are traditional ito revenue streams making way for cloud?

TBR

T EC H N O LO G Y B U S I N ES S R ES EAR C H , I N C .

TBR’s Professional Services Business QuarterlySM

Research Highlights and Outlook

Are traditional ITO revenue streams making way for cloud? Technology Business Research (TBR) Quarterly Webinar Series

Feb. 13, 2014

TBR

2 TBR Quarterly Webinar Series | 2.13.14 | www.tbri.com | ©2014 Technology Business Research Inc.

Professional Services Business Quarterly Research Highlights and Outlook: Webinar Presenters

Ramunas Svarcas

Senior Analyst and Engagement Manager, Professional Services Practice

Email: [email protected]

Twitter: @rjsTBR

Telephone: 603.758.1833

Elitsa Bakalova

Analyst, Professional Services Practice


Twitter: @ElitsaBakalova

Telephone: 603.929.1166

Patrick Heffernan

Senior Analyst and Engagement Manager, Professional Services Practice


Twitter: @TBR_PatrickH

Telephone: 603.758.1833

mailto:[email protected]




TBR


• The Professional Services Practice publishes quarterly and semiannual reports, continually covering 33 vendors.

• Of those vendors, 31 are included in our IT Services Vendor Benchmark.

o TBR reports are unique for their deep holistic analysis of leading vendor businesses.

o Financial modeling and TBR insights help customers gain a better understanding of vendor business models.

o TBR reports and webinars are responsive to client timelines, clear and concise, and provide insights across multiple layers of a vendor’s organization and infrastructure.

o TBR’s strategic assessment provides an impartial check on a vendor’s progress in its strategic objectives.

Clients are gaining advantages and better understanding revenue opportunities through our

reports and their personal relationships with TBR.

Professional Services Business Quarterly Research Highlights and Outlook: Webinar Overview

TBR’s IT Services Vendor Benchmark delivers unique insight and value through in-depth analysis in a concise, consumable format

TBR Professional Services Business Quarterly (PSBQ) Portfolio

TBR


PSBQ 3Q13 Research Highlights and 2014 Outlook: Key Trends

Professional Services Vendor Trends for 3Q13

Cloud Adoption: Vendors embrace cloud-centric

business models as managed cloud eats into

traditional ITO opportunities.

Industry Change: IT services leaders invest in cloud,

analytics, mobility and social media to retain

industry-leading market positions.

ITO Performance: IT services growth decelerates to

low single digits as clients invest in shorter-term

tactical projects and migrate legacy IT to cloud.

Adoption of cloud-centric business models and emerging technologies will help vendors offset decelerating ITO revenue growth

SOURCE: WWW.PPTBACKGROUNDS.NET

SOURCE: WWW.FREEICONSVECTOR.COM

SOURCE: WWW.HSCI2012.ORG

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tactical projects and migrate legacy IT to cloud. SOURCE: WWW.PPTBACKGROUNDS.NET



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While technology- and analytics-enabled solutions supported BPO’s leading average trailing 12-month growth in 3Q13, cloud, mobility and analytics technologies stemmed the rate of C&SI revenue growth deceleration relative to outsourcing services.

PSBQ 3Q13 Research Highlights and 2014 Outlook: Performance

ITO growth will continue to trail behind other service lines and decelerate to an estimated 0.6% average trailing 12-month growth in 4Q13

SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES

NOTE: Includes total trailing 12-month service line revenues from TBR’s IT Services Vendor Benchmark, not representative of a total global

market view. Dots indicate year-to-year growth and arrows indicate directional change relative to the year-ago quarter.

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The ongoing shift to lower-priced cloud computing pressured traditional ITO revenue streams in 3Q13


NOTE: Includes total trailing 12-month ITO revenue from TBR’s IT Services Vendor Benchmark; not representative of a total global market view.

Average trailing 12-month ITO growth decelerated since 1Q12, as deal completions, price pressures, demand for shorter-term tactical projects in place of traditional ITO deals and an ongoing shift to cloud computing slowed ITO revenue performance.

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HP’s ITO revenue decline followed a shift in demand from outsourcing to cloud hosting engagements with lower initial spend



Bringing HP’s Technology Services segment into its Enterprise Group better aligns support and IT outsourcing services with the technologies they manage and support. However, customer demand is shifting to shorter-cycle, smaller contracts to manage IT spending, driving down ITO revenue.

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Managed private cloud and cloud professional services are rapidly gaining popularity in the market. The initial influx of cloud drove consulting engagements that then informed and educated customers on the benefits of cloud on IT operations and business outcomes.

“If it is a new application, we would much rather have

someone else host it and manage it.”

— IT Director of a U.S.-based, higher-education organization

Cloud environments offer cost-effective, secure alternatives to investments in on-premises or traditionally hosted and managed IT, driving fundamental changes in vendors’ legacy outsourcing business models.

Professional Services Vendor Trends for 3Q13 — Cloud Adption

Cloud computing overlaps vendors’ traditional outsourcing portfolios and revenues, forcing vendors to adjust business models to the new era

PSBQ 3Q13 Research Highlights and 2014 Outlook: Cloud Adoption

SOURCE: TBR 3Q13 MANAGED PRIVATE & PROFESSIONAL SERVICES CLOUD BENCHMARK

TBR


IT outsourcing revenues are increasingly turning into managed cloud revenue dollars as vendors adjust to cloud-driven business models

IT outsourcing revenue growth fluctuated between 0% and -5% year-to-year over the past five quarters, while managed private cloud revenue growth ranged between 30% and 35% over the same period, indicating a real threat to traditional ITO vendors.


SOURCE: TBR 3Q13 MANAGED PRIVATE & PROFESSIONAL SERVICES CLOUD BENCHMARK

NOTE: Graph is based on data for 22 vendors: Accenture, Atos, Capgemini, Cisco, Cognizant, CSC, Dell, Deloitte, Dimension Data, EMC, Fujitsu, HCLT, HP,

IBM, Infosys, Oracle, SAP, TCS, T-Systems, Wipro, Xerox and Unisys.

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Expertise and comprehensive portfolios outweigh lower costs when customers evaluate and decide between cloud vendors

Attributes Driving Cloud Professional Services Vendor Selection

SOURCE: TBR’S 2013 CLOUD PROFESSIONAL SERVICES STUDY


Most Popular Cloud Professional

Services Vendors in 2013

according to TBR’s 2013 Cloud

Professional Services Study:

1. IBM

2. Microsoft

3. SAP

4. HP

5. Oracle

6. Accenture

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To invest in emerging technologies, IT services vendors have:

Client demand for analytics, cloud, mobility and digital fueled 3 main strategies: Acquire, hire and consolidate

SOURCE: TBR RESEARCH AND COMPANY DATA

PSBQ 3Q13 Research Highlights and 2014 Outlook: Industry Change

New technologies require vendors keep pace with ever-accelerating changes. With business models built on low-cost delivery and/or differentiated IP, vendors that adjusted fastest lead the pack.

Hired experienced

professionals and/or

expanded the low-cost

resource base

Consolidated offerings around

emerging technologies, either

through new delivery centers

or wholesale corporate

reorganization around digital

Acquired companies,

pulling in new talent,

expanding offerings and

gaining new IP

SOURCE: WWW.STATICFLICKR.COM SOURCE: WWW.MOMENTUMNI.COM SOURCE: WWW.STANFORD.EDU

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SOURCE: TBR RESEARCH AND COMPANY DATA

Acquisitions enable vendors to expand their industry expertise and bring solutions to market faster than through internal R&D activity, though these avenues require concessions such as revenue sharing, reduced control and integration costs.

Acquisitions provide an immediate boost to revenues, expand offerings and create a platform for new IP


Vendor Target Description

IBM Xtify (4Q13) Xtify provides cloud-based mobile messaging tools that help organizations improve mobile sales, drive in-store traffic and engage customers with personalized offers.

IBM The Now Factory (4Q13)

The Now Factory specializes in analytics software that helps communications service providers deliver better customer experiences and drive revenue opportunities.

IBM CSL Int’l (2Q13) CSL International’s CSL-Wave software enables clients to monitor and manage z/VM and Linux on IBM System z environments; facilitates setting up and managing clouds on the mainframe, enabling companies to provide enhanced services and support around big data, analytics and mobility.

CSC ServiceMesh (4Q13) The ServiceMesh Agility Platform automates the deployment and management of applications across the private, public and hybrid clouds.

CSC Infochimps (3Q13) Infochimps provides PaaS related to big data, enhancing CSC’s presence in the cloud and big data market.

Accenture Acquity Group (3Q13) As a digital marketing company, Acquity provides strategy, digital marketing and technical services to help companies enhance their brand experiences and e-commerce performance.

TBR


All IT services vendors face challenges recruiting and retaining talented staff with skills in emerging technologies

Leading vendors set aggressive hiring targets and looked for mature professionals (with experience in emerging technologies or industry expertise) and talented “freshers.”



TCS announced plans to increase its FY14 hiring target from 45,000 to 50,000.

Cognizant will increase hiring of experienced, client-facing professionals to upsell social, mobile, analytics and cloud solutions in 2014.

16.0%

15.5%

22.4%

19.5%

10.9%

109.4%

0% 20% 40% 60% 80% 100% 120%

3Q12

3Q13

3Q12

3Q13

3Q12

3Q13

TCS

CO

GN

IZA

NT

CG

I

YTY Growth

TOP THREE TTM REVENUE GROWTH

SOURCE: TBR AND COMPANIES

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Vendors struggle to find low-cost talent with necessary skills in emerging technologies, as well as experienced hires capable of blending industry expertise and digital, analytics, or cloud capabilities. With all vendors seeking the best talent, competitive pressures lead to higher attrition rates across nearly the entire sector.

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Digital, cloud computing and strategy services pave the way for new routes to market for IBM and Accenture


Leading companies make investments concrete by opening delivery centers and changing organizations and portfolios to meet new digital demand.

IBM Digital Front Office Pulls together mobile, social, business analytics; integrates IBM Global Business Services with IBM Software and IBM Research to drive holistic transformation for clients IBM Interactive Experience Fuses strategy, data and design from IBM Interactive and 100+ IBM Researchers from the Customer Experience Lab to drive personalization and business model redesign

Accenture Digital

Pulls digital marketing, mobility and analytics services into one organization

Accenture Strategy

Combines business, technology, and operations strategy services into one organization

IBM Global Cloud Footprint IBM is investing $1.2 billion in 2014 to expand its global cloud footprint to deliver cloud services from 40 data centers in 15 countries and five continents. IBM will open 15 new data centers adding to its 13 global data centers from SoftLayer and 12 from IBM.

Accenture IBM

TBR



Vendors will convert technologies and analytics outputs into client business value to succeed

Building

Capabilities Increasing Value

IT Services Key Trends and 2014 Outlook

2012 2013 2014

In 2012 it was about building capabilities — through acquisitions, alliances and innovations — in technology trends such as cloud, digital, mobility and analytics.

In 2013 vendors continue acquiring and partnering for technology-centric services to bring scale to their offerings. Clients are shifting from learning about emerging technologies to understanding exactly how those technologies disrupt business models, creating opportunities for IT services vendors.

In 2014 increased customer awareness and vendor capabilities will fuel rapidly expanding demand for emerging technologies, pressuring vendors to get to scale quickly.

TBR


PSP Research Current Topics 4Q13 Report Key Themes

• Select Vendor Reports: o Accenture o Atos o Capgemini o Cisco Services o Cognizant o CSC o Dell Services o Fujitsu o HP Services o IBM Global Services o Infosys o TCS o T-Systems o Wipro ITS o Xerox

• Benchmarks: Management Consulting, Healthcare IT Services, Public Sector, Global Delivery Market Landscape, Managed Private & Professional Services Cloud

Analyze leading and lagging performers and the go-to-market strategies and investments made by vendors to craft industry-specific solutions.

Analyze how IT services vendors position to take advantage of the changing security landscape. Assess vendors’ security offerings and how offerings are scaled.

Assess how vendors distinguish digital offerings from mobility and social consulting services and if vendors pair analytics with digital solutions. Compare and contrast industries that vendors target most for digital.

Vertical Strategy: Financial Services

Security

Digital

PSBQ 3Q13 Research Highlights and 2014 Outlook: 3Q13 Key Topics

TBR will analyze IT services vendors’ investments and strategies to expand capabilities in financial services, security and digital technology

TBR


Questions?

PSBQ 3Q13 Research Highlights and 2014 Outlook

TBR


Patrick Heffernan Senior Analyst and Engagement Manager, Professional Services Practice Email: [email protected] Twitter: @TBR_PatrickH Telephone: 603.758.1834

Ramunas Svarcas Senior Analyst and Engagement Manager, Professional Services Practice Email: [email protected] Twitter: @rjsTBR Telephone: 603.758.1833

James McIlroy Vice President of Sales Email: [email protected] Telephone: 603.929.1166

Elitsa Bakalova Analyst, Professional Services Practice Email: [email protected] Twitter: @ElitsaBakalova Telephone: 603.929.1166

TBR IT Services Vendor Benchmark Webinar Contact Information

Twitter: @TBRinc SlideShare: www.slideshare.net/TBR_Market_Insight YouTube: www.youtube.com/user/TBRIChannel





https://twitter.com/TBRinc

http://www.slideshare.net/TBR_Market_Insight

http://www.youtube.com/user/TBRIChannel

TBR


PSP Syndicated Research Coverage IT Services Vendors Public Sector Vendors Benchmarks

(Benchmark XLS data also available)

• Accenture • Atos • Capgemini • CGI* • Cisco Services • Cognizant • CSC • Dell Services • Fujitsu • Genpact* • HCL Technologies • HP Services • IBM Global Services • Infosys • KPN Corporate Market* • Tata Consultancy Services • T-Systems • Unisys • Wipro IT Services • Xerox Services

• Booz Allen Hamilton* • CACI International* • General Dynamics IS&T* • L3 Communications* • Lockheed Martin IS&GS* • ManTech* • Northrop Grumman IS&TS* • Raytheon Intelligence, Information &

Services*

• Global Delivery Market Landscape • Healthcare IT Services Vendor

Benchmark • IT Services Vendor Benchmark • Management Consulting

Benchmark • Public Sector IT Services Vendor

Benchmark • Software Alliance Benchmark

Healthcare IT Services Vendors

• Accenture HITS* • CSC HITS* • Dell HITS* • HP HITS* • IBM HITS*

Management Consulting Vendors

• Bain & Company* • Booz & Company* • Boston Consulting Group* • Deloitte Consulting* • McKinsey & Co.*

TBR Professional Services Practice Syndicated Coverage

*Semiannual publication

TBR

T EC H N O LO G Y B U S I N ES S R ES EAR C H , I N C .

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