Many ISPs will see an erosion of their pay TV subscribers as broadband provide more entertainment options. ISPs know this, and here’s how they plan to stay in business while the market shifts.
Phone unlock codes aren’t just a valuable item for consumers trying to sell or transfer their phones. They’re a hot commodity for hackers as hell as AT&T recently learned.
AT&T may have been behind T-Mobile with its smartphone upgrade program, but it’s managed to squeeze the most out of it. AT&T said it expects Next to account for 3.2 million smartphone sales in Q2.
The shift to cloud continues to accelerate, with a resultant increase in both small- and large-scale outsourcing. One new report demonstrates the pace of cloud acceptance, with the 50 largest public cloud providers reporting a 47% gain in revenue for 4Q13 over the year-earlier period; while another study out this week chronicles the demand for both high- and low-end outsourcing deals. I posit that the two trends are linked, with the adoption of public cloud services leading to changes in outsourcing trends.
The ISG Outsourcing Index registered a 14% gain in annual contract value for outsourcing deals in the first quarter of 2014. This was fueled by the signing of 10 megadeals of more than $100 million, which is a return to the levels previously seen before the financial crash of 2008. Further into the numbers, the public sector outsourcing market, at 64% of the global total, is particularly robust, with a 30% ACV gain over the previous 12-month period. The public sector healthcare market in the U.S. was a key driver of this growth.
But more small deals
But deals at the $5-9 million level continue to proliferate as well, with a 21% gain in the number of contracts of this scale awarded in the first quarter over the year-earlier period. (ISG’s index only tracks contracts down to the level of $5 million ACV.)
What is happening? In part, the availability and economics of new cloud solutions is leading to new investments in cloud, big data, and mobile technologies with a ‘best of breed’, mix-and-match, approach. This is leading to more small contracts—including, undoubtedly, those below the level that ISG tracks.
But for enterprises of significant size (e.g., $10 billion-plus in revenue), the complexity of this best-of-breed approach is daunting. One way to mitigate this growing confusion is to settle on a few preferred services providers. Another is to rely on one favored provider to integrate and manage the multiple products. The larger IT services firms (e.g., IBM, Accenture, TCS, and Cognizant) have practices and partnerships covering the popular new technology providers, and these servicers tend to integrate the individual products within vertical market-specific platform solutions that add further value. For large enterprises, this is leading to a return to a few larger contracts.
Still, the tools for multi-sourced, cloud-based contracts are improving, and other large companies will simply learn to better manage the complexity themselves.
Technology vendors will pitch in?
Technology vendors are also announcing efforts, at least, to improve their product interoperability. The Industrial Internet Consortium, launched two weeks ago by AT&T, Cisco, GE, IBM and Intel, is an example of such an effort. The IIC will undertake several initiatives to improve data integration in physical (Internet of Things) environments across industry sectors. Of course, such physical connections are driving big data demand, and big data is also driving a good portion of new cloud demand. Gigaom has its skeptics on the announcement, with Stacey Higginbotham tracing the motivation to some fat government funding. Still, even vendor puffery indicates perceived demand and need.
One way or another, cloud technology will continue to enable more specialized, high-value solutions to reach the market. Connecting those solutions is the larger challenge. A combination of in-house and external approaches will be applied to make the pieces fit together. Buyers looking to an outsourcer for help would do well to look for the market leaders within their vertical sector–with whom they are almost assuredly working already–and perhaps update their contract terms for higher-level accountability that also incorporates the new business and IT metrics that are becoming feasible.
The rest of the U.S. mobile industry is calling for the end of the phone subsidy and long-term service commitments, but Verizon is standing firm behind a model that has benefited it for a decade.
To meet cost, Ting is selling the Nexus 5 for $96 more than it costs through Google Play. The MVNO wants you to connect a Nexus to its network. It just would rather you purchase it from Google.
The trend toward smaller outsourcing deals can easily be misinterpreted. It does not necessarily mean that the outsourcing market is declining, that enterprises will end up fragmenting their outsourcing relationships, or even that outsourcing margins will be squeezed with new cloud, mobile and analytics technology.
Declining numbers in the market
Some 2013 numbers declined from the previous year. There has been a double-digit drop in average contract value and some dips in total market revenue since 2012. Manufacturing and business process outsourcing (BPO) have been especially impacted. A trend toward smaller outsourcing deals was seen previously in 2011 the U.S. and more recently in Europe (after an initial large-deal surge in Europe with a new-found openness to offshore solutions sparked by economic uncertainty in the region).
A need to adapt
Coming into 2014, the trend reached a level at which both vendors and buyers must adapt. IT servicers with declining revenue or weak revenue growth are likely to quote the trend in part as an explanation of their revenue challenge (e.g., HP and Wipro). HP’s head of Enterprise Services, Mike Nefkens, reports that it now takes twice as many contracts as used to be required to generate the same level of revenue. In other words, their average contract size has dropped by 50%.
But not necessarily smaller outsourcing relationships
Other vendors, such as TCS, that have robust revenue growth also tend to have growth in the level of revenue that they are garnering from their largest clients. TCS CEO and Managing Director N. Chandrasekaran described his firm’s experience in its latest earnings call:
“I do not think that the size of the deal is anything to do with our sales or anything like that. On Digital, customers are learning. They may allocate a huge budget, but they cannot commit a huge budget because the whole transformation is not something that one can think through so easily. So, the whole journey of imagining the digital impact is something that the customers are going through.
They have a lot more clarity now than before, so the deal sizes have gone up from before. But please don’t expect customers to sign up half a billion dollars checks on Digital. That is not the way it is going to be done. But, they will spend half a billion dollars, but it will be in terms of a lot of projects of varying sizes; some could be a few million, some could be 10 million, that is something that will evolve.”
IT buyers gaining confidence in the new technologies
That is, the trend toward smaller deals does not necessarily mean smaller outsourcing relationships. In fact, it well could contribute to consolidation in the industry, as IT buyers can more easily gravitate to the current industry leaders. TCS has also noticed that very small, experimental deals for the likes of cloud, analytics and mobile have given way in recent months to deals in the millions of dollars range, as customers have become more certain of their commitment to new technologies.
A limited ‘best of breed’ purchasing trend
What is happening now is becoming known as a ‘best of breed’ purchasing trend, whereby IT buyers may select the best-suited provider for each small to medium-scale implementation. This trend has been noted for several years, and it has picked up steam in the sense that public cloud SaaS options are now chipping away at previously omnibus solutions. (E.g., the success of Salesforce and Workday in infiltrating the Global 1000.) But there is more to the dynamic than that.
IT buyers are moving one step at a time
In large part, this trend is driven by buyers only sorting out and committing to one step of an advanced IT investment in cloud, mobile and/or analytics at a time. It is in that sense endemic to transformational, ‘change the business’–as opposed to ‘run the business’–deals involving fast-evolving technologies. This makes sense at a time when technology investments and decisions have greater effects on the business and business executives are becoming more involved in technology decisions as well.
The benefits and limitations of smaller deals
Shorter-term and smaller-scale deals make it easier, on one hand, for buyers to maximize their leverage with providers and to rein in time and cost overruns. Such patchwork deals can cause problems, however, when too many vendors are involved. Issues of integration, continuity and ultimate responsibility inevitably come into play. Thus, the idea is not generally to pull in different IT services partners for each new project.
The enterprise buyer, as Nefkens has noted, has become more hands-on in IT implementation and management. And, one side benefit of hammering out smaller and shorter deals is that the process forces a more frequent meeting of minds between enterprise buyers and their service providers. That is a positive step for buyers.
Separating SaaS from system management, development and integration
It is easy to conflate the potential cost-extraction of SaaS and public cloud computing with declining margins for outsourcing. But the drive to outsource has long been based on a combination of both specialization and the lower labor cost of offshoring. Many SaaS services aren’t really counted among traditional outsourcing. But the complexity, importance, and rapid development requirements of cloud, mobile and analytics applications are ultimately pushing many enterprises to look for outside specialists—while also providing plenty of input and oversight. Meanwhile, for traditional offshorers, such as the major India-centric companies, it is only the move to this next generation of technology that is ultimately starting to free them from the tyranny of often-rising, offshore wages. Engagements based on these technologies are enabling higher, not lower, margins.
The net for IT buyers
The nature of outsourcing deals is changing. Outsourcers are providing more piecemeal, but transformative implementations of new technologies. Along the way, the relationship between enterprise and outsourcer is becoming higher-level and more consultative. In selected areas, it is also reaching further into the enterprise line of business. (Thus, the nature of BPO is also in flux.) The specialized skills of outsourcers are becoming more important for many companies facing daunting complexity in handling, for example, multicloud implementations. Lower offshore labor costs are still a factor, but the new technologies are enabling some providers to improve their margins. Those vendors who best manage the change will pull ahead. With smaller deals, IT buyers will find it easier to shift allegiance to the leaders in a new generation of more sophisticated and tighter outsourcing partnerships.
After a long lull in its home region, Alcatel-Lucent has one a key 4G deal with Telefónica in Spain. Could this be the first step in Alcatel-Lucent’s climb back up the LTE heap?
T-Mobile is growing again, and not just from its merger with MetroPCS. With 44 million connections T-Mobile is filling out its seat in the country’s Top 4. Before too long it might even start challenging Sprint.
Verizon’s Edge upgrade program will launch on August 25, giving customers to option of trading up phones every six months after they’ve paid half the full retail cost of their devices.