Indian information technology firms are scrambling to acquire cloud platforms in a desperate attempt to stay relevant and keep pace with their global rivals. Recently, a tiny news article grabbed the attention of industry associates, revealing that every major IT company in India – from Tata Consultancy Services (TCS) to Infosys, HCL, and Tech Mahindra – are making bids to acquire Alpharetta, Georgia-based Software-as-a-service provider Sierra-Cedar. Sierra-Cedar refused to comment to Nearshore Americas.
“The hunt for companies like Sierra-Cedar is an example of how Indian IT service providers are transitioning from Legacy IT to Digital IT,” said Balajee Sugumaran, an IT consultant with more than 12 years of experience in IT sector.
Sugumaran says the sun is setting slowly on the era when service providers worked on legacy, bespoke applications, integrating them with ERP and other off-the-shelf products and solutions. “Today, the IT landscape is changing rapidly. The services are becoming more platform-based and they are more likely to be delivered over cloud.”
In replies sought by the Bombay Stock Exchange, both Infosys and Tech Mahindra refused to confirm that they were in talks to purchase Sierra-Cedar, which has an office in India’s southern city of Hyderabad.
But analysts say it is clear that the desire for the cloud technology is motivating the India IT firms to go after Sierra-Cedar. “I strongly believe Cloud Integration capability is what makes Sierra-Cedar a candidate for acquisition,” Sugumaran said.
Indian IT’s interest in cloud is symptomatic of a broader global trend. According to research firm Gartner, software-as-a-service (Saas) in which companies pay for software based on their usage, is expected to top $22 billion through 2015. More recently, in May and June 2014, Gartner conducted a survey across 10 countries, including India, the U.S., Brazil and Mexico, to examine organizations’ adoption and deployment of cloud services across SaaS, infrastructure as a service (IaaS) and platform as a service (PaaS). The report deemed Saas deployments “mission critical,” something Indian IT firms are beginning to realize.
The India Inc felt threatened last year when IBM landed a multi-billion dollar deal with ABN Amro to provide computer infrastructure services. Infosys and Wipro, who also bid to bag this contract, watched helplessly as the Dutch bank favored IBM for its cloud technology.
Almost three months later, Infosys spent $200 million to acquire Panaya, a US-based software-as-a-service (SaaS) company that specializes in automating application management service. And Wipro invested $5 million to pick a minority stake in Drivestream, a Virginia-based firm that integrates Oracle’s cloud applications.
A week later, Wipro announced that it had joined forces with Drivestream to build integrated cloud solutions.
Even smaller outsourcing firms are also trying to take a slice of the rising cloud technology market. Hinduja Global Solutions (HGS), for example, acquired a majority stake in the US-based Colibrium Partners and Colibrium Direct, which has developed a cloud-based platform that facilitates end-to-end workflow automation capability to healthcare service providers.
Acquisition Rather than Creation
Many domestic IT firms are choosing to acquire smaller cloud service providers instead of attempting to create a cloud platform of their own. Creating such a platform requires billions of dollars in investment. “The acquisition could be achieved with just 2%-5% of revenue, which is relatively less when you consider it as an investment,” Sugumaran pointed out.
Take the example of Oracle, which is today the largest cloud service provider in India. Oracle spent $7.4 billion to acquire Sun Microsystems, because Sun had controlled rights on the programming language Java, which is today one of the key components of Oracle’s IaaS platform.
Some analysts say Sierra-Cedar’s skilled laborforce is also a major draw for Indian IT firms. Sierra-Cedar owns a license to resell Oracle’s cloud.
Over the last few years, Oracle has acquired several hundred cloud customers in India, all using different Oracle Cloud solutions. Nearly 50 percent of its SaaS customers are net new. Earlier this week, India’s Economic Times reported that Oracle is planning to hire 300 people to create a specialized cloud sales force.
In India, some of Oracle’s cloud customers include Jabong, Airtel, MakeMyTrip, Flipkart, Wipro, L&T, Birlasoft Limited, iGate, Indiabulls, Kotak Life Insurance, PolicyBazaar.com, PVR Cinemas, Reliance Commercial Finance, Thomas Cook India Ltd, among others.
For Indian firms, most of whom have historically limited themselves to customizing the software to the need of their clients rather than developing software from scratch, the time has come to transform themselves. Currently, cloud service accounts for a fraction of their revenue.
“Sophisticated clients are now seeing the huge benefits of shifting from on-premise to ‘as-a-Service’ delivery and many now view BPaaS as an alternative to outsourcing,” according to a recent report from HFS Research. “This isn’t something that is occurring in a few years, it’s already happening.”
HFS claims that it found one-in-three enterprises already using (or about to use) BPaaS/cloud as an alternative to legacy outsourcing in areas such as HR, industry-specific operations, finance and accounting, and procurement.
“With everyone owning a cell phone, and e-commerce becoming common, IT services are going digital the world over; enterprises are increasingly adopting cloud solutions,” said Guilherme Campos, an Industry Analyst at Frost & Sullivan, in a telephone interview with Nearshore Americas.
Indian IT firms are seeing huge demand for cloud service even in their home market. According to September report from advisory firm Current Analysis, 68% of Indian enterprises, with 100-plus employees, are using cloud-based services, while the remaining 32% plan to do so over the next 24 months.