Bulletin 1 INTRODUCTION This Springboard Research document analyzes the key trends in the India IT market in 2010, and previews the top trends that Springboard predicts will shape the local market in 2011. This analysis is based on Springboard Research’s continuous tracking of the major trends and developments in the India IT market over the year and includes ongoing primary research conducted throughout 2010 with CIOs and other IT and business decision makers, briefings with leading IT vendors, and analysis of publicly available information on IT companies, countries, products, technologies and services in the region. INDIAN IT MARKET– IT SPENDING AND USAGE ON UPWARD TREND India is among the few economies that stood tall after the global financial crisis mainly due to the country’s healthy financial sector, favorable population demographics, greater domestic consumption, and inherent resilience. The Indian economy registered growth of7.4% during 2009-2010, supported by several government initiatives that enabled development across various sectors. The contribution of agriculture to the overall Indian GDP has declined in recent years and that trend is expected to continue in the future. This highlights the transformation of the rural economy from agriculture-based to a more balanced mix of sectors. According to Springboard Research, this shift will generate further self-employment and empowerment of the rural population. This in turn will increase the technology requirements of the rural population, which will boost IT investment. India’s GDP is expected to grow more than 8% between 2010 and 2015 and the IT market will keep pace with a CAGR of 13.2% from 2010 to 2015, at a rate of 1.6X of GDP. The key INDIA IT MARKET PREDICTIONS 2011 A Changing Vision Authors: Springboard India Analyst Team Date: January 05, 2011
This Springboard Research document analyzes the key trends in the India IT market in
2010, and previews the top trends that Springboard predicts will shape the local market in
2011. This analysis is based on Springboard Research’s continuous tracking of the major
trends and developments in the India IT market over the year and includes ongoing
primary research conducted throughout 2010 with CIOs and other IT and business
decision makers, briefings with leading IT vendors, and analysis of publicly available
information on IT companies, countries, products, technologies and services in the region.
INDIAN IT MARKET – IT SPENDING AND USAGE
ON UPWARD TREND
India is among the few economies that stood tall after the global financial crisis mainly
due to the country’s healthy financial sector, favorable population demographics, greater
domestic consumption, and inherent resilience. The Indian economy registered growth of 7.4% during 2009-2010, supported by several government initiatives that enabled
development across various sectors. The contribution of agriculture to the overall Indian
GDP has declined in recent years and that trend is expected to continue in the future. This
highlights the transformation of the rural economy from agriculture-based to a more
balanced mix of sectors. According to Springboard Research, this shift will generate
further self-employment and empowerment of the rural population. This in turn will
increase the technology requirements of the rural population, which will boost IT
investment.
India’s GDP is expected to grow more than 8% between 2010 and 2015 and the IT market
will keep pace with a CAGR of 13.2% from 2010 to 2015, at a rate of 1.6X of GDP. The key
verticals that will contribute to the growth are banking, telecom, the public sector,transportation and logistics, and real estate. A decrease in governmental regulatory
measures will provide further impetus to investment in India, which will lead to higher IT
consumption. Furthermore, government IT spending has grown, driving increased
domestic demand for IT services. Favorable policies designed to help IT companies
increase their footprints in India will help increase investment as well. In addition, higher
mobile and broadband penetration will lead to higher consumption of technology through
real-time access, and mobility solution development will provide new revenue streams for
IT companies.
While the movement from “CAPEX to OPEX” clearly began years ago, its pace is
accelerating quickly and reaching into more corners of Indian society, government and
business. Springboard Research observed a shift in IT’s role within companies from a
business enabler to an innovation and profit center. As such, Springboard Research
believes that CIOs must strike a balance between positioning their department as a cost
center and strategic enabler. This shift in focus does not imply that CIOs are any less
powerful moving forward. However, we strongly believe that CIOs have started to
understand and follow this overall evolution and are applying it to their businesses and
instead staying focused on underlying technologies only.
On the connectivity side, India’s telecom market is undergoing a rapid technological
change. As competition is expected to further increase between players, telcos will be
forced to be innovative with content and application creation. For example, Aircel has
already adopted managed value-added services (VAS) even before rolling out 3G services.
Aircel has also tied up with Comviva to manage all its VAS content from various VAS
providers. We will see similar interesting and innovative partnerships in the future, which
will help telcos to be focused on business expansion, brand management, and innovative
content development. This comes as good news for IT vendors as a large amount of
spending by telcos will be on IT-related areas.
2010 PREDICTIONS: A REPORT CARD
Before we provide our key predictions for 2011, we like to remain accountable to last
year’s predictions for 2010 as published in our 2010 India IT Market Predictions document
(December 2009).
Table 1 presents a report card of how we believe we fared in our predictions. Plus signs (+)
represent predictions we believe proved themselves to be accurate, equal signs (=) reflect
predictions that were neither fully right nor wrong and negative signs (-) represent
predictions that we believe did not prove to be accurate.
Overall, market conditions and trends matched our expectations in 2010 relatively closely.One area that did not develop as quickly as we predicted last year was the growth of
desktop virtualization. Although gains were made and more organizations tilted their
client strategies toward virtualization, most organizations did not consider the business
case compelling enough to prioritize this area for investment in 2010. For the most part,
however, our predictions held up relatively well as the year unfolded.
Table 1: 2010 Predictions: Hits and Misses
What We Predicted for 2010 How We Fared
Analytics and the Advent of “Intelligent Solutions” will Drive New
Business Value +The Convergence of Computing Platforms Accelerates + Rural India IT Solutions will Make Steady Headway Via Public and
Private Sector Investments + Virtualization Plays an Increasingly Critical Role on the Desktop - Business Enhancement with Existing Vendors and Geographic
Expansion will Drive Strong Focus from India’s IT Channel
Community + Government Projects will Fuel Smart Card Technologies + A Wave of Innovative New Payment Technologies Emerge + Online Developer Platforms and Communities Are the New
Ecosystem Battleground and Epicenter of Application Innovation +
Mobile Social Networking Goes Mainstream
=Business Leaders will Drive the Proliferation of SaaS Applications +
HCL Technologies is among the few Indian IT companies who have performed remarkably
well in the recent past. Springboard believes that the company’s efforts to pursue
continual growth outside the U.S. and Europe markets has started to pay off, especially in
India - thanks to its timely focus on growth areas and increased attention to the domestic
market. Springboard estimates that HCL Technologies’ revenue from the domestic market
grew around 26% YTY in the last fiscal year. Although the revenue base from India is still
small, it’s growing at a fast rate.
The company has built a healthy pipeline across industry verticals by winning several dealsin 2010, including the US$100 million contract to provide outsourcing services to an Indian
power utility company and the supply of 100,000 tablet devices to the government for
mass education purposes. Also, the company further strengthened its base in the BFSI
sector with some major wins in banking and insurance.
Springboard Research’s decision to choose HCL Technologies as the Indian IT company of
the year is not only due to the company’s increased focus on India and impressive revenue
growth and client acquisitions, but also for the impetus shown to align its business model
in-sync with the government’s agenda of mass education through low-cost devices.
Springboard appreciates HCL’s efforts and believes that the prospects for the company in
India are bright with visible opportunities in the BFSI, telecom, government,
transportation, and other sectors. Springboard opines that strategic local partnerships and
its inorganic route to growth can prove to be instrumental in driving the growth HCL is
looking for. The acquisition of a mid-size domestic company could help HCL develop a
strong foothold in India quickly. Springboard is confident that despite competition from
prominent vendors, the company will show steady progress in the domestic market.
IBM/Netezza – Acquisition of the Year
It was more difficult this year to select the acquisition of the year than in previous year-end reports. After some internal review and debate, we selected IBM/Netezza as the
acquisition of the year not because it was the largest, but because we believe it best
epitomizes some of the key trends shaping the market as we look ahead: the convergence
of hardware, software and services into single devices or appliances; smart computing and
the need to bring analytics out of the board room exclusively and into the hands of the
workforces, though not exclusively. Collaborative analytics will further evolve beyond2015 and become entrenched as part of the business intelligence solution portfolio.
On the desktop, dynamic reporting capabilities will also be increasingly embedded into a
wider range of applications, including non-transactional environments such as intranets
and content-rich portals. As reporting becomes more contextually aware (and therefore
more valuable and relevant) even higher end-user expectations and demand for richer
functionality and greater mobility will begin to affect current reporting and analytics
strategies.
#2) Cloud Computing – From Silver Bullet to Just Another Sourcing Option
Throughout 2011, the cloud-related hype of 2009 and most of 2010 will steadily give way
to a more sober, and realistic understanding of the relevance and applicability of cloud
computing among CIOs and other senior IT decision makers. Springboard Research has
long argued that at its core, cloud computing is nothing more than a sourcing option.
More to the point, it is one of many valid sourcing options IT organizations must consider
alongside traditional approaches, including both on-premise deployments and hosted
solutions. Far from expecting cloud computing to replace all other approaches to
application deployment/service delivery, IT decision makers must determine the optimal
sourcing option for various services based on criteria including usage scenario, scalabilityrequirements, IT skills availability, and types of workloads being enabled.
The debate over public versus private versus hybrid approaches has led to further cloud-
related market confusion over the past 12 months. Ironically, however, through 2011 this
debate will actually serve to help organizations better understand and therefore position
cloud-based approaches relative to existing IT initiatives. As IT (and many business)
decision makers educate themselves on the distinction between internal versus external
service deployments, and between dedicated and shared access, they will better
understand how the various cloud approaches compare with other, existing approaches
within their organizations. Over the next 12 months, we expect cloud computing to
increasingly be considered alongside (and often compared to) other, related sourcing
approaches, including those offered by more traditional outsourcing vendors and hosted
service providers.
Per Springboard Research, Indian organizations are currently far more receptive to cloud-
related marketing messages than other organizations in APEJ region, with only 19%
viewing the cloud as “over-hyped.” In terms of overall spending, the public cloud market
in AP remains dominated by software-as-a-service (SaaS) solutions. Among Indian
organizations, SaaS offerings, storage and enterprise applications (BI, CRM, ERP, etc.) are
the most widely adopted. Springboard Research expects this adoption to evolve
significantly over the next 12 to 18 months as demand in other areas, including cloud-based web conferencing and email, increases. However, we expect infrastructure-as-a-
service (IaaS) offerings from both cloud providers as well as more traditional telco
providers to grow rapidly. For scenarios like app dev/test and sourcing of excess
computing capacity, cloud computing is typically far more flexible and cost effective than
traditional sourcing options.
For CIOs and IT decision makers, cloud-related security concerns will subside slowly
throughout 2011 as the approach is more fully understood. Instead, concerns will center
around interoperability and integration of systems, data and processes likely to be
accessed across multiple internal and external deployment scenarios.
#3) Managed Services Providers Innovate to Drive Added Value
The managed services market has transformed from body shopping contracts or facility
management services to a process-oriented delivery model. One of the most important
milestones in 2011 will be the expansion of managed services beyond basic infrastructure
management to include more application-related services. As more organizations seek to
reap the benefits of a better integrated approach to managed services, there will be a
clear move toward application outsourcing that combines infrastructure and application
management to yield better application performance at a lower cost. As this trend
continues to gain strength, the lines between SaaS and managed services will increasingly
blur.
Managed services providers (MSPs) will be forced to innovate with new business and
delivery models based on reliable, standardized and scalable platforms and develop
specific SLAs for the management of these extended environments. We will see more risk
and reward deals with tighter SLAs and clients that are not afraid to enforce the contract’s
penalty clauses. IT automation and “non-linearity” will fuel efficiency, productivity and
higher margins for MSPs. Service providers will continue to adopt integrated and open
platforms for remote monitoring and management of both infrastructure and
applications.
Managed services will continue to be influenced by cloud computing throughout 2011. We
expect to see further consolidation and commoditization of IT managed services with
services like monitoring, tracking, patching, and performance reporting increasingly
delivered via the cloud. As these dynamics take hold, traditional IT managed services will
morph toward the cloud and we will see a new set of market conditions. The Indian
services market is relationship-based and requires a high touch point. Building the right
incremental sustainable business model through technology will help them reap long-termbenefits through the development of the rural banking market.
#5) IT Distribution Channel Partners Accelerate the Evolution of their
Business Models
Distribution channel partners are in a particularly vulnerable position as the IT market
moves quickly toward cloud computing. The days of surviving on business models
dependent on distributing generalized IT products with razor-thin margins and living day-
to-day on cash turns supported by vendor-provided credit are quickly coming to a close.
To make matters worse, the traditional large-scale SI deals that supported channelpartners for years are increasingly disappearing or are being won and delivered by
vendors directly. In 2011, regional system integrators (SIs), value-added resellers (VARs)
and distributors will be forced to better develop specialties by vertical industry and
business solution to deliver the customer value required to survive in a cloud-enabled
market. Already being pushed by their vendor suppliers to invest in skills around high
growth solutions, channel partners will need to elevate their customer intimacy and ability
to deliver clear business value.
Springboard Research believes that channel partners will continue to play an important –
but not a dominant – role in helping customers procure SaaS and cloud-based solutions. A
recent Springboard survey revealed that Indian organizations place the highest value on
cloud-related channel partners in the region, well above the regional average, as 59% of
Indian organizations believe channel partners are helpful when buying cloud computing
services/solutions. This trend is likely to accelerate in the coming years as a cloud channel
further develops and SaaS vendors reach a ceiling on how much their direct sales force
and the web can achieve. Areas where distribution channel partners will play an important
cloud role are outlined below:
Advisors and Integrators: Local partners with intimate customer relationships will
need to play the role of an integrator, combining existing platforms at customer sites
and newer cloud offerings. In a recent Springboard study, 43% of SaaS users
integrated their SaaS application with another on-demand or on-premise application.
In a hybrid model, customers who have made substantial investments in existing IT
assets will require integration work when a cloud-based application is added.
Customization: A recent Springboard Research survey found that 52% of SaaS users in
2010 customized their on-demand application in some way, which provides a
considerable opportunity for channel partners familiar with local market conditions
flexible capacity and performance options). Also, telcos plan to roll out location-basedservices and real-time solutions in India.
Compared to cloud computing “pure-plays,” telcos have a significant advantage because
they have existing relationships with a substantial customer base. Even a small percentage
of existing telco customers adopting cloud-based value-added services would be
significant compared to the marketing momentum (and investments) required by start-
ups.
The goal for any cloud service provider during 2011 however, will be to prove assumptions
about exploiting efficiencies, cost advantages and the ability to productize for a massmarket on a cost-effective basis. These are generally key differentiators for telcos offering
cloud-based services versus more traditional IT players, including enterprise application
vendors, infrastructure vendors and more traditional hosted service providers.
Nonetheless, telcos are significantly constrained by their own marketing vision, their
ability to communicate that vision and the ability to execute it. This next year will be the
time when these assumptions are tested in reality.
Given the key characteristics of the cloud (network-based access, usage-based pricing,
shared resources leveraging, automated provisioning), telcos appear to be extremely well-
positioned to benefit from the massive market opportunities that cloud computing will
likely provide. However, significant challenges and barriers still exist that will be difficult,
even for the larger telcos, to overcome. The upcoming year will test telco infrastructure
and support services, including responsiveness to customer requests/issues, the ability to
adequately address “unique” scenarios or requirements that fall outside standard
offerings, and an overall ability to recognize and respond to the changing demands of
small and medium-sized businesses in a timely manner.
Springboard Research believes that 2011 will see telcos increasingly provide cloud-based
services – whether based on infrastructure or applications. However, by 2012-2013, only a
limited range of services will ultimately be offered. This will bring some market instability
with enterprise customers unclear and unconvinced on which services will be maintained
long term. Organizations should therefore carefully assess their risk when short-listing
telco providers – whether small or large – for sourcing cloud-based solutions and/or
services.
#8) New Market Opportunities to Drive IT Investments from Enterprises
As the Indian economy continues to grow, enterprises will use technology to further
strengthen their presence in tier 2 and 3 cities in a bid to target new market opportunities
in the country. This will lead to greater technology consumption. The increased enterprise
focus on expanding their presence in smaller cities is due to a number of reasons,
including lower cost of operation, and increased competition in metros and tier 1 cities. Inaddition, increasing mobile and broadband penetration in tier 2 and 3 cities will lead to
greater consumption of technology through real-time access and mobility solution
development.
From the SMB standpoint, cloud computing with its asset-light model, could become a
priority in terms of investment to expand geographically. The segment will be more
interested in IT investment using an “OPEX” model as it will help them focus on new
market opportunities in tier 2 and 3 cities, while leveraging technology to gain first-mover
advantage.
Enterprises will continue to expand their presence in smaller cities for business growth
and they will leverage technology to increase reach and to provide value-added benefits
for Indian consumers. In 2011, vendors will heavily promote “vertically integrated” stacks
as a means of differentiation and in an attempt to address the requirement for
simplification of the technology environment. Springboard Research believes that IT
companies need a multi-dimensional customer-oriented approach that aims to identify
new markets, enabling market penetration and increasing engagement with present
customers. However, to achieve this multi-pronged goal, vendors need to understand the
strategic value drivers that businesses look at while investing in IT.
#9) Information Security Becomes a Key Priority for Government and
Enterprises and Sparks Client Virtualization
WikiLeaks most recently demonstrated the damage that can be caused when information
assets are not properly protected. When rumors surfaced in late November that
WikiLeaks would release confidential information about Bank of America, the company’s
shares dropped 3%. The risks to organizations when unprotected information is released
can include reputation damage, competitive losses and even criminal charges, which is
coming into greater focus with every new leaked document. In addition, sophisticated and
targeted attacks on government systems have added significant security concerns. As
such, government spending on Internet security will get a boost in India. In 2011,
governments and large enterprises will invest far more in technologies, services and
business processes to protect sensitive information assets.
The increase in the sophistication of information threats in the country will propel
adoption of advanced network security solutions
Improved information security measures will bump up against – and be challenged by – a
number of the strongest trends driving the IT industry in 2011:
