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TMCNet: 'Software as a service is getting big'

[February 04, 2010]

'Software as a service is getting big'

Feb 04, 2010 (The Economic Times - McClatchy-Tribune Information Services via COMTEX) -- In many ways, Phaneesh Murthy, now the chief executive of iGate, helped India's growing outsourcing industry structure large, complex contracts and also woo some of the top customers, including GE. Many in the industry describe him as one of the best marketers of the Indian outsourcing industry. In an interview with ET, Mr Murthy talks about how the models of delivering remote services are undergoing a paradigm shift, with outcome-based pricing and shared services platforms gaining momentum. Excerpts: QUESTION: What's the next big disruption after offshore outsourcing? Are customers really buying more platform-based services, or there's more hype than reality? ANSWER: The next big disrupter is the outcome-based pricing for software services using shared-services infrastructure. This entire onshore, offshore billing does not make sense now. Customers coming out of the recession are value-conscious, and they want to pay for results -- not the efforts. We are seeing more consumption-based models emerge, and software as a service with applications such as CRM is becoming big.


For too long we have believed that the next big leap for Indian IT, in terms of moving up the value chain, is the business of product. However, that does not seem to be the case. I believe the right model in services business is to run shared services. It also helps in breaking linearity and can help companies break free from people-led linear growth.

Q: iGate started talking about platform-based offerings several years ago. What progress have you achieved so far? A: We were ahead of time, and the mortgage crisis too impacted the growth. Now, we are seeing an early adoption of this model. By 2020, almost 60-70 percent of services could be delivered using shared-services model. The CFOs and CIOs who did not adopt this earlier, will be kicking themselves after realising the kind of savings and benefits they could have achieved by shifting to this model.

Now, the customers are asking for it, and not many are ready for the same. For financial services customers, almost all their products could be delivered using this model, which may not be the case for companies in other verticals.

Q: What challenges lie ahead for large service providers as models of delivery shift? A: Large companies do get blind-sighted at times. Asking professionals to suddenly give up on traditional ways of managing projects and delivering services is not an easy task, especially if you consider that large companies also have huge number of staff on their payrolls. This cultural change could take a generation. The next billion-dollar companies could just be pure-play shared-services firms. ADP, which is into payroll services using this model, derives nearly 40 percent margins -- so it's not that it does not make any business sense.

Q: What other demand and supply side trends you see in the industry? A: Over the past five years, almost 19 percent of CIOs' budgets on applications had been spent in India, and then it stagnated. This share could go up to 25 percent over the next 3-5 years. The operational budget, which has largely been BPO, could also increase from 2-3 percent to 15 percent over next 3-5 years. Beyond back-office work, a lot of mid-office outsourcing will happen as things mature.

On the supply side, companies will add another 80, 000-1,00,000 jobs this year in India. Also, the percentage of locals across global offices will go up.

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