Infosys, India's second largest outsourcing firm, is to offer cloud business applications on a subscription basis. According to the company's new CEO and managing director, SD Shibulal, the company's strategy will be to focus on developing new intellectual property in order to boost revenues.
The company has so far signed 20 large enterprise clients for its business platforms delivered through the cloud, said Shibulal, former COO who took over at the outsourcer this month.
The company has rolled out applications in the areas of human resource, procurement, social commerce and digital marketing, in addition to a white-label app store that offers services to mobile telephony operators, Shibulal said.
Infosys this month also launched its TalentEdge cloud platform that brings together processes to help enterprises streamline HR (human resources) operations and free up time spent on transactional HR activities such as payroll, attendance and benefits processing.
"We build the intellectual property, and charge the customer on a pay-per-use model," Shibulal said.
The company also offers IT services to customers setting up clouds as part of its traditional IT services business.
Clients are interested in business platforms and applications because they can help avoid capital expenditure, Shibulal said. However, adoption of the cloud is still plagued by issues such as concerns about security and integration of data across the organisation, he added.
Analysts are cautious however, as this may be the wrong time for Infosys to roll out business platforms, as IT budgets in key markets such as the US are likely to see dramatic budget cuts. "Customers will put on hold investments in discretionary applications around new technologies such as cloud, mobile and social networking," said Sudin Apte, principal analyst and CEO of research and advisory firm Offshore Insights.
Infosys will also be competing with companies that have built strong brands in the cloud applications business in addition to traditional outsourcers, Apte said. The delivery of cloud applications require large investments in the back-end as well as large scale operations, which Indian outsourcers may not be able to achieve with a few point solutions, he added.
Pricing model clash
Infosys and other Indian outsourcers are largely tied to a 'time and materials' model, wherein customers are typically billed for the number of people working on a project and its duration. Infosys has set up a large centre to train 14,000 staff at a time, and this year plans to hire another 45,000 staff.
Shibulal claims that the model is however untenable in the long term, as you just can't keep hiring more and more staff to get more revenue. The company is investing in intellectual property and in revenue models that will be "non-linear" in relation to the number of staff deployed, he says.
The company is aiming to reduce its revenue from its core business in application development and maintenance and other IT services to about one third of revenue over the next five to seven years, with business consulting and systems integration contributing another one third of revenue, Shibulal said.
The balance of revenue will come from cloud applications and a new products and platform business that focuses on creating products and platforms. Customers will pay for a single licence fee, per transaction or through royalties. Consulting and system integration currently account for about 25 to 27 percent of revenue, while products and platforms only account for about 7 percent.
Infosys will not resell cloud applications from other software vendors, though some of its applications use software from Oracle and SAP as the underlying platform, Shibulal said. TalentEdge is for example built on Oracle's PeopleSoft Human Capital Management Suite.
Infosys offer its platforms from a private, hybrid or public cloud, and has already tied with data centre providers, Shibulal said.
Cloud platforms and products will change Infosys' business model, he adds, as the company has to invest upfront in technologies and intellectual property and wait for revenues to kick in.