Cloud can take a while to be a rainmaker for IT businesses

Cloud-based IT service providers could take longer to demonstrate growth and profitability than initially expected, analysts said.

Although the development of cloud as a technology is not in doubt, the acceleration led by the Covid-19 outbreak on cloud service providers and IT companies has been unclear for the time being.

In fact, cloud sales for businesses like Infosys and TCS are only projected to rise steadily by the financial year 2022, rather than by the second half of the current fiscal year, they said.

Hyperscale cloud providers including Amazon Web Services have downgraded their cloud market opportunities to ‘mixed bag’ status, and no cloud provider reported improvement in the nine months ended September 30.

This means that IT firms, who are cloud partners of these businesses, would take longer to pick up big cloud-based transactions, said Sudheer Guntupalli and Hardik Sangani of ICICI Securities.

“Incremental revenue booked by AWS and Microsoft ICS, rather than announcing a big spurt, post-Covid-19 (results) was poor. This would not reconcile with the cloud hype being the foundation of business continuity during the lockdown, “they said.

In a report last month, industry analyst Gartner said that the cloud ‘scaled up’ during Covid-19 and ‘scaled down’ afterwards.

Gartner plans “accelerated adoption” in cloud infrastructure by the 2022 calendar year rather than this year.

Guntupalli and Sangani of ICICI said, “We anticipate a similar roll-out of aspirations from IT companies as well, with a lag. Consensus anticipation, therefore, of a material change in their development / profitability requires a reality check.

As per experts, cloud infrastructure has successfully captured the demand for developing new systems and applications. However, service vendors are looking to tap into a broader market for customers to migrate their legacy IT infrastructure to the cloud.

To that end, they will need the support of Indian IT services companies, although this would be a long-standing method, said Peter Bendor-Samuel, CEO of Everest Group.

“This (conversion) is a far more difficult thing to do as Legacy IT is well rooted and both costly and dangerous to transfer. We saw an uptick in operation during Covid-19 ‘s legacy conversion, but it expired as businesses encountered major cost and risk challenges, “he added.

Cloud migration would, however, be the most sought-after market for IT service providers in the next five years, he added.

“The last limit for Cloud is the Legacy estates, and Big Tech is putting a wall of capital behind this assault. This are the benefits that service companies are excited about and frantically align their go-to-market company with Big Tech to catch and exploit, to push what seems like massive volumes of cloud conversion business, “Bendor-Samuel said.

According to Pareekh Jain, the founder of Pareekh Consultancy, up to 20 percent of IT workloads is currently on the cloud, and this could rise to 80 percent within the next five years.

“It has been a C-suite priority to make companies virtually resilient and willing to function, but yes, it will take time. Enterprise IT expenses are not growing, so they would have to make cuts from their legacy activities to invest in the cloud. It will be a steady four-to five-year process, “he added, adding that all major IT service providers have doubled their cloud strategy.

Cloud can take a while to be a rainmaker for IT businesses.

Cloud-based IT service providers could take longer to demonstrate growth and profitability than initially expected, analysts said.

Although the development of cloud as a technology is not in doubt, the acceleration led by the Covid-19 outbreak on cloud service providers and IT companies has been unclear for the time being.

In fact, cloud sales for businesses like Infosys and TCS are only projected to rise steadily by the financial year 2022, rather than by the second half of the current fiscal year, they said.

Hyperscale cloud providers including Amazon Web Services have downgraded their cloud market opportunities to ‘mixed bag’ status, and no cloud provider reported improvement in the nine months ended September 30.

This means that IT firms, who are cloud partners of these businesses, would take longer to pick up big cloud-based transactions, said Sudheer Guntupalli and Hardik Sangani of ICICI Securities.

“Incremental revenue booked by AWS and Microsoft ICS, rather than announcing a big spurt, post-Covid-19 (results) was poor. This would not reconcile with the cloud hype being the foundation of business continuity during the lockdown, “they said.

In a report last month, industry analyst Gartner said that the cloud ‘scaled up’ during Covid-19 and ‘scaled down’ afterwards.

Gartner plans “accelerated adoption” in cloud infrastructure by the 2022 calendar year rather than this year.

Guntupalli and Sangani of ICICI said, “We anticipate a similar roll-out of aspirations from IT companies as well, with a lag. Consensus anticipation, therefore, of a material change in their development / profitability requires a reality check.

As per experts, cloud infrastructure has successfully captured the demand for developing new systems and applications. However, service vendors are looking to tap into a broader market for customers to migrate their legacy IT infrastructure to the cloud.

To that end, they will need the support of Indian IT services companies, although this would be a long-standing method, said Peter Bendor-Samuel, CEO of Everest Group.

“This (conversion) is a far more difficult thing to do as Legacy IT is well rooted and both costly and dangerous to transfer. We saw an uptick in operation during Covid-19 ‘s legacy conversion, but it expired as businesses encountered major cost and risk challenges, “he added.

Cloud migration would, however, be the most sought-after market for IT service providers in the next five years, he added.

“The last limit for Cloud is the Legacy estates, and Big Tech is putting a wall of capital behind this assault. This are the benefits that service companies are excited about and frantically align their go-to-market company with Big Tech to catch and exploit, to push what seems like massive volumes of cloud conversion business, “Bendor-Samuel said.

According to Pareekh Jain, the founder of Pareekh Consultancy, up to 20 percent of IT workloads is currently on the cloud, and this could rise to 80 percent within the next five years.

“It has been a C-suite priority to make companies virtually resilient and willing to function, but yes, it will take time. Enterprise IT expenses are not growing, so they would have to make cuts from their legacy activities to invest in the cloud. It will be a steady four-to five-year process, “he added, adding that all major IT service providers have doubled their cloud strategy.