Is there anything like an ideal market segment for Business Platforms?
Sunk investments in existing landscape is a factor that plays in mind of large clients. If they decide to move on to a service provider’s business platform, should they junk their existing IT landscape & write-off the corresponding investments? Or will the platform work in conjunction with their IT landscape?
Strategy followed by some ITeS service providers, in large market space, is to buy-out clients’ legacy IT landscape. They try to re-use these legacy applications to design a standard IT application for the client and propose a ~1-2 year migration roadmap. This is a good choice for the client because not only, it is being paid for something that was getting unwieldy to manage, but is also assured of YoY reduction in its cost of operations. Though it seems like a win-win situation, the actual picture for the service provider could be very different, if the actual migration doesn’t go as per plan. The sooner the service provider is able to standardize the IT application & migrate the client, the better it is for it. However, if the migration project doesn’t go as per plan, the service provider is hit with a double whammy – a) it needs to maintain the complex legacy IT landscape longer ($ cost) and b) the benefits expected from the IT standardization get delayed. Essentially, it takes considerable time before the service provider starts making money on the deal. Given all this, we generally don’t see service providers entering into multiple such deals in parallel. So such deals are far & few and most of the deals end up being no real money spinners for service providers. So even though the revenue per client is huge, and the service provider gets to add a marquee client to its list, the profitability for such deals is mostly low.So, this leads us to the question with which we started this entry – is there any market segment which is ideal for business platforms? I think there is no generic answer to this question that is equally applicable to all business platforms. The answer to this question definitely depends on the process scope of the platform. For e.g. for a platform for the master data management (MDM) capabilities of a client, it is ideally suited for large companies that have multiple business units across multiple geographies, each with its own master data. Such clients are in need of establishing a common master data and would look for an offering covering MDM on a business platform. Similarly, for a HRO platform, where the market acceptance has already been established, clients, irrespective of size, are open to such a business platform. However, for a source-to-pay platform, the mid market might be the ideal market segment because the large clients would generally have sunk costs in their existing IT applications, which are difficult to integrate, and the small clients would not yield the revenue/ profit the service provider might be looking for.
