Gartner: SaaS Provides 'Viable Alternative' to Traditional Outsourcing

Ann All

One of the most interesting takeaways from a recent article about Gartner's near-term predictions for the outsourcing market is the statement that software-as-a-service is "giving companies a viable alternative to traditional outsourcing providers."

As a Gartner analyst puts it:

We're finding that many companies are looking to SaaS options to minimize the customization that traditional outsourcing vendors and projects typically require. They're testing and adopting it in areas that don't conflict with other core architecture areas.

The article also mentions that SaaS is an elephant in the room that outsourcing providers shouldn't ignore. Instead, Gartner advises, they should consider entering into partnerships with SaaS vendors or developing their own SaaS models. I blogged about this in October, citing analysis from Jeff Kaplan's THINK IT Services blog.

India's Cognizant Technology Solutions is leading the way, with its purchases of two SaaS companies. SaaS will help outsourcing providers automate many of their services, an important consideration as salaries in India continue to grow and the market for talented workers remains tight.

Gartner isn't the only analyst to note a possible shift from some traditional outsourcing models to a SaaS-enabled "direct sourcing" model. "Very high productivity server farms" can replace at least some human outsourced resources, says Richard Sykes, chair of the Outsourcing Group at IT trade association Intellect, in a article.

In his new book, "The Big Switch," Nicholas Carr makes the case that the SaaS model will become dominant, though it could take "decades." Though companies will initially balk at giving up control of their infrastructures, says Carr, "in the end the savings offered by utilities become too compelling to resist, even for the largest enterprises."

Not so fast, says Butler Group analyst Rob Hailstone in another article from Vacillation between centralized and decentralized IT is common, thanks to shifts in technology and the overall economy.

Both Hailstone and Quocirca analyst Clive Longbottom -- along with plenty of other industry observers -- take a more tempered view of SaaS. While SaaS will become increasingly common, says Longbottom, "there'll be certain aspects and processes that define firms which they'll be unwilling to outsource because it's too important to them." I see definite parallels between the traditional outsourcing and SaaS markets. The concerns that some companies have about SaaS -- reliability, security and a need for customized services -- are the same ones they had earlier about outsourcing. And as with outsourcing, some SaaS adopters are beginning to discover benefits other than simple cost savings.

For what it's worth, Gartner is bullish on the short-term prospects for outsourcing, predicting that global spending on outsourcing will grow to to $441 billion this year, up from $408 billion in 2007.

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