During 2012 the market for product development services will become increasingly fragmented and specialized. Demand for general outsourcing services will decline. Instead, we expect organisations to turn to specialist service providers for support with very specific initiatives related to technology such as mobility, cloud and SaaS, their industry, business and vertical segments.

Six key trends will influence the product development services market in 2012:

1) ISVs will swap or expand their service partners for better results

Many Independent Software Vendors (ISVs) have long standing agreements with their software engineering partners. These are now beginning to unravel. Most agreements were drafted before the advent of cloud computing, enterprise mobility and SaaS and are no longer relevant.

According to the global consultancy Zinnov, 70% of ISVs look at industry benchmarks every year to re-negotiate contracts with their services partner. Increasingly in 2012 ISVs will be looking to add rigorous Service Level Agreements (SLAs) and other outcome-based conditions to the commercial engagement model with their services partners.

As a result, we expect to see savvy ISVs using these measures to add and replace a high volume of services partners during 2012.

We predict this will create a significant opportunity for specialist service providers, as more ISVs will move to a multi-source model involving a spectrum of trusted partners. ISVs will actively seek out specialist help to address specific pain points in their businesses, speed innovation and reduce costs. They will not hesitate to call on the best talent available.  Incumbency is no longer the advantage it once was.

2) Enterprise mobility will reach a tipping point

Today’s workers are not static. They are constantly on the move and need to have instant access to information anywhere, anytime. According to a recent Gartner survey, 30% of large organisations cited enterprise mobility as their top business priority for 2012.

In the past, the enterprise tended to be a closed and homogenous place. Employees would typically use one type of device – like a Blackberry – to communicate amongst themselves. Enterprises now have to grapple with a dizzying array of business and connected mobile devices, all of which need to communicate seamlessly and securely with one another.

Organisations will address this challenge in 2012 by outsourcing their enterprise software mobility development. Complexity will drive this trend. There are massive hurdles for companies to overcome if they want to develop their own enterprise mobility services. Challenges involving security, application development, expense management and system integration have to be comprehensively dealt with. Only a finite number of companies around the world have the skills and resources to do this.

We’re convinced that the enterprise mobility market has reached a tipping point. Expect to see more companies buying enterprise mobility as a managed service in 2012.

3) The market for personal health management systems will explode

2012 will see a rapid growth in the adoption of personal health management systems. There are already applications on the market that help patients compare the quality and performance of different hospitals. Other systems – such as Intel’s Health Guide – allow patients with chronic illnesses to keep doctors informed of their conditions.

Applications have also been developed to encourage patients to take their medication. US-based HealthPrize has developed an innovative platform that gathers daily compliance data from patients, verifies their prescription refills and rewards them for sticking to their medication.

Other healthcare systems collect non-clinical data to help users improve their general quality of life. One example is the Nike+iPod Sports kit, which measures the distance and pace of a run and records the amount of calories burned.

The speed of growth in the industry is set to quicken. By 2015, as many as 500 million smartphones will have a health-related application on them. The Veterans Administration in the US is planning to rollout 100,000 iPAD tablets across 152 hospitals. Next year, we expect to see a host of new vendors enter the market with innovative connected healthcare solutions.

4) Cloud sourcing will outpace outsourcing

2012 will be the year in which cloud sourcing supplants traditional outsourcing. There’s no question that cloud computing has transformed the way companies do business. There are now two million users of Salesforce.com around the world and 25 million users of Google Apps.

The way in which companies utilise cloud technology is changing too. Organisations are now sourcing complete business solutions through the public cloud using a combination of cloud applications, platforms and infrastructure. There are good reasons why this happening. Public cloud services give companies much more granular control over their IT environments. They also offer a much cheaper alternative to traditional outsourcing – some businesses can cut their costs by as much as 85% by going down the cloud sourcing route.

We expect that outsourcing companies will become more specialised in 2012 and will include some cloud-based tools in their offerings. An example is our partnership with Electric Cloud. The company’s products help software developers to create private development clouds. Software developers can then use these clouds to build, test, and deploy software quickly and cost-effectively.

Gartner predicts that 75% of all computing will be in public clouds by the year 2020. We predict that cloud sourcing will reach critical mass in 2012.

5) Service partners will become a key conduit for new tools and technology

Cloud, SaaS and mobility have spawned lots of investments and new companies producing new technology and tools.  Many organizations want to leverage these tools but don’t have the domain visibility to select the best ones or the integration experience.  And the new companies themselves don’t have professional services arms so service companies will fill this critical gap.  Small and medium-sized enterprises (SMEs) are starting to invest heavily in cloud, SaaS and enterprise mobility technology. However, few of these businesses have the technical expertise to develop this technology in-house. Nor do they have professional services arms capable of doing the work for them.

We expect these companies will turn to outsourcing partners to get the specialist help they need in 2012. Service companies will effectively become conduits for emerging platforms, tools and technologies. Over the next 12 months, service firms will put a lot of energy into locating new best-in-class technologies for their clients. They will then deliver these innovative technologies to their customers as a trusted partner.

 6) Open Source will come of age

We predict that companies globally will adopt open source at an accelerating rate throughout 2012 in a wide variety of ways. More companies are waking up to the significant cost savings they can gain from using this technology. For example, more than half of the respondents surveyed in a recent Gartner report have adopted Open Source Software (OSS) as part of their IT strategy. Enterprises are increasingly using Open Source code to speed up the deployment of mobile, cloud and virtualisation technologies.

Companies are also choosing OSS because it is vendor-neutral and flexible. More than 90% of respondents to the Future of Open Source Survey, published in May 2011, said they had adopted OSS to avoid vendor lock-in.

These trends lead us to believe that Open Source use will escalate throughout 2012. Service companies will be amongst the most avid users of the technology. By incorporating OSS into their offerings, outsourcing companies will be able to help clients get rapid speed to market for new products and services.

Conclusion

As cloud, SaaS, mobility and other trends fundamentally re-shape software development, there is a large, growing market for specialized product development specialists.  2012 is just the beginning of some of these massive movements. There are a bewildering range of technologies on the market today. The good news is that the service industry is becoming more and more specialised. Companies that want to take advantage of the hottest initiatives today – be they Saas, cloud or enterprise mobility – can get all the assistance they need. The right software development service providers will have in-depth knowledge of all these platforms and the competency to deploy them quickly and at a competitive price. They will also offer outcome-based engagement models that fit each client’s needs. If you want to stay ahead of the technological curve, take the time to talk to a specialized service provider like Symphony in 2012.

The author of this article is Keith Higgins, Chief Marketing Officer, Symphony Services.