Not Ready for Prime Time: Brazil Cloud Services Mostly in Early Development

In 1925, the intrepid English explorer Percy Fawcett journeyed once more into the jungles of Brazil to try to find the legendary ancient City of Z. Did it …

In 1925, the intrepid English explorer Percy Fawcett journeyed once more into the jungles of Brazil to try to find the legendary ancient City of Z. Did it ever really exist, or was it lost to history? In 2010, this reporter set out to answer a much simpler question: Are Brazilian outsourcing companies developing cloud-based services?

And by cloud services, we mean: A business service or process that’s provided via the Internet, in real time; can be scaled up or down; features service-level agreements (SLAs); and can be accessed on demand, like a utility, on a pay-per-use basis. Of course that definition could be broadened to include other characteristics, but you get the idea. We don’t mean things like providing hosting services in a data center.

Cloud services and outsourcing would seem to have a natural affinity. Being able to give customers what they want on a granular, scalable basis — whether it’s BPO or infrastructure — would be advantageous to both provider and client. After all, the cloud is all about getting what you want, when you want it, however much you want, from whatever location you like.
Brazil Needs to be the Leader

And if Latin America is to thrive as an offshore destination, LATAM countries need to be right there with competitors in offering advanced, adaptable, on-demand technologies. Brazil, being the largest player in the region, would be the most likely candidate to get into the role of cloud-services provider. When you consider the country’s reputation for having developed sophisticated banking technologies during the past decade or so, it’s not much of a stretch to expect that Brazilian service providers could do the same in the cloud.

“There are Brazilian companies offering infrastructure services, but they have to take the next obvious step in maturity and offer managed services. Don’t just offer people, human resources, but provide things like SLAs, complex pricing models, and advanced cloud-based services.” –Ross Tisnovsky, Everest Research

However, when we set out to discover just what’s going on with cloud services in the nearshore region, the response from Brazilian outsourcing companies was not exactly enthusiastic. Perhaps it was a matter of timing, but nearly all the firms we contacted were either not ready to discuss their plans or appeared to have no plans. As one exec told us: “We currently don’t have a cloud offering, but  are waiting for the market to take shape.” He added that Brazil “has a strong and mature business process market and is certainly poised to be a relevant player.”

Brazil Not Known as First Mover

Figuring out how the market will shape up makes sense, as does finding one’s niche in the cloud and figuring out what customers will pay for. But what other things might be keeping Brazilian providers from jumping into cloud services?

One big factor, says Ross Tisnovsky, vice president at Everest Research Institute, is that “Brazil has never been a first mover in IT services. They’ve been very late to the market in terms of outsourced infrastructure services, whereas India has been doing this for 3 to 5 years.” One of the “curses for IT services in Brazil,” Tisnovsky says, is heavy internal demand. “Companies can build a good business focusing just on local customers. That healthy internal demand creates a healthy competition for resources. India never had to deal with that level of internal demand until recently.”

The other side of that internal situation, the blessing, is that Brazil “has a good legacy of doing complex infrastructure and serving large, powerful, internal clients, like some of its banks and financial corporations.”

What Brazil needs to do, Tisnovsky says, is decide to evolve to the next level. “There are Brazilian companies offering infrastructure services, but they have to take the next obvious step in maturity and offer managed services. Don’t just offer people, human resources, but provide things like SLAs, complex pricing models, and advanced cloud-based services.”

Still, Tisnovsky says he is “bullish” about Brazil. “Brazil as a country is well-positioned to offer cloud services. They have the necessary electricity and telecommunications infrastructure. And they have the talent.”

Don’t expect any big breakthroughs in 2010, Tisnovsky adds, “but Brazil will be the first Latin American country to make a serious move into cloud services. It makes sense for them to do it.” Chile is targeting BPO services, but “they don’t have the scale to compete with Brazil. Other countries, like Argentina, claim they can compete with Brazil, but they can’t really.”

Playing Leapfrog

Frances Karamouzis, research VP with Gartner Research and Advisory Services, sees Brazil as being in a good position to capitalize on cloud technology, once the technology becomes more mature and comes out of “the hype phase.”

“Many service providers are in a good position to act as an intermediary for certain cloud services, but the more savvy ones will be able to add their own intellectual property or value,” Karamouzis says. “Brazilian or South American providers are in an interesting position because there’s a lot of technology there that is dated or legacy stuff, such as laptops and servers, so they can leapfrog to the new technology instead of making a gradual transition. What is really interesting about Brazil is that service providers there have some of the best banking expertise in the world. Fifteen or 20 years ago, when Brazil was facing difficult times financially, IT helped the country implement faster cycle times. Service providers in Brazil had to create a new level of banking technology, and you see that technology today all around the world.”

Brazil, Karamouzis says, has had to solve some difficult IT problems out of necessity and “can parlay those technology skills into the cloud.”

But technology skills don’t necessarily eliminate the fear, uncertainty, and doubt that providers and their clients might feel about cloud-enabled services. “What’s different about the cloud right now is that the technology requires a different mindset,” she says. “You need to invest more upfront, like a pharmaceutical company investing in development of a new drug. Typically service providers don’t work with that kind of business model. Some of the core Latin American enterprises they’re used to dealing with are not first movers. They tend to be more pragmatic. That’s why you don’t see this unbounded cloud-is-everything attitude. They and their customers can see something like a certain application taking hold and respond to that, but in the cloud, you have to have a more pro-active mentality. It’s sort of a ‘build it and they will come’ approach.”

And that requires a lot of homework, she adds. “The investment and knowledge required upfront can be a big disruptive thing for service providers. Most of Latin American providers are not large, so they have to be careful about pursuing new technologies. But if they pick the right ones, they have a lot of opportunity.”

Karamouzis says Gartner has seen some “interesting pilot projects” that will shed  light on what types of cloud services Brazilian companies might start offering in the next year or two, but for now, “it’s all fairly embryonic, and they’re keeping much of it under the vest.” More will be revealed in 2010, she says. It’s a good bet that the focus will be infrastructure services, followed by applications. “Those tend to be the biggest areas where there’s a lot of mining for new opportunities.”

Stefanini Is There Already

One Brazilian company that is not waiting to move cloudward is Stefanini IT Solutions. Renato Mendonca, service delivery manager, says the company has a long-term strategy to offer cloud-based solutions and has invested half a million dollars to prepare development teams, forge strategic alliances with SaaS providers, and develop the technical infrastructure to meet demand. “Today we have an excellence center for R&D in cloud computing, dedicated to specialized technologies like SalesForce, Microsoft Azure, and Google,” he says. “Currently we have 30 professionals working in this center, where 40 percent are specialists in some cloud computing platform.” Besides developing SaaS projects, the company is also exploring platform as a service (PaaS) solutions, which can provide customers with a software development system without them having to buy and manage the necessary hardware and software.

“The investments we’ve made so far will provide us with returns in the short term and the long term,” Mendonca says. He describes cloud computing as “mature from a technological viewpoint,” but concedes that it bumps up against certain “cultural paradigms,” such as clients “believing it is more secure to keep data at home.”

Stefanini hopes to start more partnerships with other service providers and increase its number of cloud-savvy developers. The goal, Mendonca says, is to “position itself as a company with technical and business expertise to fulfill the future demands in all countries where we do business.” (That number of countries is currently 16, and besides Brazil includes the U.S., the U.K., Canada, and Latin neighbors Chile, Colombia, Peru, and Panama.)

Meanwhile, big players from beyond Brazil’s borders are already working in the cloud from within Brazil. Capgemini has a team working on what they call “cloud BPO.” David Poole, who heads up Capgemini’s Latin American operations, told us in a recent interview that the group has a “BPO sandbox” where they’re working with clients to create cloud-enabled services to offer back-office processes on a pay-per-use  basis. This is particularly relevant in the nearshore region because “companies are quite happy to invest hugely in call systems but not in HR systems, for example, so they can access these kinds of services from a vendor like us.”

And then there’s the Big Blue giant. IBM’s BPM Cloud, which it describes as “business process management as a service,” is offered in Brazil and nearly every other country around the world. Users pay on the basis of CPU time.

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IBM opened one of its Cloud Computing Centers in Sao Paulo in 2008, with an emphasis on helping businesses build “massive-scale collaboration systems.” (Other locations include Bangalore, Seoul, Hanoi, and Shanghai.) IBM announced last year that it’s working with the Association for Promotion of Brazilian Software Excellence (SOFTEX) and its hundreds of local ISVs to come up with strategic plans for using cloud technology. And while the company isn’t your usual outsourcing provider, it’s likely IBM will play a role in the development of cloud services in Brazil.

Wipro Stakes New Ground

As Everest’s Ross Tisnovsky pointed out, India has a several-year jump on Brazil in terms of offering IT services, and one company in particular has been staking out turf in the cloud. Wipro chief technology officer I. Vijayakumar said recently that the firm is investing heavily in the development of “offerings for enterprise migration to the cloud.”

In a 2009 report on global IT infrastructure outsourcing,  Forrester highlighted Wipro as “being notable among the India-based service provider firms” for its aggressive cloud strategy. According to the report, Wipro is “planning on faster cloud services growth than its more traditional services” and is working on cloud-enabled storage, backup, and computing services, among others.

Cloud computing sometimes gets a bum rap for being all hype, no substance. But cloud-enabled services are being validated by companies at the forefront of business technology, and it’s just a matter of time before other providers in Brazil are doing what Stefanini is doing and figuring out the best ways to offer their services from the cloud. As Tisnovsky said, it makes sense. Whether they make the move in time is another question.

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