Midmarket Drives Infrastructure Management Outsourcing

Midmarket companies are making a stronger-than-ever case for infrastructure outsourcing these days. A new report released by market information researcher Reportlinker.com reveals the latest trend is to rapidly evolve the practice, even as there is a dilemma in traditional outsourcing converging with offshore value propositions.

By infrastructure outsourcing (IO), we're talking about contracting with outside providers to plan, maintain, and support your company's technology infrastructure needs. This could be as straightforward as enabling Internet access and services such as email and Websites, or as complex as providing specialized software and user services.

The report measured 700 contracts held by 3,100 of the top Internet technology organizations globally. Of note for midmarket companies, Reportlinker.com found clients with annual revenues from $500 million to $1 billion are significantly more satisfied with their infrastructure outsourcers than are large market cap counterparts. This may be because midmarket companies can change providers if services are not up to snuff, whereas larger enterprises may be more locked into long-term contracts.

Another footnote I found interesting is that outsourcing from Latin America is challenging Indian infrastructure vendors as they evolve, although two Indian vendors, HCL Infosystems Ltd. and Tata Consultancy Systems , are achieving market share growth and commanding global user respect.

Part of Latin America's appeal can be attributed to its time zones, which align better with North America's, as well as Latin America's ability to install next-generation networking (4G, WiMax) without as much legacy baggage.

But despite the opportunities, infrastructure outsourcing for midmarket companies is still a cautionary tale. In the last 10 years, there has been rapid growth of new models of infrastructure services delivery, such as Remote Infrastructure Management (RIM) and Information Management Services. And the two processes are showing signs of convergence with more traditional ways of delivering infrastructure service.

"Offshore [RIM] suppliers still hold a minor share of the IO market; nonetheless, there are increasing signs of the sophistication of RIM leading to a growing convergence of the models of infrastructure delivery," Reportlinker.com said. "The trend poses a challenge for buyers who need to understand the complexities of the offerings and suppliers who must refine their strategies."

The convergence of IO models is driving offshore suppliers to one of three choices, according to the report:

• Continue to adopt key elements of the traditional infrastructure management outsourcing model
• Build added value to their remote offering
• Simply continue to focus on classical RIM services that rely on labor savings as a key driver

Evidence of convergence can be seen as offshore suppliers of remote management services are not limiting themselves anymore to targeting smaller companies with a value proposition to lower basic business costs.

The majority of offshore deals are still based on delivering remote services offshore. RIM suppliers held 26 percent of more traditional deals in 2008 compared to only 5 percent in 2004, Reportlinker.com found.

Midmarket companies are certainly willing to spend on applications management and infrastructure management and outsourcing services. An IT spending forecast by Forrester found of those surveyed, 26 percent planned increases in application outsourcing and 25 percent expect to increase infrastructure outsourcing spending. Larger enterprises -- those with annual revenue above $10 billion -- now account for 55 percent of the deals signed by offshore suppliers.

On the other hand, traditional IO suppliers are confronted with a simpler, but not less challenging, option. Reportlinker.com's assessment is that midmarket adoption means there is a "focus on end-to-end infrastructure deals that avoid direct competition or develop variations of a converged [RIM]/Traditional IO offering..."

Which is a good thing to see, since it should be a given that adopting IO practices should lower your cost of doing business.

— Michael Singer, Senior Editor, Internet Evolution.