Prepare now for a 7-year famine in IT services

SUMMARY:

The IT services industry is sticking its collective head in the sand over the impact that the shift to the cloud will have on its future revenues and staffing levels.

Louis Naugès
Louis Naugès

The IT services industry is sticking its collective head in the sand over the impact that the shift to the cloud will have on its future revenues and staffing levels. Is it complacency, ignorance or downright deer-in-the-headlamps syndrome?

French blogger and office automation luminary Louis Naugès has decided enough is enough. The co-founder of Google Apps integrator Revevol has just published a lengthy two-part essay looking ahead to how he sees the IT profession in the decade from 2021+.

It doesn’t make comfortable reading. As it’s in French, I’ve taken the liberty of translating some of the key passages below.

Naugès’ thesis is founded on the belief that we are witnessing the onset of R2I, the Révolution Industrielle Informatique, in other words a massive transformation brought about by the industrialization of IT. He writes:

It is rare that the industrialization of a sector creates more direct jobs than it destroys, I do not see why IT would be an exception to this rule.

Employment impact

Naugès goes on to assess the impact on IT employment across small, medium-sized and large enterprises. Remember this is looking seven years ahead. To get to these numbers implies a massive loss of employment over the intervening seven years.

  • By then, small businesses will have no IT staff at all, he predicts. “In 2021+, the situation is clear: No SOHO/SMEs will operate any servers; 100 percent of their applications will be SaaS. There will thus be zero possibility of employment in SOHO/SME for professionals in infrastructure or application development.”
  • His forecast for mid-sized companies employing up to 50 IT staff today is a brutal drop of 60-80 percent of that headcount. “There will no longer be any private datacenters … A very small team of infrastructure managers will be needed to optimize IaaS usage … IT professionals remain indispensable, but in very small numbers, to select the SaaS solutions corresponding to 80-90 percent of needs and develop core business applications that the company wishes to keep.”
  • He sees large enterprises retaining 50 percent of their IT staff, noting that they will still be needed to operate legacy Cobol, SAP and Oracle systems (“Paradoxically, it is the professionals who work on the oldest infrastructure and applications whose employment will be the least threatened!”). But here’s the kicker: the job losses will fall almost entirely on IT services companies, who contribute a significant proportion of overall headcount: “It is obviously the IT services companies who will suffer the most from these adjustments because it is easier for a large organization to terminate a contract for services than to remove internal positions.”

Counterpoint

This perspective provides an interesting counterpoint to the discussion last weekend surrounding Dennis Howlett’s speculation on the relationship between SAP, IBM and Accenture in two years’ time. He made the point that people talk as if growth in cloud-related IT services will offset the decline in conventional IT and sure enough, Vijay Vijayasankar responded that he was bullish about the future for all three companies:

“As world moves to SaaS more and more — the demand for integration will open up a very lucrative SI model. And to add to that will be the big data movement. So this disruption is just a shift of business from one service line to another for SIs … I don’t see any of the SI companies — certainly not IBM and ACN — take a big hit long term, except a few bumps along the way.”

What I realized as I pondered this discussion was that people either ignore or don’t understand that a general move to the cloud — or to be more precise, a general move to consuming applications as a pooled software-as-a-service resource provided by vendors — will hit IT services providers much harder than it will hit the software vendors they work with.

Misconception

This misconception is encouraged by the current obsession with “forklifting” existing apps to cloud infrastructure rather than rearchitecting them to optimize their use of the cloud. When an on-premise instance is replaced by a multi-tenant SaaS application, then all of the cost and resources that would have been spent by the customer getting it up and running disappears into the vendor’s operating costs, where it is aggregated across hundreds or thousands of customers, as I explained several years ago:
cloud aggregate cost own

With SaaS, the customer base shares a single infrastructure, eliminating all of the redundant capacity and wasted effort of the on-premise model. The aggregate cost of ownership is dramatically reduced, as illustrated in the diagram. Those lower costs translate into savings for customers as well as better margins for providers. With cloud platforms and PaaS, where ISVs share a common infrastructure, even more waste and cost is squeezed out …

This is what the cloud delivers: hardened, high-performance, reliable infrastructure far superior to that of any single enterprise — at an aggregate cost of ownership and operation far lower than those enterprises would collectively spend across hundreds or thousands of separate private infrastructures to achieve a much worse result.

Craft workshops

Naugès explains that this will hit the IT services companies hardest of all because it is their staff that largely do the “pre-industrial crafts” of implementation and maintenance of the infrastructure and applications. They either do this work on site or in offshore “craft workshops.” He concludes:

“By 2021+, R2I will have, on these craft workshops, the same impact as that of Word on the PC had on typing pools in the 80s … It is in these IT services companies that R2I will have the most negative impact on the employment of IT professionals; the two activities that use the most employees will be reduced to a trickle.”

There still will be jobs in IT, says Naugès, but instead of being at enterprises they will be at the operators of cloud infrastructure and applications. For any talented individual with skills in innovation, advanced technologies and open source, he advises, “Large industrial infrastructure providers and SaaS solutions will increasingly be your future employers! …

“On the other hand, change your career path if you are looking for a job with low added value, in a large IT department or in a large service provider. These crafts will have no reason to exist in 2021+.”

Thinking ahead

CIOs, educators and policy makers should start thinking ahead about the disruption that he warns of, believes Naugès. Of course the temptation to do nothing is strong. IT professionals “are confronted with an interesting dilemma,” he says:

  • Either “Promote innovative IT that improves the competitiveness of organizations of all sizes, public and private, but requires … fewer IT specialists.”
  • Or “Defend the old, end-of-life solutions, to protect their current jobs.”

But if enterprises start planning now, he advises, there is enough time “to ensure a non-traumatic evolution of IT teams that will lose on average 50% of their workforce.”

Naugès’ predictions are controversial and it must also be said self-serving in the sense that his business will prosper if they come true. But they are certainly thought-provoking and usefully lift the discussion out of the plane of self-satisified complacency in which it too often takes place.

[Updated after publication to correct IT headcount in mid-sized companies; had been translated as “50 or more” instead of “up to 50”.]

Disclosure: SAP and Oracle are diginomica premium partners.

Image credits: Ostrich head © ded – Fotolia.com; Louis Naugès headshot courtesy of Revevol; chart via @philww

    Comments are closed.

    1. lukemarson says:

      Hi Phil,
      Very good article & I blogged about something similar that I am seeing in the Belgian market (https://lukemarson.wordpress.com/2013/07/12/belgium-an-example-of-cloud-changing-the-sap-hcm-consulting-market/). It is amazing how many SIs are putting their head in the sand or insist that Cloud won’t take off. I think it’s undeniable that Cloud is the future and it’s position in the enterprise software world as the main type of technology delivery is a matter of ‘when’ rather than ‘if’. the impact on SI revenue will be significant and few players will survive in markets that are flooded with SIs with high rates.
      Best regards,
      Luke

    2. Viktor Larionov says:

      Hi Phil!
      Nice article, thanks for sharing. 
      Personally I
      belive that the point you described is more of a personal belief (or
      put it the other way – a strong will for it to be that way) of one
      single person, rather than a real perspective we will observe. I
      strongly doubt we can seriously take this prognosis, and here’s why.

      All
      in all cloud computing is cool, in some cases, it even cuts your
      operational costs and makes life more easy. (this all is true, but the
      keyword is: in some cases) But cloud computing is certainly not a jar of
      honey, as it is brought here – it also brings you with a whole pile of
      minuses like less control over your infrastructure, dependencies,
      security issues and all that sort of stuff. All theese issues in real
      life, keep lots of mid-sized enterprises choose private datacenters or
      high-grade local colocation providers over a traditional cloud. 
      Not
      to be bareworded, imagine a situation. Say you are a relatively big
      bank, located, say somewhere in Iceland (relatively big for Iceland
      size). And imagine an impossible: your core applications are hosted say somewhere on Amazon EC2.
      Now one day, your core applications vanish, your new, shiny SaaS’es you
      invested in are gone, transactions stopped, everything down: what will
      you do ? Call customer support ? SLA ? I’d bet you’ll get an answer from
      them (saying that we are doing our best to get you up and running
      blah-blah-blah) just about the time the government commission will start
      up a case on closing your bank. I’ve personally have seen a number of
      such situations, eventually ended up not so dramatic but still. (banks were not closed, services down, were not so critical, but large saas providers is a big no-no for them, ever since)
      Now to the specific points of the story:

      Generally I don’t belive that it’s a bright idea, for example for
      Oracle, or IBM or anybody else of large software vendors to provide it’s
      products directly on SaaS based scenario. It’s against any kind of
      business logic. (for this to work, as a good software vendor, you need
      to be also a good infrastructure operator, keep up with all regulations,
      operational requirments etc. etc. etc – it’s not the same business) So
      from my point, I strongly belive it is much more logical for software
      vendors to develop the software, which they are really good at, and let
      the SaaS delivery to be handled by a selected set of licenced SaaS
      providers (whether they deliver it over a cloud, or onsite, let it be
      the provider to decide). Pretty much as it works nowdays. It first of
      all let’s you keep your partner network, you spent years to develop, and
      on the second side guarantee the best possible flexibility and service
      delivery quality.

      – Now speaking of massive cloud adoption in
      seven years, by both mid and large sized enterprises. I belive that this
      is more of a fairytale than a real life scenario. It’s easy to change
      the way you work and live if you are a SOHO, 10-men shop or anything
      alike. It’s a fairytale in case you are not.
      In large businesses
      changes just don’t happen so quickly. They just don’t. There’s plenty of
      examples – lots of both US and European businesses are operating
      legacy, some of those – real antique technologies just because 10 years
      ago they spent a fortune on integrating those – more to that, those
      technologies still work, so why on earth change those ? The same
      question will come up with clouds.
      Just imagine yourself marching into the general managers office and saying: “Well boss,
      the stuff we have done the last 5 years is now antique, the 10+ million
      bucks we spent on it is now wortheless, we’re moving to the cloud, saas
      and everything else…”. It will take at least a decade or
      more for cloud technologies to be adopted by large businesses and
      enterprises as old technologies and investments made there slowly go to
      the background. Of course if the cloud itself survives so far.
      All in all, I don’t think that it’s a real life scenario we are talking about here.

      1. louisnauges says:

        Viktor Larionov 
        Thanks for your long and detailed comments on my texts, weill summarized by Phil.
        You don’t share my sense of urgency, and I accept it. However, just look back 5 to 6 years: no smartphones, no tablets, no SaaS, no Cloud IaaS, no high speed mobile networks… In a very short period of time, these IT revolutions have invaded the consumer market first, the corporate market second.
        By 2021+; we will look… back at 2013 and have the same reactions we have now in 2013, when we look back at 2007. 
        I really feel it’s urgent, especially for large IT shops, to understand the size of the incoming Tsunami and prepare for it.
        Louis Naugès