EquaTerra Reports 2Q10 Demand Growth for Outsourcing and Third-Party Services Dips Slightly as Buyers Explore Alternatives
Dynamic Models Such as SaaS, BPaaS and
Other Cloud Services Stall Review Cycles Houston and London (July 15, 2010) – Organizational spending on third-party services continues to be dogged by uncertainties resulting in a persistent hesitancy to invest and slowed deal flow, according to EquaTerra’s 2Q10 Advisor and Business/IT Service Provider Pulse Survey.* Faced with modest demand and a questionable financial system, organizations remain focused on avoiding risks and conserving capital. Buyer interest continues to trend toward internal transformation efforts, shared services and, increasingly, pay-for-use cloud-based services.
“Organizations were expected to emerge from a long period of retrenchment in the first quarter of this year with a laundry list of things they wanted to outsource,” said Stan Lepeak, managing director of global research for EquaTerra. “While there is significant interest in conventional outsourcing, a growing number of buyers are also exploring options like virtual IT infrastructure and software as a service.”
Key Findings from EquaTerra’s 2Q10 Pulse:
- Overall demand for BPO/ITO slips slightly – Fewer global service providers (62 percent) cited growth in new deal pipelines, reflecting a drop in demand growth levels of nine percent quarter-over-quarter and three percent year-over-year. Only half of those service providers polled expect demand to increase in 3Q10, down seven percent from last quarter. Conversely, half of EquaTerra’s advisors, who provide a forward view of demand two to three quarters out, report demand growth is up, a four percent increase quarter-over-quarter and year-over-year.
Weak economy still driving outsourcing but interest is shifting toward new service delivery models – For the past nine quarters, EquaTerra has asked service providers and its own advisors to gauge how economic conditions are affecting outsourcing demand levels. While both service providers (50 percent) and EquaTerra advisors (47 percent) report the weak economy is still fueling outsourcing, these numbers reflect a year-over-year drop of eight percent and 11 percent respectively. A growing number of service providers (38 percent) cite the economy is now slowing/disrupting conventional deals, while interest in cloud-based services such as SaaS is gaining traction.
Growing demand in non-traditional functional and process areas – Demand for legal process outsourcing is growing in general and as part of a larger legal and compliance transformation effort. There also has been a spike in the size and scale of deals for outsourced real estate and facilities management as buyers attempt to consolidate existing efforts across business units, geographies and service providers. Demand for outsourcing in the energy and utilities sectors remains high and is expected to increase as these industries begin to tackle ambitious projects like the smart grid. Sweeping reform of the health care industry is expected to spur new initiatives such as electronic medical records and third-party administration services.
Economics of the Cloud Likely to Drive Adoption
Industry watchers expect the prolonged recession to speed the adoption of cloud services as thrifty buyers look for ways to increase capacity and capabilities without large upfront investments in infrastructure, software or complex implementation efforts. EquaTerra’s 2Q10 Pulse polled its advisors and service providers to gain insight into observed buyer adoption rates of cloud-based services in four general categories:
- Software as a service (SaaS) – Defined as use of an Internet browser to access software applications, eliminating the need to purchase, install, run and maintain the programs on internal systems. Overall, service providers cited higher levels of investment in cloud services than EquaTerra advisors, but there was consensus that SaaS is garnering the most activity and investment. Both service providers (53 percent) and advisors (19 percent) reported SaaS deployments were already underway with other projects scheduled to launch within the next 12 months.
- Infrastructure as a service (IaaS) – Instead of owning the underlying infrastructure (servers, desktops and network equipment), buyers access scalable IT capacity via the Internet as a service.
- Platform as a service (PaaS) –Accessing software development, data storage and hosting as a service over the Internet.
- Business process as a service (BPaaS) – Adapting business process outsourcing to the cloud computing model by bundling SaaS, PaaS and IaaS and delivering the service via the Internet. EquaTerra advisors generally characterized buyers as being more interested in IaaS and PaaS than BPaaS, while service providers (39 percent) reported buyers already have BPaaS efforts underway.
Advisors and service providers were also asked to gauge the impact of cloud services on enterprise software vendors and traditional outsourcing service providers and models. “Cloud technology in itself is evolutionary but its economics make it revolutionary,” says Lepeak. “The big hurdle is defining and implementing a strategy for adopting and managing these new service delivery options. Uncoordinated and uncontrolled adoption is a recipe for longer term problems that could undercut the benefits gained from cloud computing.”
About EquaTerra’s 2Q10 Pulse*
EquaTerra combines relevant recent research with trending data gathered through a quarterly survey of leading outsourcing service providers and EquaTerra’s own client-facing advisors to create the quarterly Pulse survey. For insight into the global outsourcing market and a comprehensive discussion of survey results, please register for EquaTerra’s 2Q Pulse Webcast Thursday, July 15, at 11 a.m. (EDT). Presenters: Brian Walker, managing director of IT Consulting in North America for EquaTerra, Nico Boot, executive director for EquaTerra in Europe and Asia Pacific, and Stan Lepeak, managing director of global research for EquaTerra. To obtain a copy of the 2Q10 Pulse survey, please contact Stan Lepeak.
About EquaTerra
EquaTerra sourcing advisors help clients achieve sustainable value in their IT and business processes. Our advisors average more than 20 years of industry experience and have supported more than 2,000 transformation and outsourcing projects across more than 60 countries. Supporting clients throughout the Americas, Europe, Middle East, Africa and Asia Pacific, we have deep functional knowledge in Finance and Accounting, HR, IT, Procurement, Real Estate & Facilities Management and other critical business processes. EquaTerra helps clients achieve significant cost savings and process improvement with internal transformation, shared services and outsourcing solutions. For more information, please contact Lee Ann Moore at +1 713.669.9292; www.equaterra.com.
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