Cloud technology has changed our economic model: Steve Cardell3 min read . Updated: 19 Nov 2013, 11:23 PM IST
HCL Tech's Cardell speaks about the growth areas for the firm and the next innovation that it is looking at
New Delhi: Steve Cardell, president of enterprise services and diversified industries at HCL Technologies, which contributes $2.7 billion (around ₹ 16,800 crore) to the company’s revenue, spoke in an interview about how cloud technology has changed HCL Tech’s economic model, the growth areas for the firm and about the next innovation that it is looking at. Edited excerpts:
How has been the shift from the traditional enterprise services to cloud-based services for HCL?
It has been a massive shift. Eighty to ninety percent of all inquiries are now coming for cloud services, which is a significant part of our pipeline. We see three things happening. First is infrastructure cloud; second, software as a service (SaaS), which companies buy on pay-per-use basis, as well as customized applications on cloud platform; and third, which is the least talked about, but will be the most important for companies like ours, is enabling of legacy applications like mainframes and languages that nobody uses through the cloud (they cannot be run on infrastructure cloud). The cloud enabling of legacy apps would be a very big part of the story. We want to make whole landscape of services (that we provide today) cloud-enabled over time. We see a huge opportunity in the pipeline in the overall area of migration path from legacy apps on premise to on-the-cloud modern applications. The benefit of that is you can build all of the systems of engagement around that. In next 12-18 months, everything will be available on cloud for us.
What has been the impact on your revenue when people started using pay-per-use for cloud services instead of buying products?
It has changed the economic model. For the longest time, our biggest source of revenue was resource-based pricing. So, more than half of our income came from time and material contracts. Two quarters ago was the first time when the fixed pricing or outcome-based pricing contributed more than half our revenue (55%). That trend will continue. The customers now want certainty and want to pay by use-basis.
It has positive and negative effect on the top line.
The negative effect is, if I take good old SAP ERP (enterprise resource planning) system, for every dollar of licence bought, it might generate $5 to $6 of services for me. So if a company spends $10 million for SAP licences, it means $60 million revenue for us. In SaaS product and system engagement services, every dollar spent might be $3 of revenue for me. It is good for customers; they get technology cheaper, faster and flexible, but the revenue I generate is less.
The positive side is, it is creating a huge wave of migration. So you spend less on implementing a software product, but you have more business in integration and data management that sit around that. So you get up and down on revenue, the revenue from implementation goes down, but the integration revenue would go up. IT (information technology) budgets go up by 3-5% a year, so that would be same, but how it is spent will be different.
What is driving the growth for your enterprise services business at present?
For last 18 months it has been SaaS. Other is system of engagement around your migrated system to cloud—anything that is Web, mobile and trading and all of the management analytics. Over the next three years, it would be migrating the old system to new, because most of the cloud projects have been pilots. People have been testing if the cloud really works. Now there is maturity on that. People are ready. So just in volumes, there will be growth.
What would be the next phase of growth?
The productization of the services. We have something as software as a service (SaaS), where you pay-per-use basis. We are re-coining the phrase, which is services as software. Where does the model eventually end up? If you are a life sciences company and want to enter into China, you would want to be able to turn to somebody and say give me a life sciences tech platform in a box that takes me one day to put in. So you get one product that has got all your applications and infrastructure, and in 24 hours you can have an entirely new company up and running because industry-specific application infrastructure platform is being made—life sciences in a box. I think this is ultimately where this journey is going. We have seen it with mid-market companies. You buy out a box and stand up a company. The kind of ability to have a company in a box—is what where it is going.