I see dead outsourcers

They are walking around like regular IT companies. They don’t really see each other. They only see what they want to see. They don’t know they’re dead. I see them all the time. They’re everywhere.

Some of the smaller ones might live a bit longer, relying on their loyal customers. Until these customers realize they could have the same or better kind of service from a cloud provider at a lower charge. The medium sized ones will be the first to go. Their customers were driven by budget constrains in the first place and see oportunity to save even more money early on. The large ones will more likely transform into walking zombies for legacy services and applications, if they cannot adopt to a changing business model.

Every year the transformation towards a utility like cloud based IT is spinning faster and faster, driving the traditional outsourcing industry into the grounds with the only options to shatter or re-invent themselves.

The original promise of oursourcing was the story of cost savings, that never came. What happened in reality was, you paid them to take your operational risk for a price. The applications almost never changed and so did the administration of these applications. During the last decade the competition between outsourcing companies got a lot harder, so they started optimizing their operation, introduced “off shoring” (a.k.a. people that cost less), some eventually started to adopt automation for processes and administration.

But still, the applications never changed and the effort to keep them running was only modified through evolutional stages.

We are now facing the final steps of the demise of traditional outsourcing. Enterprises finally realized the benefits of cloud computing and are starting to move to cloud based or at least enabled enterprise applications. Users are forcing Enterprise IT to provide more flexible applications and services. They in turn either force oursourcing providers to change or switch to cloud application providers. Both puts a load of pressure to the providers, which start investing heavily in overdue transformations and new solutions.

Will these efforts be in time?

For some probably not. A few already started years ago and might have a chance to survive, but will all this work be enough?

Outsourcers focus on enterprise customers. These customers have a distinct number of applications and systems. The volumes of all enterprise customers, one large outsourcer handles still cannot compete with the likes of public cloud providers like Amazon, Google and Microsoft. This will result in a steep pricing difference, where public cloud providers will still have a larger marging in price ranges the “smaller” outsources will already struggle making any money at all.

In the long run, there will be no profit in providing traditional outsourcing services, if you are not running a million (physical) servers.

The future is cloud services! I can’t really recall how often I was told there is a lot of money to be made in transforming the traditional outsourcer into a service provider for “anything”.

The reality is, there are lot’s of enterprise grade services already out there. And even more startups trying to get their product developed to enterprise grade. There is not much value in building a service plattform for existing legacy applications, package it into digestible portions and selling it as a “cloud service”. In its core it will remain a legacy enterprise application, that just wasn’t made for this. Additionally getting it to work in this kind of environment will cost a fortune.

A more likely scenario would be the one of a service integrator. Find out which services perform well together, build integration templates and sell a combined premium service. But this would not require to be a big player in the outsourcing business. Any startup could do it with a minor investment in the concept.

For thos who haven’t realized it yet: This is The Big Switch right here.