Could some of the big names in outsourcing be among the victims of the much-hyped shift to cloud computing?
As businesses begin to host their IT systems in the cloud – instead of hiring outsourcers to maintain and integrate their systems – outsourcers could start to feel the pain, according to author and technology thinker Nicholas Carr.
Demand for corporate systems integration work – the bread and butter of some outsourcing companies – will dwindle in a world dominated by cloud computing Carr told the Google (GOOG) Atmosphere event in London last month.
Carr rose to prominence with the release of his book IT Doesn't Matter in 2003, in which he argued IT is destined to be delivered as a commodity service that is invisible to its users, similar to the way that homes and businesses receive electricity today. His latest book is the The Big Switch.
Cloud computing allows businesses to ditch internal IT systems and access IT services over the internet from remote systems hosted in the cloud, resulting in far fewer incompatible IT systems that need outsourcers to integrate them he said.
"If cloud computing does not reduce the need for consultants then it has failed because one of the points is to get a much simpler IT infrastructure out there," Carr said.
"Over the long term a lot of difficult challenges in IT data integration will be addressed automatically through standardisation of systems in the cloud.
"A lot of their [outsourcers] business is built on the complexity of maintaining internal systems so the more we get out from under that, the more their business will be eroded.
"The result is that some areas of the consultation business will disappear, such as the whole area of systems integration.
"In the longer term then, my guess is that you will see a major realignment of the IT industry and some of the traditional consulting and hardware firms will make that successful transition and some won't.
"There will probably be a lot of consolidation, particularly of small and medium-sized companies getting rolled into larger ones. Overall there will be fewer consulting firms."
Increasing numbers of businesses are moving their systems onto cloud computing platforms: analyst house Gartner (IT) says worldwide revenues from cloud services will pass $56.3bn this year and are on track to grow to $150bn by 2013.
However Carr said following the shift to cloud computing – which he believes is as inevitable as the move from localised to centralised power generation – businesses should not expect the same big players to dominate the outsourcing and software markets.
"I think you will see the software companies face big new competitors, such as Salesforce.com, these are the companies that have been built in the cloud and are already beginning to challenge the Oracles of the world."
In the short term, however, Carr believes that outsourcing firms will benefit from businesses need for consultants to help them transition their IT systems into the cloud.
At the same Google Atmosphere event, Jeremy Vincent, CIO of car manufacturer Jaguar Land Rover, said cloud computing had the potential to end a perpetual battle against system complexity faced by IT directors.
"After 20 years the issues of integrating technology and information have not changed despite the billions of pounds that businesses have spent trying to address them," he said.
And speaking at the Sourcing Summit, hosted by the National Outsourcing Association (NOA) in London yesterday Adrian Quayle, VP of strategic sourcing with analyst house Gartner, said cloud services would eat away at the traditional outsourcing business because so many services deals fail to provide the level of systems integration promised.
"The challenge to outsourcers is that there has not been enough end-to-end service integration and as a consequence a lot of outsourcing deals have not worked well," he said.
"People are keen to move to cloud services as a result of that."
But these predictions were met with scepticism from Martyn Hart, chairman of the NOA.
Hart said there will still be a role for systems integrators for the foreseeable future, predicting it will be a long time before a majority of businesses move their IT systems into the cloud.
One of the major obstacles he foresees is the number of bespoke IT applications used by companies.
"If everyone in a company only used MS Word on desktops then it could be done but companies use specialist applications for their business," he said.
"The more unique the organisation, the bigger the problem is."
Hart added that a shift to the cloud would not hit outsourcers too hard as managing technology is only a part of what suppliers do. He gave the example of business process outsourcing deals where a vendor runs an entire part of a company's business, such as the HR department or a call centre, where people management is an equally important role.
Even if most businesses do eventually place their systems in the cloud, Hart believes it will be the established outsourcing companies, the IBMs (IBM) and HPs (HPQ) of the world, that will be running those cloud platforms.
"Companies looking for potential suppliers are still going to choose someone they trust to run their business and not someone just because they have some whizz bang piece of technology," he said.
Source: Business Week