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IT Outsourcing Enters a New Decade: Current and Future Trends

Claudio Da Rold

VP, Distinguished Analyst

IFCLA 2010 Conference - Helsinki

2010: Cloud Has Become the Metaphor For the Industrialization of IT Services

Cloud computing represents a fundamental change in the relationship between those who use solutions based on technology and those who provide them.

The result will reshape strategies from "budget" to "business" for providers and buyers alike.

Key Issues

1. What are the key trends affecting the outsourcing and IT service market in 2010?

2. How market trends affects service providers and what are the potential outcomes for the outsourcing and IT service market?

What Are CIOs' Priorities for 2010?Business Growth and Cost Reduction

What Are SOURCING Priorities? Traditional Objectives, Traditional and Alternative Models

Top Sourcing Priorities of 206 European IT Organizations 2009/2010

Source: Gartner (May 2010)

Degree of Interest in Alternative Delivery Models

0 20 40 60 80 100

Reduce cost, reduce assets or improve cash flow (economic, financial conditions)

Gain access to resources and capabilities

Improve flexibility

Improve scalability

Improve agility/reduce processing cycles (speed)

Reduce business risk

Percentage of Respondents

2009

2010

0 5 10 15 20 25 30 35 40 45 50

SaaS

IU

Cloud Computing

RIM

BPU

SaaS

IU

Cloud Computing

RIM

BPU

SaaS

IU

Cloud Computing

RIM

BPU

20102009

2008

Percent

Very High High

Source: Gartner (May 2010)

Potential Impact of the 2009/2010 Recession and Service Industrialization on Prices

• Typical multinational service providers' net margin is 6%; Indian providers' is 17.6%, decreased from 19.3% in 2007

• Providers must increase their flexibility and decrease their cost:

- Standardize services, consolidate, partner, aggregate, outsource- Restructure workforce, salaries, subcontractors- Accelerate toward alternative delivery modes, IT service value chain,

new service/business models, cloud computing (= investments)

IT InfrastructureOutsourcing Services

Average Outsourcing

Price Reductions

Data center services 5% to 15%

Desktop/help desk services 5% to 10%

Network services 10% to 15%

Application hosting services 10% to 20%

Application Services Contract or Area

Price or Rate Reductions

Offshore rates in India 2% to 6%

Offshore rates in China 10% to 20%

U.S. on-site rates 12% to 17%

Eurozone on-site rates 5% to 15%

Key Issues

1. What are the key trends affecting the outsourcing and IT service market in 2010?

2. How market trends affects service providers and what are the potential outcomes for the outsourcing and IT service market?

Cloud-Based Business Process Services

AccessManagement

Optimization

IT Consulting

Custom BPO~HR~Logistics~F&A Custom

SolutionsERP~SCM~CRM~BI

Data Center Outsourcing

App. Mgmt.

Business Strategy Consulting

RemoteManaged Services

Desktop Management

Network Services

Network Utility

Storage on Demand

App. Develop. & Integration

CRM Call Center

Help Desk Outsourcing

Hosting/Colocation

SaaS

InfrastructureUtility

Transaction Processing

Cloud-Based System Infrastructure Services

Cloud-Based Application Infrastructure Services

Horizontal Business Process Utility Cloud-Based

Application Services

CreationBusiness Value-Add

IT Efficiency

Value

Delivery

Vertical/Process-Specific Business Process Utility

EnterpriseOne-to-One

SharedOne-to-

Many

The Services Market Is Changing(refer “The 2001-2010 Reshaping of the IT Service Market”, 2 April 2001; M-12-7186)

Role of Recessions in the Industrialization of the IT Services Market

Management

Optimization CreationBusiness Value-Add

IT Efficiency

EnterpriseOne-to-One

SharedOne-to-

Many

Access

TraditionalServiceModels

Global Delivery

Process Standardization& Portfolio Rationalization

Consumerization

AlternativeDeliveryModels

2001-2002 Dot-Com Crash 2008-2009

Economic Crisis

Examples of Application Service Providers in Nearshore Locations

Morocco:Atos Origin, Capgemini, Logica

South Africa:Fujitsu, Patni, Zensar

Hungary:EPAM, Neoris, SIS, TCS, Unisys

Poland:Capgemini, CGI, HCL, HP, TietoEnator

Czech Republic:

IBA, Infosys, TietoEnator

Romania:Ness, Wipro

Slovakia:HP, Lionbridge, Ness, SIS

Latvia:Exigen, TietoEnator

Spain:Atos Origin, Capgemini, CGI, Softtek

Russia:Aplana, DataArt, EPAM, Luxoft, ReksoftUkraine:Aplana, DataArt, Exigen, LuxoftBelarus:EPAM, Exigen, IBA Group, TietoEnator

Examples of IT Infrastructure Outsourcing Providers in Nearshore Locations

Poland:AtosOrigin, Capgemini, TechTeam

Czech Republic:

CSC, HP, IBM, TietoEnator, T-Systems

Hungary:HP, Getronics, T-Systems, Unisys, IBM

Romania:Capgemini, TechTeam, SISSlovakia:HP, T-Systems

Latvia:CSC, TietoEnator

Estonia:Fujitsu

Bulgaria:HP

Ireland:Fujitsu, HP, SIS

Italy: EDS

Portugal:Fujitsu, Logica

Scotland:GetronicsSpain:Computacenter, HP, T-Systems, BT

South Africa:Fujitsu, IBM, T-Systems

Russia:Fujitsu

Colocation, Hosting and DCO: Toward Infrastructure Utility and the Cloud

Outsourcing/Hosting Infrastructure Utility Cloud Computing

Amazon SimpleDB, Google App Engine,

Microsoft Azure Service Platform, salesforce.com Force.com, LongJump Application Platform

Utility HostingDedicated Managed Hosting

Shared Hosting

VPS Hosting

Cloud System Infrastructure

Cloud Application Infrastructure (Application Platform as a Service)

Amazon EC2, S3, EBS, SQS

Data Centre Outsourcing

ApplicationHosting

Colocation

AT&T, Rackspace, Telefonica, Savvis, Sungard, DataPipe, AppNexus, StrataScale

Terremark (Enterprise Cloud)

Layered Tech, Enki, BTServePath's GoGrid

AT&T (Synaptic Hosting),Savvis (Virtual Intelligent Hosting),

Terremark (Infinistructure)Joyent, Linode, Rackspace Cloud Sites/Servers, Nirvanix Storage Delivery Network,

Vaultscape, Joyent Accelerators, Bingodisk

Specialized Platforms IU4 SAP, Exchange, Dynamics, …

AtosOrigin (x86 Utility), CSC Instance2Go, HP AiaaS,IBM FSO, Logica ODIS, FSC IaaS, HCL BRI, Capgemini COD, T-Systems Dynamic Services

Capgemini (SAP Run), IBM (AoD for SAP),HP USS for SAP T-Systems Dynamic Services for SAP,Logica SAP ODIS HCL IU4SAP

1&1, Yahoo, GoDaddyand BlueHost

Utility Servers, Storage, …

Note: Sample list

Virtual DC

Emerging IU Categories That Lead to Subcategories and Stand-Alone Offerings

Amazon, Rackspace, GoGrid, Joyent

Terremark, AT&T, BT, Savvis,

Savvis,Rackspace, Outsourcers

1&1, Yahoo, Verio, Lunarpages

Examples

$0.10 CPU/hr.$300 or more$700-1,000 or more($5-$200) - $70-$300Price (month)

UnknownHypervisorNonePartition/hypervisorVirtualization

ProgrammaticFull admin.Hosting to full admin.Control panel, limited shellServer Access

Cloud HostingUtility Hosting/VDC

Dedicated/Managed/Flexible Provision

Shared HostingVirtual Private Server

Attribute

Virtual Servers/Utility Hosting

Yahoo, GoogleAmazon AWS, Nirvanix

Rackspace, Savvis, outsourcers

CSC, EDSExamples

Free to $.20 Gb/monthraw space

$.15-$.25 Gb/month + transport fee

$1-$8 Gb/month allocated RAID 5

Custom quotePrice

HighHighLowLowLatency

Provider/cloudProvider/cloudProvider siteClient siteLocation

Drive in the Sky

Cloud Storage

Hosted Remote

Outsourcedon PremisesAttribute

Storage as a Service/Storage UtilitySubcategories

Subcategories

Emerging Model: Infrastructure Utility for SAP

• Virtualization used in every solution; automation still a work in progress.• Clients get some choice of platforms but not all are available. Standard SLAs and T&Cs• Geographic availability is expanding (Germany, Europe, US, APAC)• Transition — Two weeks to six months. Most providers indicate four to eight weeks.• Entry level price moved from 15€ PUPM (2008) to 10€ PUPM (2009) • More than 450 clients and 500.000 named users by 5 providers – more providers are coming• Revenue growth of 45-100%+ and IU/OS revenue at 40%+ for key players

Connectivity: Internet + VPN

MPLS Dedicated Frame Relay

Infrastructure: AIX HP-UX Solaris Linux Win 2003

Virtualization: VMware LPar VPar Integrity VM

SolarisContainers

Database: MS SQL Oracle MaxDB

Support: Help Desk

1-5 Languages

Direct Account Manager

Standard Reporting

ServicePortal

SAP: All Standard Modules

ECC 6.0 R/3

IU for SAP: Industrialized managed service that supports and delivers SAP production, tests and develops environments (based on clients' licenses and their customized implementations).

Cloud Computing is Driving Net New Business Opportunities (2010-2012)

Business Value-Add

Cloud-Based Business Process Services

Help Desk Outsourcing

Desktop Management

Data Center Outsourcing

Network Services

AccessManagement

Optimization

IT Consulting

Custom BPO~HR~Logistics~F&A

Custom SolutionsERP~SCM~CRM~BI

App. Mgmt.

Business Strategy Consulting

RemoteManaged Services

Network Utility

Storage on Demand

App. Develop. & Integration

CRM Call Center

Hosting/Colocation

SaaS

InfrastructureUtility

Transaction Processing

Cloud-Based System Infrastructure Services

Cloud-Based Application Infrastructure Services

Horizontal Business Process Utility Cloud-Based

Application Services

Creation

IT Efficiency

Value

Delivery

Vertical/Process-Specific Business Process Utility

EnterpriseOne-to-One

SharedOne-to-

Many

IUS 10 B$ nnb

Enterprise BPU 11 B$ nnb

SaaS 5 B$ nnb

ITS/cloud 4 B$ nnb

Adv 26 B$ nnb

Vertical/ProcessBPU 17 B$ nnb

Cloud Aggregation

Main Implications

1. Cloud computing and alternative delivery models enable a new balance of service quality, flexibility and price for outsourcing and IT services.

2. The market is changing, with traditional and new offerings co-existing, and new offerings cannibalizing revenue.

3. This is leading providers to focus on protecting their margins and investing in new offerings and delivery models to maintain and gain market share.

4. It's leading customers to focus on managing risk, integrate multi-sourcing initiatives and take advantage of industrialized services.

Notes accompany this presentation. Please select Notes Page view. These materials can be reproduced only with written approval from Gartner. Such approvals must be requested via e-mail: vendor.relations@gartner.com. Gartner is a registered trademark of Gartner, Inc. or its affiliates.

Click to edit Master subtitle style

IT Outsourcing Enters a New Decade: Current and Future Trends

Claudio Da Rold

VP, Distinguished Analyst

IFCLA 2010 Conference - Helsinki