The Magical Metamorphosis | Article

figuring out SLAs for outsourcing contractThe Internet is transforming outsourcing. And outsourcing is transforming the Internet. This interaction has produced new ways to outsource that were never possible before.

Thanks to the Internet, there are new flavors of outsourcing that could not have been possible in an unconnected world. Look at the Application Service Provider (ASP) model. Today, companies have the choice of buying either services or products. Before the rise of the Net, companies that wanted to use a specific application had no choice but to buy it. With the rise of the ASPs, smaller companies that did not have the capital to buy the application they needed now can afford to rent it from an ASP. For the first time, they can play on the same field with the big boys.

With the Internet, companies even have the ability to syndicate software. This new type of outsourcing supplier provides product extensions to business-to-business (B2B) Web portals. For example, Xelector, a syndicator based in Ireland, has an application that allows Web sites that sell automobiles to have the opportunity to sell auto insurance along with the vehicle purchase.
Portals are interested in working with syndicators because the price is right. Xelector shares all revenue with the portal. Better yet, the company charges its portals nothing for its services, being compensated by the revenue-sharing arrangement.

Syndicators Create a Win-Win-Win Situation

This is a win-win-win outsourcing situation. The car buyer has the convenience of purchasing the necessary car insurance right there. The portal can attract more customers because of its superior services without spending any additional capital. And Xelector, which has already built its working relationships with property and casualty insurance companies, makes money selling its product over and over again.

This revenue-sharing model has also helped governments migrate to the new economy. Because governments receive funds after an annual budget review, most don’t have the cash to create a Web portal or develop e-government services right now. But outsourcing providers with the ability to create revenue-producing Web sites are offering their services for free in return for a piece of the cash flow. An example is a Web site that allows citizens to apply for building permits online. Web developers are creating this application in return for half the permit revenue.

The Internet has also changed the way companies interact with each other. Today, companies don’t think twice about letting a third party host sensitive non-core or context functions. Who would have imagined a company handing over its financial functions to someone else?

Today companies whose business model is ecommerce depend on hosting companies like NaviSite or StrataSource to keep their doors open for business. If their Web sites go down, these companies are out of business since they have no external sales forces. Their entire economic fate depends on the success of their outsourcing providers.

While the Internet has transformed how companies outsource, outsourcing has also altered the Internet. Outsourcing has become the preferred business model for Internet companies.

The Need for Speed

Most firms understand that today’s world of business moves at Web speed. Taking two years to study and implement a change is now an historical luxury. Today it’s not unusual for a company to want to reengineer in 30 days or less.

Time to market is an overwhelming issue on the Net. No company can meet such a breakneck timetable without outsourcing.

Start-ups in the new economy are outsourcing from the outset. They understand the difference between core and context and outsource the contextual functions from the day they open their doors. Many of the Internet’s new applications wouldn’t have appeared with the speed they have without the aid of outsourcing. Outsourcing has given the founders the luxury of tunnel vision.

The Net has made the world of alliances come alive. Today, companies think nothing of aligning themselves with other companies to get the job done. One humbling characteristic of the new economy is that the knowledge a company needs to survive and thrive in this brave new world is not available at one firm. To craft the solutions a company needs to compete, it must work with many firms with differing competencies and strengths. The business challenge of the new economy is finding a way to bring all these players together to work as a harmonious whole.

I discuss all these issues in my new book, Turning Lead Into Gold. The Demystification of Outsourcing, that was published last month.

Lessons from the Outsourcing Primer:

  • The Internet has changed the way companies do business, creating new forms of outsourcing. And outsourcing has changed the Internet.
  • Alliances are becoming ever more important since no company has all the knowledge it needs to thrive under one roof.
  • Speed is crucial for marketing success in the new economy. Outsourcing is the only way companies can meet the new timetables.
  • Outsourcing is the preferred business model for Internet-based companies.

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