TCS CEO Rajesh Gopinathan says there have been mindless purchases of cloud services

TCS CEO Rajesh Gopinathan

There were over-excitement and mindless purchases of cloud services amid a pandemic-fuelled digital transformation and cloud-migration activities, said Tata Consultancy Services (TCS) CEO & MD Rajesh Gopinathan. Cloud service was one of the key drivers of strong demand and deal pipeline for TCS in the third quarter of FY23.

In an interview with Moneycontrol, Gopinathan said this in response to whether enterprises are reassessing cloud spending given the current macro economic challenges and trends of over spending on cloud last year for even basic workloads.

“There definitely has been over excitement on Cloud, and some amount of mindless purchases and mindless commitments. And I think people over-simplified the cloud proposition, saying that if I migrate to the cloud, I'm going to get a very variable-sized cost base. And it is going to be cheaper than my capex cycle,” he said.

The CEO added, “Technically, the ‘variablisation’ is true. But to get to that variablisation, you need to do the transformation of your application because just lifting your application from a datacentre kind of setup, and putting it into a cloud will not automatically get you a variablisation.”

Gopinathan explained that to migrate to the cloud mindfully, the companies would first need to modify or architect their existing applications accordingly, and that will require a certain amount of initial investment. Without this, cloud migration could be a “net costlier proposition.”

This will then lead to specific project-led cloud spending by companies, in an attempt to bring down cloud costs.

“Once you have architected it, it actually unleashes a second round of transformation, which is the right reason to go to the cloud. You can open up your architecture for much more composable functionality so that as your business model shifts, you will be able to move faster with it, or your upgrade cycles will be faster,” he said.

Gopinathan said that TCS is uniquely positioned when it comes to moving to the next phase of digital transformation, and has seen over two years of demand spike and cloud migration. From both cost optimisation and phase two of transformation deals perspective, TCS will be in a position to benefit in terms of deal wins.

Ultimately, he said, “Leaving all of it aside for an enterprise, the cloud is a much safer, much more reliable, and much more secure environment. So, enterprises are much better off in the cloud than in the data centre. But there is work to be done to realise the cost-benefit.”

Sharing his outlook on growth drivers for deal wins during TCS’ Q3 earnings announcement, Gopinathan said that a lot of work is happening on the cloud as a lot has been invested into it already.

“From actual project work related to the cloud, there's quite a lot of work yet to be done. We are very strongly participating in that. You can consider whether to call it digital transformation or not. But it is truly transformative. And that will continue well into the year,” he said.

N Ganapathy Subramaniam, COO, TCS added, “Tech spending is holding up specifically in terms of large deals related to cloud transformation.