Two of the major services provided by an offshore vendor are
1. Application development
2. Application implementation services or Professional Services on Enterprise packages.
For the top 5 Indian IT companies, these service lines makes up a significant amount of revenues (for some of them it contributes more than 50% of their revenue).
Both these service lines will be drastically impacted by SaaS, lets look at them in detail.
1. Custom application development:
This service line targets enterprises who want to build a custom software application instead of buying an out-of-box enterprise suite like SAP, there are multiple reasons why an enterprise go in for a custom application, here are a couple of reasons
a. Specialized requirements or the solutions available do not offer the whole gamut of features required
b. Cost is very high - licensing cost, Maintenance cost, cost of the application license keeps increasing for any new seats added
With SaaS, both these reasons fizzle out. Through services architecture all the services available in the web becomes integrable and a platform ecosystem enables the long tail of ISV's who have specialized expertise to build extensions to the common applications, which will address most of the specialized requirements of enterprises. SAP's move of creating Netweaver platform is a significant move in this direction.
From a cost standpoint SaaS is even more attractive than custom development - which also incurs huge upfront development cost and a substantial amount of maintenance cost.
So the bottom line could be SaaS might impact the amount of new custom apps being developed. Which will impact this particular service line of Offshore IT Service provider.
1. Application development
2. Application implementation services or Professional Services on Enterprise packages.
For the top 5 Indian IT companies, these service lines makes up a significant amount of revenues (for some of them it contributes more than 50% of their revenue).
Both these service lines will be drastically impacted by SaaS, lets look at them in detail.
1. Custom application development:
This service line targets enterprises who want to build a custom software application instead of buying an out-of-box enterprise suite like SAP, there are multiple reasons why an enterprise go in for a custom application, here are a couple of reasons
a. Specialized requirements or the solutions available do not offer the whole gamut of features required
b. Cost is very high - licensing cost, Maintenance cost, cost of the application license keeps increasing for any new seats added
With SaaS, both these reasons fizzle out. Through services architecture all the services available in the web becomes integrable and a platform ecosystem enables the long tail of ISV's who have specialized expertise to build extensions to the common applications, which will address most of the specialized requirements of enterprises. SAP's move of creating Netweaver platform is a significant move in this direction.
From a cost standpoint SaaS is even more attractive than custom development - which also incurs huge upfront development cost and a substantial amount of maintenance cost.
So the bottom line could be SaaS might impact the amount of new custom apps being developed. Which will impact this particular service line of Offshore IT Service provider.
2. Application Implementation Services:
One of the core value proposition for SaaS is that you need not install the system in house and also that the customizations are easy and straight forward. Now considering these two, there is a general perception that the professional services work will not be relevant in a SaaS world, which is not true. Professional services will become more strategic rather than being associated with package implementation alone. It will be the responsibility of the professional services consultants to align the software with the business and make the usage more efficient. PSO teams should focus more on business problems like process re-engineering / change management rather than focusing on technical issues of the package implementation. This will make PSO's more valuable than they are today.
With the availability of platforms like AppExchange, Netflex, the technical aspect of implementations still exist, though in a different form. The implementation partners are responsible to build extensions to the existing applications using the platform. This would need specialized skill set trained on platforms like Apex or Connect.
So, the professional services wing would still exist but move up the value chain and provide consultancy around business process and better utilization of software assets rather than just implementation and also they would build skill sets in on-demand platforms.
Today Indian service companies like TCS, Wipro, Satyam have alliance with SFDC and companies like Accenture and Deloitte Consulting are also into strategic alliance with SFDC, which shows that the service providers are considering SaaS pretty seriously.
Looking forward, service providers should consider SaaS more seriously and plan to be successful in the software era of SaaS. We need to wait for some more time and find out on how Indian IT service providers react.
