The Emergence of a New Market Order

By Kapil Dev Singh Feb 1st 2009

The domestic IT/ ITES market has come of age, with revenues estimated to cross Rs 100,000 crore in 2008. Phase 1.0 was about high growth with a moderate revenue base. Phase 2.0 will be about moderate growth rate with a high revenue base.

The domestic IT/ ITES market has come of age, with revenues estimated to cross Rs 100,000 crore in 2008. This indeed is a result of the great run the market had in the last five years, when the Indian economy grew consistently at nine percent. When seen from the perspective of life cycle concept, the market is clearly in the growth phase since 2003. The growth phase is expected to continue further, but a new market order is shaping up. The market is currently under transformation, and the next five years of growth will be quite different from the previous five. These sub-phases of growth are termed as growth phase 1.0 (2003-08) and growth phase 2.0 (2008-13).

If phase 1.0 was about high growth with a moderate revenue base, phase 2.0 will be about moderate growth rate with a high revenue base. Phase 2.0 will be quite different from the phase 1.0, with a new market order emerging. The key-defining theme has evolved from infrastructure build up (focus on products) to infrastructure consolidation (focus on management of the IT infrastructure) and this will become infrastructure leveraging (focus on innovative services through orchestration of different pieces of IT infrastructure).

Going by the natural law of business cycles, 2009 was expected to be the pivotal year for this transformation to happen, which only has become more pronounced with the current economic meltdown. Hence, it is quite important to have a short-term outlook for 2009 and a slightly longer-term outlook for the next five years.

The outlook for 2009 is essentially about adjusting to the challenges thrown by the economic slowdown, which means lower revenue growth. With most of the businesses finding the cost structures becoming rigid over the last five years’ continuous growth run, there is immense pressure on profit margins and cash flow. Hence, IT suppliers and builders need to understand this pressure point and see how IT can help enterprises, both large and SMB, manage with lesser budgets and do so efficiently, hence bringing business benefits. Areas like virtualization, green IT, unified communications, managed services, outsourcing, etc, makes immense sense for the IT user now than ever before.

Considering the longer-term outlook, what gets adopted in the shorter term, as a result of cost pressure, will pave the path for the evolution of the new business and cost models. An integrated view of IT, capable of being leveraged for delivering new innovative services for the users, for both enterprises and consumers, will emerge. The five important aspects, which will be most relevant to this new view, are:

Deep understanding of users’ business and the innovative ways in which IT can be leveraged to provide unique services to their customers. The focus would shift from supplier’s own customers to customers’ customers.

IT Infrastructure optimization as the key defining aspect for technology adoption, aimed at increasing the efficiency of the IT assets deployed.

Cloud Computing’s’ transit from being a trend to becoming mainstream, with current experiments paving the path for large scale adoption.

-Consolidation in the IT Outsourcing market in favor of the larger players.

-Evolution of Consumer 2.0, demanding unique services. These services will be possible through optimum orchestration of the three Cs — content, convergence and connectivity.

With this transformation, the role of channel partners will also undergo shifts. Channel partners will have to decide clearly, which of the possible positionings they want to adopt — retain the focus on distribution business or move up the value chain through specialized IT products & services or build innovative delivery models through the use of internet and the new paradigm emerging. Whatever they do, 2009 is the year of choice, which will define their fate during the next growth phase 2.0. 