I had the opportunity to catch up with an old friend last week, an industry insider in the broader services market. After a summer cocktail, the conversation quickly turned to the blurring of lines between BPO, consulting and software providers. Based on recent interactions that we both had with services firms and software companies large and small, it seems that a wide percentage of the market wants to get into everyone’s business. Many of the big BPOs are looking to head down the path of acquiring niche — and sometimes not-so-niche — software and platform capabilities, taking advantage of their strong balance sheets to do targeted deals.
And many software companies (even enterprise app and ERP juggernaut SAP) are diving headfirst into bundling guaranteed services and service levels into deployments at price points that often rival or beat established SIs and deployment specialists (even Basware, one of the largest pure-play electronic invoicing platform providers (albeit with broader P2P capability), is getting into BPO, but more on that next week). Throughout the rest of 2011 and into 2012, there’s no question that we’ll see blurring lines between BPO, consulting and software providers. But whether this is a good thing for procurement and finance departments for P2P, spend analysis, supplier management, risk management and related areas remains to be seen. Ariba made the decisive — and smart, given their core competencies — move to leave the sourcing services business entirely last fall, selling their old FreeMarkets business line (GSO) to Accenture (see previous coverage: here, here and here). But that move was contrarian relative to the overall direction of others in the market.
The reason that services and solutions providers are moving down to the software path is quite clear — they want a leg-up on the market and to develop, buy and deliver integrated solutions that can not only drive up the size of client commitments, but stop them from looking elsewhere to piece together different solutions. As my colleague observed, many also have piles of cash sitting around and they want to put it to work — in many cases to drive interest and differentiation into their portfolio as much as anything else. Yes, this sounds a bit superficial (and as anyone who has done M&A knows, it’s most often a recipe for deal integration failure). But don’t tell them that, especially when traditional systems deployment value propositions are declining.
Indeed, in a SaaS/cloud world, the value proposition of traditional SIs and BPOs in platform roll-outs, deployments, integrations, customizations and configurations is diminishing by the year. Yes, we’ll always see the need to integrate tools like SAP SRM and Oracle iProcurement into other apps (e.g., VMS, asset management, invoice automation, etc.). But the number of actual behind-the-firewall deployments is no doubt declining annually while integration in the cloud becomes ever so much easier every year.
Given this position, I think we’ll see a general trend of software providers expanding their services capabilities, often into new areas that extend beyond just supporting deployments (e.g., content services, monitoring services, etc.). But the real change will be on the procurement and related A/P BPO side when both the Indian and Western firms ramp up their buying of niche software assets (don’t expect many large, $50MM+ deals) from which to build differentiated platforms. Moreover, I also suspect we’ll see some of the more daring traditional SIs and management consultants take the platform plunge as well.
Is all of this good for you, the users/consumers of software, services and content? I’m not yet convinced. But you’ll certainly see more general contractors you most likely already know and work with trying to sell you the kitchen sink rather than the individual piece parts that comprise it. Or maybe they’ll rent you the sink — or charge you based on the utility it provides. Who knows? But I do know the menu size and depth will be increasing.