The Application Service Provider (ASP) model that many believed was incomplete and ahead of its time seems to be coming alive now, and here’s how. Computing platforms, in terms of networking protocols, storage, application hosting, and other such variables are getting standardized. Add to it the rapid establishment of Web services standards, and what we are looking at is a dramatically different, yet positive scenario in the IT services business. The leaders in this space are poised to take advantage of this new landscape, becoming IT outsourcing vendors and ASPs, all in one.

The signs of this are already clear with American Express awarding an approximately $4 billion IT outsourcing contract to IBM. What is interesting is the utility-pricing model of the contract, as opposed to fixed-price contracts, which may establish a new paradigm in customer-vendor relationships in IT outsourcing. As more such contracts are signed across corporate America, and their success factors are established, this may tend to become more the rule than the exception, requiring some re-engineering by the vendors themselves. This will also result in consolidation in terms of customers preferring to work with fewer, or even one vendor, choosing to forge deeper relationships, than multiple ones. In this environment, the constant refrain of “Rise up the value chain” has taken a new twist.

The bad news is that such deployments require significant infrastructure, and wide-ranging domain knowledge. The good news is that having worked to hone the supply side of the business for the last few years of the phenomenal growth period, the top few Indian IT services vendors are in an excellent position to executive effectively, though penetrating the top club of IBM, EDS, CSC and others will be tough. This is especially true because as the contract sizes become bigger, the economies of scale make the positioning of the large firms stronger, striking at the very fundamental business pitch of the Indian companies – cost-saving.

As for the smaller IT services vendors, it will become increasingly difficult for them to go after really large customers, since they will naturally gravitate towards vendors who can do it all. Yet, the opportunities for niche levels of IT and IT-enabled services are beginning to take off. Even though some of the large IT services vendors are indulging in expanding to those as well, through organic growth, or partnerships, the market is still wide open. New seamless, even sophisticated sub-contracting business models may emerge in the IT services model.

As you enjoy this issue, look out for an eye-popping, excitement filled May 2002 issue of the magazine. We look forward to your feedback at: editor@corp.siliconindia.com.

Yogesh Sharma
Editor
yogesh@corp.siliconindia.com