Gartner Tells Outsourcers: Embrace Cloud Or Die

If you're an outsourcer and you don't have a convincing cloud story yet, it's time to wake up and smell the coffee.

That's the warning from IT leadership group Gartner, which has released new research that shows rapidly growing acceptance of the public cloud in the enterprise. Gartner predicts continued strong growth in public cloud services, with end-user spending on public cloud services likely to grow 18% in 2013 to hit a global figure of $131 billion.

By 2015, that same market could be more than $180 billion. "The initial resistance to public cloud has begun to subside and customers are beginning to realize its efficiencies as the solutions mature," Gartner research VP Ian Marriott said. If this is true, it confirms predictions from member advisory group CEB, which recently suggested many CIOs may skip the private cloud altogether and go straight to public.

[ New features make Google's cloud storage more useful to businesses. Read Google Cloud Storage Improves. ]

According to Gartner, vendors need to adjust their thinking too. "For broad-based offshore providers that operate in multiple geographies, industries and service lines who seek to compete for significant wallet share in major accounts, strategic investments in cloud-based services are mandatory," said Marriott. For example, Gartner points to the "considerably slower" growth rates of the top 10 India-based providers in the past five years: from 21.8% growth in 2011 to just 12.7% in 2012.

"Cloud-based services will not replace offshore services but will complement them," said Marriott. "In addition, cloud services will not make or break all offshore providers. There will always be a need for 'pure-play' providers that operate a labor-intensive delivery approach."

The reason for that need? While increased investments in cloud-based services will differentiate the leading offshore providers, Gartner explained, more labor-intensive "pure-play" offshore providers will still be needed in order to maintain a balanced portfolio of managed services and other traditional delivery approaches in addition to horizontal and vertically based cloud offerings.

Gartner added that while the increased use of industrialized services will reduce the volume of traditional and customized services, the impact on offshore providers will be counterbalanced by new revenue from investments in cloud-based services. Nonetheless, service providers that are "slow, unable or unwilling to invest in the shift to the cloud" will risk hampering offshore services revenue growth.

All in all, providers who do not respond to such significant market changes, according to Marriott, risk "the deterioration of market share, acquisition by another provider, or its disappearance from the offshore services landscape."