Indian IT firms jump on cloud computing bandwagon

Indian IT firms may be forced to look beyond their bread-and-butter offshoring model, as a potential game changer in the form of "cloud computing", the hottest new buzzword in Silicon Valley, floats east.

Software makers are increasingly choosing to host their applications in data centres, allowing customers access via an ordinary Web browser, seemingly from the cloud of the Internet.

Such cloud-based software, also known as Software as a Service, or SaaS, saves clients the cost of buying licences and running programs on their own computers, while saving the software maker the hassles of deploying its application.

India's marquee tech firms like Tata Consultancy, Infosys and Wipro are aggressively moving into the cloud services business and helping clients implement their own software offerings on the cloud, and most already have a few cloud service offerings.

Cloud services cost less than traditional outsourced services, with savings of between 20 percent to 50 percent depending on the type of service offered, according to market research firms.

This would mean that India's nearly $60 billion outsourcing sector, whose mantra is cost savings, have little choice but to include cloud computing as part of their service portfolio.

IT firms' service offerings help clients build a framework and a platform to host the application, and they operate the cloud computing environment for services like corporate emails and document management services.

India's No. 3 outsourcing firm Wipro looks at cloud computing as a "game changer". Its acquisition of Infocrossing two years back gave it a footing in the technology and is helping bag deals in the infrastructure space.

"Given that the world will head towards cloud, this (Infocrossing) is our natural cloud in the United States," Suresh Vaswani, co-CEO of IT services for Wipro, told the Reuters India Investment Summit in Bangalore. "So if we have to launch infrastructure as a cloud, it will be on the back of Infocrossing."

Wipro has also been building data centres in the country and is implementing private clouds such as its recent partnership with business software maker Oracle.

"To offer the software as a service, companies have to have the basic infrastructure in place, which is the cake without the icing," said Seepij Gupta, manager for software & services and security solutions research at IDC India.

"The icing is the licence acquired for the software application, which are ready, but the basic cake still has to be developed," he said, adding that the adoption of cloud computing was increasing with time.

(For a graphic on Indian IT companies' share performance, click http://graphics.thomsonreuters.com/119/IN_ITSHPR1109.gif)

PAY AS YOU USE

The emergence of cloud computing could also usher in a paradigm shift in the revenue models of IT firms, requiring them to shift to a pay-per-use model from their current model of annual or bi-annual contracts.

"Clients want somebody who can put the money to build hardware and product capability, bundle it as a service and make it a pay for use kind of model," V. Balakrishnan, chief financial officer of Infosys, said at the summit.

Cloud computing removes the technology and the investment risk for clients, giving them a pay-for-use model which is a preferable, clear, variable cost structure, Balakrishnan added.

Web-based business software sales are growing briskly, with SaaS sales outperforming traditional software as the economy worsened.

Gartner Research now expects 2009 SaaS sales to grow 18 percent to $7.5 billion. The SaaS market is expected to grow at an average annual rate of 19.4 percent through 2013, easily outpacing the projected growth of the overall business management software market.

With such attractive growth rates, the Indian firms' larger rivals, like IBM Corp, Hewlett-Packard Co and Accenture Ltd, are increasing their presence in the cloud.

While hardware firms like IBM are setting up centralised cloud computing centres across the globe, the likes of Accenture are partnering with Microsoft to build applications with cloud capabilities.

Big names such as Amazon, Google and Microsoft also deliver a range of pre-packaged software services, while hot Web companies like Facebook use cloud computing to deliver services.

However, as with any new technology, teething problems such as acceptance by clients, large-scale adoption and start-up costs are likely to arise.

"The profit margins may not be too good and may be lower in the initial phase of the business," said Gupta of IDC India.

"But as the number of customers increases, the profits will increase and may even be better as compared to traditional IT services models, because of the economies of scale realised from a shared resource pool."

(For all summit stories click http://in.reuters.com/news/globalcoverage/summit)

(Reporting by Savio D'Souza in Bangalore)