In recent times, we have seen an increasing number of deals where the required services have been delivered from the cloud, i.e., from remotely hosted solutions, usually (albeit not always) offered on a “one to many” basis and on a subscription/usage based model. This is obviously a trend that has been building over the last few years in any event, but what is particularly interesting at this point is the way in which the size and sophistication of the cloud-based offerings has developed so as to encompass the kinds of services which might hitherto have been the subject of some form of outsourced service solution.

One can readily see why this might be the case. A driver for many outsourcing projects is the desire of the customer to “transform” its legacy IT infrastructure and to create additional flexibility….and this is clearly something which can be well facilitated by a shift to a cloud solution, where the need for the customer’s own infrastructure can be largely done away with. Even if the entirety of the outsourced solution cannot be shifted into the cloud, it is possible that elements of it at least can be.

So what then will the impact of this be upon the wider outsourcing market? Time will tell, but for the time being, there are at least two obvious consequences:

  1. Customer expectations on contract provisions are being challenged. Cloud service providers have – until recently at least – been able to promulgate some highly restrictive standard contract terms, relying in particular on the argument that their “one to many” service delivery model means that they cannot accept many of the traditional obligations and liabilities which a customer might expect. Customers who are therefore now looking to procure cloud based solutions for services which they might previously have outsourced can therefore get a nasty surprise when they see the contract provisions which are proposed to underpin the services. However, as the market matures (and in particular as competition grows and the size of the deals get larger), we see a more flexible approach developing from many if not all of the major cloud suppliers.
  2. There is increased pressure on those outsource service providers who have made best advantage of their offshore delivery capabilities and so as to make use of the labour arbitrage that offshoring provides. This has however in no small part been dependent upon the end customer having its own infrastructure and set of applications which needed support, even if to be done remotely. Clearly, the more that the customers embrace cloud solutions, the less of their own infrastructure and application stacks they will need….and the less demand in turn they will have for the “traditional” offshore outsource model.

Pandora’s Box is well and truly open in this regard.