For Telcos in India, the Cloud Has a Silver Lining
Indian telecommunications companies that are leaders in the IT vendor ecosystem are more likely to be the beneficiaries of the emerging cloud opportunity.
by Srinivasan Ramaswamy and Arun Goyal, September 2011
It’s hard being a telecommunications company in India these days. Although India presents one of the fastest growing mobile and broadband markets in the world, telcos in India face challenges on a number of fronts: an intensively competitive market with a large number of players, declining fixed-line revenues, increasing mobile customer churn brought about by mobile number portability, declining mobile revenue per user and minutes of usage due to the nature of the customer being acquired, and onerous regulatory oversight spurred by recent telecom scandals. Almost all telcos are pinning their hopes on the growing mobile value-added services (MVAS) market as source of significant incremental revenue generation and increasing mobile revenue per user. Such services include multimedia messaging and global positioning applications. Although the MVAS market presents an attractive market opportunity given India’s demographics and market size, telcos in India would be prudent to systematically address the cloud computing services market for the small- and medium-sized business (SMB) segment in India as a another source of incremental revenue generation.
SMBs in India represent over 97 percent of all businesses and will drive a significant portion of IT spending in India over the forthcoming decade. India is also estimated to achieve the highest SMB IT expenditure growth rate of 24 percent, with more than 50 percent of the expenditure expected to be dedicated to hardware. For the SMB segment, cloud computing lowers barriers to growth by lowering technology costs and upfront investments. After the Great Recession of 2008, market sentiment has been improving, and SMBs are increasingly optimistic about their prospects for the next couple of years. This optimism is expected to encourage SMBs to focus on key business imperatives such as customer acquisition, customer satisfaction, and employee efficiency and productivity. In India, an effort to improve high-speed connectivity and an emerging SMB segment that is investing in IT are drivers for growing market opportunity for cloud computing.
Telcos are well-positioned to tap into this opportunity as they have invested substantially in bandwidth creation, and currently the market has excess capacity. Telcos also have the infrastructure in place for accelerated cloud adoption; however they have limited experience with addressing the SMB segment of the market. Telcos can enable an ecosystem of partnerships that comprises themselves, managed services providers, cloud infrastructure providers, IT services firms, and independent software vendors to effectively address the SMB market in India.
Indian SMBs realize the need for technology to grow their business, further catalyzed by business mandates by larger clients, global buyers, and international regulatory norms. Presently, less than two percent of SMBs have deployed some aspects of enterprise applications, indicating that penetration of these solutions is still at an embryonic stage. Furthermore, SMBs in India do not have access to IT staff that can understand and drive IT adoption and deployment in their organizations.
Presently, SMBs in India contribute more than 60 percent to the Indian GDP while their spending on IT is only 30 percent of India’s total IT spending. Even though current IT adoption remains dismal, there is a changing value perception, driving the need for greater cloud awareness and its benefits. Telcos need to leverage the IT vendor ecosystem (managed services providers, cloud infrastructure providers, IT services firms, and independent software vendors) that is looking to tap the growing market for IT and cloud services in the SMB space.
According to a study by Zinnov Management Consulting, the total market of cloud computing in India stands at US$110 million today, and is expected to reach a figure of about US$1,084 million by 2015. As components of the overall cloud market, Software-as-a-Service (SaaS) has witnessed the most rapid uptake until now. SaaS in India is likely to reach a mark of $650 million by 2015, while Platform-as-a-Service (PaaS) and Infrastructure-as-a-Service (IaaS) markets cumulatively would touch $434 million. Currently, the SaaS market is estimated to be about US$50 million, with nearly 70 percent of the business coming from the SMB space. Experts believe that SaaS will be adopted by most companies in the next few years at some level or the other, especially in content management, collaboration, document management, and customer management applications.
Exhibit 1: Tenfold increase in cloud opportunity
In India, retail and manufacturing companies constitute 55 percent of the SMB universe, with southern and western India accounting for nearly 65 percent of their presence. As the emerging markets growth story percolates down from larger to smaller cities, SMBs in these cities are very well positioned to be tapped using the right cloud ecosystem.
At present, the Indian market does not have a mature ecosystem that supports cloud services. A few players like Tata Communications, Wipro and NetMagic have launched cloud offerings in the market, but they are still at a very nascent stage and likely to evolve gradually. Cloud infrastructure providers such as Oracle, Microsoft, and IBM have crystallized their cloud offerings and are now in the process of educating current and potential customers on the benefits of cloud services.
Telcos have the potential to play a powerful role in the new cloud ecosystem. Given their formidable strategic assets and their strong relationships with SMBs, telcos must understand where in the new cloud ecosystem they can play successfully and gain competitive advantage in this fast evolving market. To succeed, telcos need to fully leverage their strategic assets through a nexus of partnerships to expand into new, higher-value roles, such as reseller and application aggregators and integrators.
Srinivasan Ramaswamy is director of Industry Strategy and Insight at Oracle.
Arun Goyal is a specialist with the Oracle Insight team.