispersion (e.g. Bank/Telco-in-a-box truly
leading to what we call the “consumerization of technology”).
• Immediate opportunities in virtualization, application development,
migration and consulting space; select smaller companies such as Persistent
Systems are also playing the initial role. Larger Indian companies help
enterprises build out their private (or internal) cloud through advisory, migration
and development; smaller technology-oriented companies such as Persistent
Systems predominantly work with ISV vendors or specialists such as
Salesforce.com and VMW to help build applications for the public cloud.
• We have identified four levels at which Indian IT companies can operate in
the cloud over the medium-to-long term. The first is ADM in the cloud
environment and system integration of legacy apps into the cloud which is a
quick win. The next level is utility-based offerings (e.g. BPO platforms and
standardized shared services) that the likes of TCS/Infosys are already engaged
in, with TCS ahead. This level enables easier delivery of common shared
services. Next in the hierarchy is cloud-enabled higher-order business process
transformation offerings (such as analytics; less addressed but the growing
focus). Finally, we identify the cloud as an enabler of new business models
(strategies are still evolving here).
• In the medium to long term, we see much greater scope to differentiate through
cloud-based proprietary offerings that enable new business models and
penetration of different market segments (not just the SMB as is widely
understood but even large, fragmented markets like the healthcare provider
market in the US, for example). The cloud is a convenient medium for the
government sector, the third largest spender on technology, to provide services
to its citizens through the consumerization of technology theme.
• Margins from the cloud unlikely to be accretive over the near-to-medium
term (<3 years). This is because critical mass of transactions/activity is
necessary for margin build-up to overcome upfront investments, which will take
time. Also, deal sizes for more straightforward ADM deployments in and
integration into the cloud at this stage are small.
• We forecast cloud computing to add up to 2% points to Indian IT industry
annual revenue growth over the next 3-5 years. Revenues from cloud
computing could hit US$5 billion by 2014 with larger companies picking up the
greatest market shares because of their relationships, technological depth and
ability to make investments count with smaller risk to margins. TCS (OW)
remains our top pick in the sector.