I got an email from a friend yesterday who is at Infosys. He pointed out that they had stellar quarter and were “back on track again”. He challenged my blog post from a couple of weeks ago on the disruption that SaaS, cloud and Coding / Hacking schools are having on IT Services organizations.
I have a theory that most everything insiders know about a market clouds their judgement from a big picture and that makes them more vulnerable to short-sighted proclamations. A simple way of saying that is I was probably wrong and not viewing the big picture.
For services companies that are still driving revenues by hiring a lot of people and ensuring they are billing clients, the business is not very complicated. Anything that gets more of their people billing makes them money.
In fact, Accenture and many other services companies make billions of dollars from under 500 customers worldwide.
Accenture made $32 Billion and had fewer than 500 clients.
They have not added more than 10 clients in the last 5 years.
They have 141 “Diamond clients” who each spend more than $100 Million a year with them.
So you can make lots of money from a small number of customers.
One big opportunity yesterday I was pointed to for the IT services firms is that many larger customers are moving from in-house data centers to public and hybrid clouds.
The move is largely due to the fact that many data centers are fairly old and using power, cooling, etc. inefficiently. So, their cost of delivering IT services is rather high, which makes them less competitive. For example, the average mid-sized to large insurance companies spends about 8-10% of their revenues on technology and IT. Of that 14 – 17% is spent on cloud and data center. The older their data center and cloud, the less agile and nimble they are for sure, but also the cost of their IT services is now nearly 30 to 50% more than others (per service invocation).
Which is why many of the larger clients of the IT services companies are considering a move to the cloud. That move, though, comes with its own set of challenges. Privacy, data security, application profiling etc. are all problems that they did not worry about so much before, but now they have to.
The biggest opportunity for IT services companies seems to be the move to the cloud from private data centers.
There other two opportunities are in analytics/business intelligence and migrating applications from “web” to mobile.