In the financial results of Indian IT services companies, one cannot miss the mention of remote infrastructure management as the service offering for the future. As most companies see stagnation in the growth of ADM and BPO services, remote infrastructure management is one service offering that is expected to drive future growth. The acquisition of Infocrossing by Wipro for $600 mn (that was primarily aimed to plug gaps in hosted and managed IT infrastructure services) made the biggest news in recent times. Taking into account the growing remote infrastructure management services, and how India is emerging as a leading offshore destination for this business, Nasscom and McKinsey conducted a comprehensive study titled The Rising Remote Infrastructure Management Opportunity: Establishing Indias Leadership, highlighting and providing a deep insight into this sector, which most IT services vendors and some specialized players based in India are eying. According to the study, the global remote infrastructure management (RIM) industry has grown at more than 80% CAGR, from $2 bn in 2006 to $6 bn in 2007 to $7 bn in 2008. According to KS Ganeshan, chief technology officer and VP, Engineering, Microland, Infrastructure outsourcing was done by way of network services from companies like AT&T but the delivery model is changing fast and companies are looking at what can be remoted. He adds: Earlier, people were used to seeing engineers near or on location, but over a period of time, that is getting redefined. This has broken down into a global delivery model, just like a software that can be shipped wherever one wants. Now this is possible with infrastructure as well, more importantly the remote part of infrastructure.

The Billion-dollar Opportunity
The study pegs the addressable market for RIM at an estimated $96-104 bn after discounting for infrastructure management spend in low-cost countries, defense and government budgets, small enterprises, services that cannot be off-shored, and value captured by customers. This emerging segment is comparable to the offshore ADM opportunities. According to a McKinsey survey undertaken lately of over 140 CIOs, while 10% of the CIOs surveyed in 2006 had off-shored parts of infrastructure, the number had increased to 27% by 2007. The study also concluded that those who had plans to offshore parts of infrastructure services over the next three years increased from 19% in 2006 to 34% in 2007.

According to P Rangarajan, CEO, Vitage Technologies, which offers integrated applications and infrastructure monitoring, and management service, The opportunity is real and there are clear trends of companies outsourcing the IT management part after having done application development outsourcing all these years. The clear indicators of this are captives being set up by telcos to do remote monitoring, and large MNCs like IBM and HP making investments to set up RIM service delivery in India. Tier-1 service providers have a focused practice unit delivering RIM services, and are clocking revenues upward of 100-150 mn each, pure play RIM service providers like us are seeing traction and market acceptability.

Drivers and Services
The study points to the convergence of three independent forcesevolution in technologies and architectures, changes in customer behavior and demand patterns, and changes in the vendor and offshore supply environmentthat have propelled the industry at a pace much faster than originally conceived, and will sustain this dramatic growth of the remote infrastructure management (RIM) industry. There is unanimity on what can be outsourced and off-shored. According to KS Ganeshan, chief technology officer and VP, Engineering, Microland, Technically speaking, 80% work can be remoted, and this is applicable across industries and technologies.

The Challenges
No doubt, opportunities are huge, but the accompanying unique challenges are different from what companies faced when they embarked upon providing ADM and BPO services.

As KS Ganeshan of Microland puts it: Unlike IT services and BPO, RIM is more real time and so the challenges are greater. The reason for less number of players in the industry is that these kind of services require some kind of pedigree, because customers are actually giving the keys of their kingdom to companies to manage them. Agrees GK Prasanna, senior vice president, Technology Infrastructure Services, Wipro Technologies, a prominent RIM vendor, This business is different form ADM and BPO. It is online, real time, and the risk associated with this is much higher, and the talent that is needed for these services is also different. Customers go to providers with real life experience.

However, there are some challenges that have been overcome. According to Ajay Soni of Patni Computers, The issue of proximity of a data center is no more there. Over the years, we have overcome these challenges by carving out services that are managed with 70-90% offshore components. Additionally, the managed services in RIM provide very well-defined deliverables to customers and the ability to choose the services based on their individual needs.

Elaborating on the challenges facing vendors, Swapan Johri, VP, IT Operations and Emerging Services, HCL Technologies, says, The biggest challenge vendors face is in terms of managing customers, as it would be different from working on a project kind of scenario. This is because, in RIM, things have to happen in real time or almost real time. For example, if a server is not working, it has to be troubleshot at that point of time.

How is Infrastructure offshoring different from traditional ADM and BPO

The Pricing Model
Unlike ADM and BPO, where pricing was on FTE basis, RIM is a service with varying models.

According to Prasanna of Wipro Technologies, We do a mix of transparent pricing, element-based pricing, and factory pricing, which is based on outcomes. According to Vivek Pandit of McKinsey, Some easier roles that have been off-shored like system administrators, database administrators, and help desk, have had their pricing on the FTE model. He adds that the trend is toward a model where device-based pricing is going to be the practice.

According to Swapan Johri of HCL Technologies, We have kept flexible pricing models that have evolved compromising on what value we want to deliver.

Indian Strength
India is emerging as a destination for RIM services. Says Pandit of McKinsey, It is the mid-range network tower where Indian companies can leverage the existing ADM expertise apart from the infrastructure and contract management tools in which Indian vendors have provided a degree of transparency to their customers. Another advantage Indian providers have, according to Pandit, is that they are not starting with a large legacy base and it is much easier for Indian vendors to take on smaller contracts and provide services that are backup, server, or email related.

While the cost of hardware has declined significantly, Indian vendors are good at managing cost arbitrage as even virtualization technologies are becoming mainstream and hardware are getting standardized.

Elaborating on the prerequisite for offering RIM services from India, Sharad Heda, COO, Microland, says, What we need from the vendor perspective is good talent, cost-effective connectivity, standardized robust processes, good tools which allow you to manage the infrastructure remotely, etc. He adds that the level of process maturity has increased, and now the tools to connect to customers in a cost-effective manner have improved. India's own credibility to support mission-critical applications has also improved. Labor arbitrage will never be the primary reason for off-shoring, so customers need something more than labor arbitrage to select a vendor.

The Hurdles
According to Ajay Soni of Patni Computers, Driving operational efficiency to counter the effects of appreciating rupee, striking the balance between technological innovation and service/process excellence in IT service delivery, generating and transforming the resource pool through innovative methods in recruiting, training, and HR practices, the demand for resources is shifting beyond technical talent to product specific skills, higher-end qualifications, combined with competencies in soft skills.

 According to Prasanna of Wipro Technologies, There is a very limited number of infrastructure players from India and so skills will become an issue in the long term, if not in the immediate present. We need to build more skills and it is not easy, but I believe it can be achieved since a lot of help can come from the government.

Utility Computing Angle
The report does not take into account the utility computing model, which is in place and involves transfer of assets. According to Vivek Pandit, partner, McKinsey, We did not take this part of the business into account when doing this study. The report looks at the ability to offshore infrastructure management role; if utility computing becomes a phenomenon, the numbers you see in the report will start increasing. The utility computing model is more attractive to the mid-sized and small enterprises that are basically buying services on tap, and a lot of enterprise software without the headache of maintaining that infrastructure as these companies consolidate and start to source more.

According to Prasanna of Wipro Technologies, SMEs are amenable for remote infrastructure management services. India is not the place from where these customers can be addressed in a big way. We are making investment in SaaS but it will take some time before we actually start banking on it. It is a much more retail kind of play. The volumes are also low, so it does not interest companies from India.

The Outlook
According to the study, India accounts for $3-4 bn of the total $6-7 bn worth of services off-shored. It adds that the RIM industry in India has grown from $1 in 2005 to $3.6 bn in 2008, at a compounded annual growth rate of more than 50%, higher than the overall industry average of 20-30%. The study also reveals that $26-28 bn of the total opportunity is likely to be realized by 2013, and India can position itself to acquire a disproportionate share, ie, $14-15 bn, creating 325,000-375,000 additional jobs in the process.

Sudesh Prasad
sudeshp@cybermedia.co.in

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