Oracle’s cloud growth could impact Indian IT business
Enterprise software major Oracle’s big push towards cloud-based services might hit revenues of Indian information technology (IT) firms like Infosys, Tata Consultancy Services (TCS) and Wipro that currently implement business software applications for clients of the California-headquartered company.
Consultancy and package implementation together account for nearly 30 per cent of Infosys’ revenue, while enterprise solutions and consulting business contribute about 18 per cent to the earning of TCS, India’s largest IT services firm.
With a sharp rise in Oracle’s software-as-a-service business and decline in licensing revenue, Indian IT services firms’ revenues will shrink, analysts say. These companies will have to innovate continuously, they add, to develop digital technology strengths as they face a tough competition from digital-first companies.
“Our pivot to the cloud is now clearly in full strength. The increase in revenue from our cloud business has overtaken new software license business decline on an annual basis. Total cloud revenue in the quarter was approximately $1.3 billion, with growth modestly accelerating to 72 per cent in constant currency from last year,” said Safra Catz, co-chief executive officer, in an analyst call. “With the transition to cloud, customers of Oracle such as P&G, BT, Airbus, National Instruments or Apple will be more independent in use of technology, and the software implementation will become more consulting and less maintenance-based”.
While Infosys declined to comment, mails sent to TCS and Wipro went unanswered.
“Services providers benefit from the implementation of these new services models in the short run. However, their service revenues shrink as the digital or cloud-operating environments are far more efficient. There is dramatically smaller opportunity for the services providers once their clients have made the transition,” said Peter Bendor-Samuel, chief executive officer of Everest Group, a global technology researcher.
The implementation cost is lesser when services are offered through cloud than on-premise software, said Pareekh Jain of HfS Research India. “In a nutshell, the business pie for Indian IT services will reduce with Oracle’s migration to cloud.”
Bendor-Samuel believes that with focus on cloudbased software, Oracle might look at digital-first companies. “A further complication for the incumbent services providers is that they are often not viewed as the right partners to help on the implementation work ….and the clients are increasingly looking to digital-first companies to assist them in these efforts.”
At the same time, Indian IT services companies need to look at developing new skills and IP to offset the business decline in traditional software maintenance business. “IT services firms must move to deliver their own IP and build out their AppDev practices to counter the cloud onslaught. While integration, orchestration, management, and implementation are still strong areas for revenue today, in the long run, cloud takes account control away from the IT services firms and moves it to the vendor,” said Ray Wang, principal analyst and founder of Constellation Research.
As software majors such as Oracle, SAP focus on cloud-based delivery, IT services firms which implement these projects need to acquire skills and talents through acquisitions of small companies with the right expertise. The incumbent services players may also get certified professionals for cloud-based services through acquisitions.