Indian firms go missing on the big cloud stage-show

Cloud computing has the potential to generate more than $100 billion in revenues — nearly twice the size of India’s IT industry —  but Indian firms are at risk not only of just missing the bus, but also of getting run over.

Analysts Kash Rangan, Tal Liani, Justin Post, David W Barden and Scott D Craig of Bank of America Merrill Lynch say 2011 will be the ‘year of the cloud’ in a note last week.

They also detail the segments within which this new phenomenon is likely to make its impact.

According to the quartet, the cloud providers will be divided into three tiers — those who provide the hardware, those who own the software platforms and those who use the platforms to sell their applications to consumers and companies.

The latter has the biggest chunk of the overall cloud pie; at $48 billion — the same as India’s overall IT and BPO exports last year.

The application providers will be followed by those who set up the hardware (data centres and wiring) for putting up cloud, with $39 billion, and followed by those who offer software platforms — similar to operating systems — for the cloud ($26 billion).

However, like many other cloud-related forecasts, none of the prominent Indian firms figure in the leaders in any of the three areas, while their international competitors like IBM, Dell and Hewlett-Packard are well placed to tap into the cloud growth.

Commenting on the lack of big Indian brands among the pioneers of cloud computing, Standard Chartered equity research points out that though the opportunities are immense, the big Indian players are unlikely to capitalise on them immediately.

While top Indian names like Infosys, TCS and Wipro have spoken glowingly of cloud-related opportunities, none have been able to make their presence felt on a global stage in terms of innovation or scale of roll-out.

Cloud is expected to threaten the business model of Indian IT services firms as much as those of traditional ‘packaged’ application providers such as Microsoft and SAP.

Analysts Pankaj Kapoor and Apoorva Oza of Standard Chartered, in another note last Thursday, while acknowledging the ‘immense opportunities’, point out that Indian firms are still getting to grips with the shift in IT business model from products to services.

“We are unsure of the pace of acceptance of the concept (of services-based IT architecture) and, thus, its contribution to incremental revenues over fiscal 2010-13,” Kapoor and Oza wrote.

They also pointed out that the likes of IBM and HP — who compete with Indian IT services firms globally — are better placed to ride the initial cloud wave since they also have their own hardware or equipment businesses.

“The likely adoption of ‘infra’ ahead of ‘applications’ as services could place global players such as IBM and HP in a better position to address the initial demand, in our view,” they added.

Another reason, pointed out by Infosys CEO S Kris Gopalakrishnan is that cloud is coming from the “consumer” side of IT, such as email, word-processing etc, while Indian companies have traditionally focused on the enterprise side of IT.

“Over time, you will see business functions - HR, procurement and others - on the cloud. That’s when our (local tech companies) share in the cloud market will surge,” he said, adding, however, that they all need to start now.
All the top Indian IT firms have had teams of engineers working on ‘cloud offerings’ for two or more years, but are yet to achieve global recognition for their products.

Gopalakrishnan’s argument is also partly borne out by the data collected by the Merrill analysts on the total addressable market for cloud.

Despite the hype, it points out that ‘on demand’ software services are expected to have generated a meager $14 bn in revenues in 2009, compared with $87 billion generated by the sale of client-server applications during the year.

There is, however, nearly $48 billion of addressable market for cloud-based applications alone (excluding hardware and platforms), but nearly 60% of that is in the office-related “collaboration” and “productivity” segments - outside the focus area of Indian IT firms.

Only the remaining $20 billion market is in areas such as customer relationship management (CRM), HR, finance and accounting etc. where the Indian biggies tend to focus.