Thursday, 22 January 2015

Cloud Providers Pushing the Outsourcing Industry Forward

If IT outsourcing is an indicator of technology sector health, things appear to be very good in Europe.  According to Information Services Group (ISG), the numbers for both IT outsourcing and business process outsourcing were up in 2014 in Europe, Africa, and the Middle East.  Pushing the outsourcing industry is increased competition from cloud providers looking to expand their business models.

ISG says that IT outsourcing spending in the three regions was up some 7% in 2014, to £7.37 billion.  Global spending on IT outsourcing reached £15.2 billion.  That makes the three regions the biggest adopters of IT outsourcing for the last eight years.  According to Computer Weekly, German companies Vorwerk and Lufthansa are excellent examples of large companies awarding sizeable infrastructure contracts.

Computer Weekly says Vorwerk signed a six-year deal for IT infrastructure with Cognizant, while the German airline signed a seven-year contract with IBM worth some £950 million.  It is evident from these contracts that IT outsourcing is one of the hottest commodities in the current technology industry.

Competing with the Cloud

Where the IT outsourcing market goes in 2015 is anyone's guess yet one thing is certain: companies such as IBM and Cognizant will be competing with cloud service providers for more contracts this year.  Cloud providers already have extensive experience in providing IT services on a small-scale and some of the larger players are being encouraged to pursue bigger contracts offering complete outsourcing solutions.

It should take cloud providers some time to become firmly established as IT outsourcing and business process outsourcing providers however there is little doubt that it will happen.  This suggests that it is even more important for traditional outsourcing providers to solidify their positions in order to be able to appropriately respond to the increased competition.  Could it be that we are on the verge of an outsourcing war between established provider competitors from the cloud?  Indeed, it looks as though we are.

Data Centre and Collocation

Experts say the most important competition in the coming years will be in the infrastructure-as-a-service (IaaS) arena.  This could bode well for the data centre and collocation industry, especially among companies willing to invest significantly in server and storage hardware.  A company operating several established data centres might be able to parley some of their revenues into developing a successful IaaS model perfectly suited to outsourcing.

Falling hardware prices across the board is what is making all of this possible.  When equipment is cheaper, it is much more profitable to invest revenues in new servers and storage solutions that can be used for any number of purposes.   Where one data centre operator may seek to expand hosting options, another may decide to get its foot in the door of IT outsourcing.  We expect more will choose the latter option this year than we have seen in the past.

Few would have thought a few years ago that the cloud sector would be pushing outsourcing forward; nevertheless it is.  Now we will have to wait and see who comes out on top for 2015…

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