About 60% of revenue for software vendors (for businesses) is custom and 40% ($135 Billion, 2014) of it is packaged. Over the last 10 years, the trend has shifted from custom to packaged (Saas). With the rise of cloud deployment the time to install, upgrade and customize software has reduced dramatically as well. Finally with cloud deployments, the number of people needed to manage servers, patch and upgrade systems has dramatically gone down.
These 3 main factors are the reasons why there is a lesser need for software developers, system administrators and systems integrators.
The WSJ has a piece on Indian Outsourcing firms changing direction thanks to cloud. The piece talks about how larger customers of Indian outsourcing firms are no longer signing up for large contracts to outsource their work.
The Indian outsourcing market has grown over the last 20 years from less than $1 Billion to over $120 Billion in 2014. There were 5 major drivers of this work as large IT organizations moved their back office work to India.
1. Support and maintenance of existing custom software. – 30% of revenues
2. Customization, deployment and installation of package software (SAP, Oracle, Siebel, etc.) – 25%
3. Remote managed services – managing, hosting, upgrading and patching systems – 20%
4. Business process outsourcing such as legal, administrative, and finance and accounting – 15%
5. Call center services and customer support – 10%.
In the next 10 years, there are expected to be over 10,000 SaaS companies catering to needs of most all sub segments of the market and niche user spaces.
Thanks to SaaS, the need for custom software is going down.
The rise of cloud-deployed SaaS also means fewer companies need as many people to upgrade or “deploy” packaged software. Customization is still needed, but much less so.
The rise of IaaS (Infrastructure as a Service) means the need for remote managed services is also reducing.
Many of the call center processes are being automated with machine learning, Artificial intelligence and data science. Which means that the need for call center services is reducing but that’s also because the customer experience was poor compared to having folks in the US support customers locally.
What does this mean for Indian IT outsourcing? Will they evolve or perish?
The large companies will try to morph and grow (many are struggling to do so), into full service providers with a focus on consulting (which needs fewer, but higher-end resources), data science and cloud managed hosting services.
Many of the resources will need to be retrained and redeployed.
The real disruption in IT outsourcing to India over the next 10 years is coming. The challenge that’s being faced by these companies is to figure out how to disrupt the larger systems integration firms that are migrating to consulting and complete IT outsourcing as opposed to software development, maintenance and monitoring.