IT firms ride on cloud to grow digital revenue2 min read . Updated: 21 Sep 2020, 02:40 PM IST
- Cloud has been gaining ground over the last 2-3 years as it helps bring agility to business and reduce costs, but the pandemic has further accelerated the demand
BENGALURU: Information technology (IT) services companies are ramping up their cloud portfolio, through organic and inorganic investments, as digital revenue witnesses fast growth especially in the post-pandemic business environment.
While digital has different implications for different companies, it typically comprises emerging technologies such as cloud, artificial intelligence (AI), big data, and analytics which have seen a surge in demand when compared with traditional services like infrastructure and application development and maintenance.
India’s second largest software exporter by revenue, Infosys Ltd, is doubling its investment in cloud as more and more clients opt for remote working solutions, new business models, and business continuity plans.
Last month, Infosys launched Cobalt, a set of services, solutions, and platforms to help clients build cloud-first capabilities – one of its biggest organic investments in recent times. It has also acquired Simplus and in September, entered into an agreement to acquire Europe-based GuideVision for up to 30 million euros to augment its Cobalt portfolio.
“Cloud has been gaining ground in the last 2-3 years as it helps bring agility to business and reduce costs, but the pandemic has further accelerated the demand," said Narsimha Rao Mannepalli, executive vice president and head of cloud & infrastructure solutions, Infosys.
Nasdaq-listed Cognizant Technology Solutions Corp, which employs more than 200,000 people in India, is also betting on acquisitions to build its digital business and has already made six cloud-related acquisitions this year.
“I believe we are in the early stages of digital and that covid-19 has accelerated digital adoption. Digital creates an enormous opportunity for Cognizant and we intend to capture this. We have complemented organic investments with a targeted M&A strategy focused 100% on digital," said Brian Humphries, CEO, Cognizant. “Cloud computing has changed the way IT is delivered across infrastructure applications and platforms."
Cognizant’s digital revenue grew 14% y-o-y in the June quarter and represented 42% of its total revenues. This compares with Infosys’s digital revenue growth of 25.5% y-o-y in constant currency and accounting for 44.5% to its total revenues. Of late, Tata Consultancy Services (TCS) Ltd and Wipro Ltd have stopped reporting digital revenues separately.
“Companies are aspiring to rapidly grow their cloud-related revenues to about 40-50% of their overall digital business," said Nitin Bhat, Technology Sector Leader, EY India.
For mid-sized IT firm Happiest Minds Technologies Ltd, which listed on the exchanges last week, 97% of its revenues come from digital, much higher than its larger peers where the average contribution from digital stands at 30-50%. Within digital, cloud comprises of 43.7% of revenues.
“Digital is growing much faster than traditional business," executive chairman Ashok Soota said in a recent interview.
For TCS, the primary growth strategy for its cloud business is organic, said Krishnan Ramanujam, president, business & technology services, TCS. “The combination of investing in our people to reskill/upskill, and leveraging their deep contextual knowledge of our customers’ business has been a proven winner."
That said, “TCS is always looking for key acquisitions, not as a growth strategy, but for key strategic capabilities, market strengths etc. that can be a force multiplier for our broader cloud business," Ramanujam added.
Wipro said it has a good pipeline for its cloud offerings as they are enabling customer employees to work from home and remotely. “The demand environment is being driven by what we call the three ‘Cs’ –cloud, collaboration, and cyber," Jatin Dalal, chief financial officer, had said earlier.