Cloud Computing and Outsourcing: A Comparative Analysis

By: Bob McDowall

Cloud computing, described as a subscription-based or pay-per-use service that extends existing IT capabilities over the Internet in real-time, is still in its early stages of conceptual development. It offers a range of services from full-scale applications to niche offerings like spam filtering.

Proponents argue that cloud computing reduces the need for significant capital expenditures on IT infrastructure, potentially impacting outsourcing. However, the question remains: Will cloud computing replace outsourcing, and does it represent a fundamental shift in how financial companies access IT services?

Cloud computing differs from traditional outsourcing in several ways. Contracts are typically short-term, ranging from a session to a month, with no upfront tariff charges. While services are on-demand, they are not capable of unlimited instant scaling.

Indian outsourcers might extend their services to the cloud computing domain, leveraging their spare IT infrastructure resources. If they enter this space, it's crucial to position cloud computing services separately from existing outsourcing services, avoiding overlaps. Pricing models also differ.

Delivery of cloud computing services can be personalized, but its services and strategy are not collaborative. Outsourcers may use cloud computing to sell non-core applications and services, potentially impeding the financial benefits of major outsourcing contracts.

Institutions, especially in the financial sector, may hesitate to entrust critical data and applications to cloud computing until trust in these services grows. Issues like data security, systems integration, and capacity demand will be significant hurdles for cloud computing providers.

Major external technology service provision is likely to remain a traditional outsourcing service, while tactical responses to short-term business demands may erode non-core elements of technology outsourcing.

Cloud computing could find more substantial success in traditional outsourcing if it positions itself as a strategic element of information technology planning.

Bob McDowall is a Senior Consulting Analyst with the Aite Group.

Originally published in The Economic Times, Mumbai, on April 26, 2011