IT Services for SMAC (Social, Mobile, Analytics, Cloud) and the Digital Enterprise

2014

The Business Research Company June 2014 IT Services for SMAC and the Digital Enterprise

2.2. Estimated Global IT Services SMAC Revenues ($ billion): 2013-2018

Figure 4 and Table 1 show estimated Global SMAC IT Services revenues for the years 2013 to 2018, broken down across social media, mobility, Analytics and Cloud solutions.

Figure 4: Estimated Global IT Services SMAC Revenues ($B): 2013-2018

Estimated Global SMAC Revenues in B billion SMAC 2013 2014 2015 2016 2017 2018 CAGR Social media 12 16 21 27 36 47 31.4% Mobility 8 11 15 20 27 35 34.3% Analytics 18 25 35 45 57 75 33% Cloud 22 31 47 63 86 113 38.7% Total 60 83 118 155 206 270 35% YOY Growth 38% 42% 31% 32% 31% Source: TBRC Table 1: Estimated Global SMAC Revenues ($billion)

In 2013, SMAC IT Services revenues were $60 billion, increasing to $83 billion in 2014: an expected growth rate of 38%. In 2013, Mobility based revenues were $8 billion, Social media $12 billion, Analytics and Cloud $18 billion and $22 billion respectively. The overall revenues are expected to rise to $270 billion by 2018.

The desire of companies to increase their digital presence and growing integration among digital services will push the market to grow quickly at CAGR 40% during the period 2014 -2016. Many large companies will invest heavily in digital solutions during this time. Other companies will adopt more slowly, resulting in a slightly slower growth momentum of 30% CAGR from 2016-18. 2.3. Forecast SMAC Revenue of Top Service Providers

Figure 5 and Table 2 show forecasted SMAC revenues of the top IT service companies till 2015.

Figure 5: Estimated SMAC Revenues for top service providers

Estimated SMAC Revenues for IT Service Companies (2013-2015)

% Total Total Revenue Revenue derived 2013 IT Services Companies 2014 ($B) 2015 ($B) CAGR 2013 from ($B) ($B) SMAC 2013 IBM 99.8 15% 15 21 30 41.4% Accenture 28.6 14% 4 5.6 7.8 39.6% CSC 22 14% 3 4.2 5.8 39% TCS 11.6 10% 1.2 1.56 2.1 32.2% Infosys 7.3 10% 0.7 0.875 1.1 25.3% Tech mahindra 2.6 23% 0.6 0.72 0.9 22.4% CTS 8.84 5.60% 0.5 0.675 1 41.2%

Table 2: Estimated SMAC Revenues for IT Service Companies (2013-2015)

IBM has the highest market share of SMAC, its revenues being forecast to reach $30 billion by 2015. It is followed by Accenture ($7.8 billion), CSC ($5.8 billion), TCS ($2.1 billion), Infosys ($1.2 billion), CTS ($1 billion) and Tech mahindra ($0.9 billion) in 2015. This shows rapid growth throughout the market although the Indian companies are growing slightly less quickly than their Western counterparts.

IBM, Accenture and CSC have invested heavily in SMAC integrated solutions and have a strong pipeline of products. They are well positioned for growth of CAGR 40% in 2014 in this area. These companies – IBM, Accenture and CSC – are expected to reach $21 billion, $5.6 billion, $4.2 billion revenues respectively by the end of 2014.

Among Indian IT service providers, TCS leads, followed by Infosys, Tech mahindra and CTS. TCS and CTS are growing faster than the others with a focus on providing high value solutions. TCS’s SMAC revenues are expected to grow at 30% per annum and CTS’s at 35% in 2014. TCS has made some acquisitions in Europe to tap new markets and added a new hub in Silicon Valley to support its services. CTS has aggressive growth strategies and is expected to exceed Tech mahindra’s SMAC revenues by 2015. For 2015, TCS and CTS are forecast to grow at CAGR 35% and CAGR 45% respectively. After developing a good background process in 2014, these players are ready for higher growth in 2015.

Infosys and Tech mahindra are growing at 25% and 20% respectively for 2014. They have been relatively low investors in product development in this area leaving them somewhat behind the leading players. These companies are expected to grow by 30% and 25% respectively in 2015 as they gain more experience in these markets.

3. Market Drivers – SMAC IT Services

There is a range of drivers that are likely to increase take up of SMAC services by corporates and governments. These include increases in the number of government projects, greater project integration provision by suppliers, increased customization capabilities of suppliers, and single platform/Analytics solutions. Many SMAC projects are outsourced to IT service providers as they provide cost-effective results and often have skill sets which would be slow or expensive to create in-house. Many of the IT Services companies such as IBM have been focusing on the SMAC market for several years already and have developed strong capabilities and experience. 3.1 Increasing Government Projects Governments in many countries are outsourcing SMAC projects to IT service companies. Governments often have large legacy datasets and are turning to new Analytics platforms to try to coordinate these better. For example, in 2014, the Indian government's IT spending is expected to touch $6.4 billion.8 The Indian government is focusing on technology-enabled delivery mechanisms with projects like e-passport, the Unique Identification Authority of India (UIDAI) Project, digital learning, consulting, project implementation and IT outsourcing.8

Strength Across Verticals: Strength across verticals measures a company’s capability of meeting the SMAC needs of different industry sectors like banking, retail, gaming, insurance, etc. IT service providers providing potential solutions in multiple industries are scored higher.

IT Service providers aim to offer services across a range of verticals. Different verticals offer distinct challenges both at business and technical levels. Within a vertical, there are dissimilar requirements depending on the size of a company, type of clients, unique requirements of users, etc. Banking, for instance, needs different system requirements compared to supply- chain segment.

Thus IT service providers need to understand and predict what consumers in different sectors will require and expect.e

Table 7 gives our estimates of the vertical strength scores for SMAC service providers.

Companies Parameters Weights IBM Accenture CSC TCS CTS Infosys Tech mahindra Strength across 20% 90 95 85 80 75 70 60 Verticals Table 7: Vertical strength scores for SMAC service providers

Our scores given in Table 7 are based on the following:

IBM and Accenture are investing heavily to develop good products. These companies are also integrating various SMAC solutions and verticals as an integrated product offering.g They receive high scores of 90 and 95 respectively. CSC, which is partnered with major companies like Microsoft, is able to deliver world class products.29 CSC scores 85, followed by TCS with 80 and CTS with 75. CTS and TCS are performing well in SMAC products in Indian markets.b,19 Infosys and Tech mahindra score 70 and 60 respectively. Infosys with its Peacock awards etc. in SMAC products is placed ahead of Tech mahindra. 17

Data Security Data security is a major concern for IT services like SMAC. Companies are becoming more conscious of data security to ensure reliability among users. According to a Lead Consultant at Infosys, “To enhance data security: access is given to only a limited set of people. The company (service provider) supplies confidential agreements to give details of the data security provided.” Data security is a particular concern for Cloud computing as it involves huge quantities of sensitive data being stored.

According to IBM Chief Executive Officer GinniRometty, “Big data services, which let customers mine vast troves of information to make better decisions, are IBM’s biggest focus this year (2013).” 27 IBM’s Chair, President and CEO Ginni Rometty announced that IBM is increasing its previously stated 2015 revenue target for Analytics and big data from $16 billion to $20 billion.27

 Jet Airways India uses IBM’s advanced Analytics to calculate and report aircraft emissions, to enable rapid decision making for buying carbon credits, allowances, avoid fines and comply with regulations.27

 Fiat Group uses IBM Analytics to analyze data, create models to predict customer behavior and so improved customer retention by 7%. Fiat increased response rate to its marketing campaigns by 15 to 20%. 27

 Bharti Airtel uses IBM solutions to process 1.5 million new customers per month by integrating its channels and customer-facing processes. Airtel can now provide a better customer experience.27

6.2. Accenture’s SMAC Service Offering Accenture is a multinational management consulting, technology services, and outsourcing company. It is a Fortune Global 500 company and the world’s largest consulting firm in terms of revenue.

Accenture entered SMAC and has made systematic acquisitions to mark a strong presence. It considers SMAC as a new source of revenue and a new business model for higher revenues.25 Accenture is the largest Salesforce.com integrator and supports Workday, NetSuite, and other SaaS players. Its clients are increasingly looking to do broader process transformations.26

Accenture expanded its capabilities and position as a leader in the fast-growing segment digital space by acquisition of Acquity Group, the second largest independent digital marketing Company in the U.S.; Fjord, a global design firm; and avVenta, a digital production company. These acquisitions helped to launch its new web platform to 100 markets around the world.

In the aviation industry, Taleris, a joint venture with GE, provides an intelligent operation services to airlines, to help them predict potential aircraft maintenance faults and recommend preventive action.

6.2.1. Key Vertical Solutions Accenture’s SMAC offers solutions in aerospace, defense, agribusiness, goods and services, customs, defense, electronics, high tech, financial services, logistics, infrastructure, transportation, insurance, life sciences, media and entertainment, metals mining, postal, public safety, public service, government, retail, revenue and social security.

Pipeline of Fully Integrated SMAC Solutions

The pipeline in digital products features high end, fully-integrated process solutions. Fully integrated systems require almost no human intervention and provide the best solutions for the end user.

According to a Lead Consultant at Infosys, “Presently most solutions are stand alone but next generation solutions in SMAC will include process-integration solutions and trigger- or notification-based solutions (electronic gadgets)”. According to Mr. Srinivas Rao, Senior Vice- President at Tech mahindra, “By 2020, it is estimated that nearly 50 billion electronic gadgets will get connected to the Internet. Digital Intelligence will become the norm in future proof and future ready enterprises. Digital Intelligence is achieved with sensors, sensor networks, embedded software, predictive Analytics etc.” 1

As an example, eMart has a patented platform of solutions. It filed a provisional patent application and is looking to protect its invention in almost all countries of the worlde. Its platform uses automatic synchronization and identifies consumers as they interact on Facebook, emails, SMS, Voice calls, etc. It can automatically identify individual unique consumers using any of these tools. eMart’s platform uses software such as Java, HTML 5 and web based technologies. SaaS based Core product – “First Hive” – is a patent-filed product. e

6. M & A (SMAC Outsourcing)32

Merger and Acquisiton activity (M&A) has in the past and continues to drive consolidation in the global digital services area. From 2005 on, IBM alone spent $16 billion on 35 Big Data and Analytics acquisitions.11

This section of the report outlines the recent acquisitions of IBM, Accenture, Infosys, Cognizant, TCS, Tech mahindra and Wipro. IBM’s Acquisitions  In February 2014, IBM acquired Cloudant, Inc. Database-as-a-Service (DBaaS) Company based in the USA. Cloudant provides a database for companies producing web and mobile applications; this helps web and mobile application companies to focus on developing their core solutions better. It can handle a wide variety of data types including JSON, full-text, and geospatial.

 List of Primary Research a – Primary Interview with a Global Leader - Big Data & Analytics at Tech mahindra, India b – Primary Interview with a Digital Strategist at ThoughtWorks, India c – Primary Interview with a Lead Consultant at Infosys, India d – Primary Interview with an Automation and Control Professional at Yokogawa IA Technologies, India e – Primary Interview with a Product Manager at eMart Solutions India Pvt Ltd, India f – Primary Interview with a Public Relations at Zoho, India g – Primary Interview with a Solutions Manager at Sasken, India h – Primary Interview with a Managing Director at Ethinos, India

List of Secondary Sources 1. NASSCOM: http://www.nasscom.in/v-srinivasrao-vsr-sr-vice-president-mahindra- satyam-and-tech-mahindra#sthash.AgNGB1KH.dpuf 2. Economic Times: http://articles.economictimes.indiatimes.com/2014-02- 25/news/47670806_1_digital-services-revenues-star-wars 3. CA: http://www.ca.com/~/media/Files/nz-it-leaders-forum/digital-enterprise-the-role- of-the-cdo-ca-research-report.pdf 4. Medianama: http://www.medianama.com/2013/09/223-june-2013-india-has-15-19m- broadband-731-44m-active-mobile-connections/ 5. http://www.ethinos.com/digitalmarketing/mobile-marketing.html 6. Panso Solutions: http://www.slideshare.net/pansosolutions/why-digital-enterprise-by- panso-solutions (1.pdf) 7. http://www.digitalbuzzblog.com/infographic-social-media-stats-2013/ 8. http://businesstoday.intoday.in/story/it-firms-eye-eventful-2014-as-smac-demand- optimism-beckon/1/201738.html 9. http://www.livemint.com/Industry/FXPE2yjjVrknGT3uJr33HP/SMAC-is-the-new-flavour- of-IT-services-companies.html 10. www.Accenture.com 11. http://www.saviance.com/whitepapers/SocialMobileAnalyticsCloud.pdf&sa=U&ei=Ku5 HU6qxOM6FrAfo3oDgBw&ved=0CCEQFjAB&usg=AFQjCNFBG- WCiwxJe5Itrjh1bsLWY53u2g 12. http://www.infosys.com 13. http://newsroom.cisco.com/release/1133334 14. http://reports.weforum.org/global-risks-2013/view/risk-case-1/digital-wildfires-in-a- hyperconnected-world/ 15. http://tata.com/company/releasesinside/uJJTYApfrY8=/TLYVr3YPkMU= 16. http://www.livemint.com/Companies/Z3QfcVlivVL4kRzsXubr0L/TCS-sets-up-Silicon- Valley-unit-for-SMAC-computing.html 17. Infosys Annual Report for 2013 18. http://articles.economictimes.indiatimes.com/2014-03-2/news/48154092_1_narayana- murthy-sd-shibulal-growth-rate

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