Other changes include vendors getting much pickier about contracts and being less likely to agree to provisions that were considered givens just a short while ago. Outsourcing is no longer quite the buyer's market it once was.
Bruce Caldwell, a principal analyst with Stamford, Conn.-based Gartner Inc., expects the worldwide market for data center outsourcing to grow from $57.1 billion in 2001 to $86.9 billion by 2006, a healthy 9% compound annual growth rate. Caldwell emphasizes that this includes "traditional" data center outsourcing and not services like consulting, end-user support, training or even network support.
"There's been a lot of activity in data center outsourcing this past year," he says, "because of the economic crunch. People are trying to cut costs, and cost has dominated as the reason for outsourcing. We expect that to continue for quite a while."
That said, however, that's not necessarily all good for people who work in a data center. The traditional arrangement has been that, if a company outsourced its major computing platforms, then most of its staffers went
"There are fewer requests from customers" for the outsourcers to take on staffers, he says. In other words, customers are opting to let people go, rather than transferring staff to the outsourcers, as a way of saving even more money than they already are through the basic computing deal. "Employees may not be transferred; they may be let go," he says. "That's an issue that will be very important for everybody to pay attention to."
And any IT professional that does make the move could be in for some major changes. The advent of on-demand computing, just starting to be realized through products and services from IBM Corp., Hewlett-Packard Co. and others, means more of a utility approach and a departure from the idea of an outsourcer using one major server per major client.
So, instead of having one mainframe that services XYZ Corp., an outsourcer is much more likely to have three machines to service six or seven clients that are sharing the horsepower. Another factor here is the general trend of server consolidation.
"Outsourcers are much more likely to take a data center and shrink it instead of growing it," says Andy Efstathiou, a program manager at the Yankee Group in Boston. "Instead of having many servers in the data center, they'd migrate over time to fewer, more powerful servers."
Plus, he says, with computing on-demand, "you would be able to satisfy arbitrarily large spikes in business or processing needs, so you wouldn't need to build a data center with all the redundancy of today's unused capacity."
With all these changes, Efstathiou says, IT professionals who are outsourced can expect to work for multiple clients, not just the company they came from.
Indeed, Efstathiou suggests that companies can achieve many of the same economies of scale by "installing the technologies used to create utility functionality" within their existing data centers.
Also, he says, the notion of having redundant data centers collocated in different geographic regions will become so expensive that it will no longer be a viable option. Customers may want to prepare for this eventuality.
Other advice includes: opt for shorter contracts with easier outs, and evaluate outsourcers on the basis of market share as well as technical competency.
That said, though, don't expect the outsourcers to agree to all a customer's requests. "Vendors can't afford to take on business and hope to grow it at some point later," Caldwell says, which has been the traditional outsourcing business model. Vendors have given a lot of control, and financial incentives, to customers, with the expectation that business would get more profitable as the customer, and its transactions, continue to grow.
Going forward, however, "vendors need to see profitability at the beginning of the contract," he said. Customers can expect to see more stringent benchmark requirements, among other things.
Efstathiou agrees. "Large customers are under a microscope," he says.
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This was first published in March 2003