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January - 2015 - issue > CXO View Point
Narendra Dhara
CTO & SVP -Calsoft Labs
Monday, January 12, 2015
Outsourced Product Engineering services market has seen some macro changes in the last decade impacted by changing customer landscape and emerging technology trends. The changes are still continuing with new trends and possibilities in emerging technologies. Traditionally OPD industry mainly services enterprises which in turn service the operators or consumers. In this trickle down supply and revenue chain, any change or new trend in the customer eco system will have a greater bearing on the revenue and opportunities for the OPD services industry. The industry has to respond and refine strategy and approach. Currently three major trends are impacting how OPD should view and approach the market opportunity in emerging markets- prolification of open source in products and solutions, use case driven solutions and fast disappearance of distinction between Product, Solution and Service offering

In the last decade the percentage of opensource components in products has shot up significantly to the extent that new products specifically in new markets such as big data, SDN and NFV completely depend on opensource components. Product development strategy mainly revolves around custom packaging of opensource components, integration, performance optimization and hardening. The product offerings differentiate by providing end to end functionality addressing business or consumer use cases. These use cases target a market vertical such as healthcare, energy and in most cases even sub segments of those markets. Consider the vast number of use cases for big data and analytics. Market opportunity for enterprises selling products or solutions is driven mainly by the need to address use cases or work flows. Each consumer of such solutions are in turn wanting to differentiate their offering to their customers. This implies the need for these new products or solutions to able to repurpose into vast number of custom solutions addressing different use cases.

Product companies thus are transforming their opensource based products offerings to platforms that are customizable for different use cases. These customizations require professional services. Product companies focused on development find it hard to scale to the demands of integration and customization needs for different opportunities. In addition, due to the heavy dependency on opensource components OPD traditional customers are faced with new problems and challenges. Constant feature changes and evolution of the opensource code base and the fact that the knowledge and codebase are influenced by the community, companies have to depend on external teams or consultants to gain insight to planning and aligning their roadmap. The technology skills to support these efforts are new and niche

Opensource also has another impact on the way companies model their revenue strategy. Companies also have to build intrinsic value for higher TAM and valuations. In order to do this, many of the product offerings are now delivered as a Products as a Service. This approach also provides the ability for companies to compete effectively in a price sensitive market. Cloud based delivery model is getting ubiquitous and is fast becoming the defacto model for many of the traditional customers of OPD industry. In the new delivery model, OPD customers have to contend with IT and cloud infrastructure, integration of various tools, integration of several components to build and deploy solutions to generate revenue. OPD customers are no longer selling products, they are required to sell solutions combined with use case driven customization services to meet market needs. This model extends the R&D spending from traditional Development Operations into IT deployment and Operations and are also seen as investments into solution development.

This transformation of OPD customer base provides both challenge and an opportunity. OPD industry traditionally provided skilled capabilities at lower offshore costs to do product development for its customer base. This approach fits well and was targeted towards legacy products that required legacy skill sets and capabilities from OPD industry. With emerging markets and changing model the needs of the customer have changed. Customers are willing to engage OPD industry on new products as dependency on opensource is growing, home grown technology is shrinking and main differentiation is time to market. All these factors are leading to more outsourcing in new technology areas.

In addition to this, for OPD industry there is now an opportunity to enhance the offering and address infrastructure, integration and professional services. The approach and strategy has to increase the revenue potential. OPDs should not only address the need for low cost development model, but also address time to market needs of the customers targeting emerging markets. With customer products and solutions dependent heavily on opensource and cloud delivery model, time to market has become a key differentiator. OPD customers are looking for capabilities and skills in emerging technologies that are prevalent in opensource communities.

OPD industry could address these new needs as well as increase the value of their service offering. Certainly investing efforts in opensource and emerging technologies and skill set will be key. In addition, building an eco system that enables a bundled and value add service offering comprising of skilled capabilities, opensource component expertise, and third party components. What ever the scale of individual companies, OPD companies could invest in building an eco system of key partners whose emerging products and solutions can be bundled together to address an emerging need which is different than traditional low cost OPD requirement for legacy products. Perhaps in this case the OPD model could transform into an Outsource Solution Development model targeting time to market needs of the customer in emerging markets dominated by open source technologies.

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