The three most important letters in the English alphabet for the year 2000 just might be ASP. Although she predicts a lot of big network operations deals this year, especially outside the US, Rita Terdiman, vice president and research director of GartnerGroup, says most numbers in the growth rate of outsourcing will remain about the same in 2000 as they were in 1999. “The real growth acceleration will be in applications outsourcing,” she says.
Terdiman, who has followed the outsourcing market for ten years, says there is not much change from year to year.” Outsourcing just kind of goes along, with small changes but nothing dramatic. To me, the real change in the industry is the application service provider (ASP) model and the Internet. Those are going to be dramatic, as opposed to gradual changes.” Terdiman says she presented a speech in late 1999, which actually had only one slide that was not on the topic of ASPs. She notes also that she is aware of some large companies already talking about outsourcing to an ASP.
She believes BPO deals are definitely a trend and that we will see more and more of them. They are not a recent phenomenon, but we did not hear about smaller BPO deals, she explains. Recently PricewaterhouseCoopers announced a $1.1 billion finance and accounting BPO contract, and she believes Exult (a global HR provider) will soon announce some really big deals.
E-mail outsourcing and disk storage outsourcing also hold a great deal of potential, she thinks. “But the biggest area of growth is e-commerce. We are going to see a lot of new stuff there–whether it’s web hosting or applications hosting, or back-end logistics, back-end distribution and payment services and transactions services. I think the whole e-commerce area is one where you are going to see far more activity being outsourcing than being done in-house. She also believes that there will be a lot more government outsourcing this year on the federal level.
Predicting the growth of outsourcing on the international arena, Terdiman says it will happen everywhere. Asia will adopt outsourcing because of their financial crisis, and it is hastened in Europe by deregulation. There is also a lot of activity in Latin America. “Its time has come,” she says.
“E-commerce outsourcing and e-business solutions outsourcing will cause a whole new set of vendors and services,” Terdiman says. “So we will see a whole bunch of new niche players arising out of that area. And then you’ll see increased opportunities for existing players–like a CSC?on the side. I think ultimately everyone else will get in the game?whether it’s the software vendors or the telecos or the large traditional outsourcing vendors.”
Terdiman thinks that there will be increased use of the joint venture spin off model. “All the analysts talk about it, and it is certainly an area that makes a lot of sense,” she says. “But there are so many difficulties with it. I don’t know why vendors haven’t copied this model, but I think it’s because you really need a great partnership and understanding with the client. Still, I think you are going to see more and more of these over time.”
There is no doubt, she says, that going offshore enables an outsourcer to perform services better, cheaper, faster. It was developed in India, and the model has been successful. “But India is actually seeing a fair amount of inflation now,” she comments. “In certain areas–like project managers–it’s really tight. So, on to other regions for duplication of this popular model.
“You have to look where there are tons of people,” Terdiman explains. “In the Middle East, Israel is really very good for very complex applications, but how many people are there? Same thing with Ireland and South Africa. If you want to really make a dent on the world market, you have to look at a place like China. I think it will more likely come out of Eastern Europe once they get their infrastructure controlled.”
The concept of shared services, applied to IT rather than other functions, is one that several of the larger outsourcers are implementing. Terdiman predicts the IT utility will be very big this year.