Global BPaaS Market 2012- Future Outlook: Growth driver for Indian IT vendors

Everest Group defines Business-Process-as-a-Service (BPaaS) as a model in which buyers receive standardized business processes on a pay-as-you-go basis by accessing a shared set of resources – people, application, and infrastructure – from a single provider. Advantages of BPaaS model includes potential cost reductions, efficiency in operations, access to best expertise, processes and technologies, and also allows the businesses to focus on the core processes by outsourcing the support functions and this is particularly benefit for SMBs and also Large organizations. According to Everest Group research, BPaaS delivers 35-40% cost savings for small businesses, 25-30% cost savings for medium size businesses and 10% cost savings for large enterprises over the traditional IT+BPO model. Many times there is confusion between SaaS and BPaaS, Gartner clarifies SaaS is an offering that enables a business process and it delivers a fully managed application that client uses to deliver a business outcome whereas BPaaS is a cloud service that delivers a business process and it delivers the business outcome for the client. Forrester is predicting BPaaS will grow from $0.53 B in 2011 to $10.02 B in 2020.

According to Gartner report “Forecast: Public Cloud Services, Worldwide, 2010-2016, 2Q12 Update (ID:G00234814)”, Gartner predicted that BPaaS will grow from $84.1B in 2012 to $144.7B in 2016, generating a global CAGR of 15%. Of the eight subsegments Gartner is tracking in the BPaaS forecast, Cloud Payments (17.8%) Cloud Advertising (17.1%) and Industry Operations (15.1%) are expected to have the greatest CAGR in revenues generated by 2016. In terms of revenue generated, Cloud Advertising is projected to grow from $43.1B in 2011 to $95B in 2016, generating 17.1% CAGR in revenue growth through 2016. Cloud Payments are forecast to grow from $4.7B in 2011 to $10.6B in 2016, generating a CAGR of 17.8% worldwide. E-Commerce Enablement using BPaaS-based platforms is expected to grow from $4.7B in 2011 to $9B in 2016, generating a 13.6% CAGR in revenue globally. Gartner 2011 Annual Survey of 610 Organizations highlights the fact that organizations are currently using or planning to use business process utility (BPU) or BPaaS for BPO exceed 60%.

Most of the Indian IT Vendors including BPO Vendors have developed their own BPaaS offerings and are actively offering them to their clients as these offerings fall under the nonlinear revenue model category that will allow vendors to charge premium pricing leading to higher margins and also fueled by economic slowdown, manpower issues and changing client needs wherein they are looking at outsourcing vendors as business partners who will help them improve both Topline and bottom line. TCS, Infosys, Cognizant Technology, Wipro, HCL Technologies, Genpact, WNS, etc. are all offering BPaaS services or Platform BPO offerings. These services have been developed for the past ten years and Indian IT Vendors are branding these offerings and successfully offering them to their clients. Platform BPO is a win-win offering for both the clients and vendors as they improve their process and service delivery and they will earn more from their clients on outcome basis. There has been significant demand from the Small & Medium Business segment but slowly the large business organizations too are significantly increasing their adoption of the BPaaS.

Global IaaS Industry 2011& Forecast 2014-2016 – Slow adoption by large Enterprises

Infrastructure as a Service is a cloud computing model in which the service provider owns the equipment (Hardware like Storage, Servers, Networking Equipment, etc.  & Software) and is responsible for housing, running and maintaining it and the client typically pays on a per-use basis.  Major players in the IaaS market include Leaders like Amazon Wen Services, Savvis, CSC, Terremark, Bluelock; Challengers like Navisite, Opsource, IBM, GoGrid; Visionaries like Rackspace, Joyent and Niche players like Hosting.com, Tier3, AT&T, Tata Communications, SoftLayer, iland, Carpathia Hosting, Datapipe and Virtacore Systems, according to Gartner Magic Quadrant December 2011. Gartner predicts IaaS is a fast growing market as players like Google & Microsoft entered this market and in future this market will be 1/3^rd of the hosting market. Gartner also forecasts the IaaS market will generate $24.4B in revenue in 2016 from $5.6B in revenue in 2011 and IaaS is expected to grow by over $20B with a CAGR of 41.7% in the forecast period globally. The Compute sub segment is expected to see the greatest revenue growth globally, growing from $3.3B in 2011 to $20.2B in 2016, generating a 43.2% CAGR and other two sub segments CAGR growth - Storage (36.6%) and Print (16%).

Forrester predicts that IaaS market will initially grow for next few years but the market is expected to decline in the long term. Forrester’s report, “Sizing the Cloud”, highlights that IaaS is the second largest public cloud category with a $2.9 billion market size and “IaaS will reach a peak of $5.9 billion in global revenues in 2014 and will then enter a period of significant commoditization, price deterioration and margin pressure and between 2014 and 2020, as a result, the IaaS market will first stagnate and then decline, with total market revenues of $4.8 billion in 2020,” according to Forrester analysts Stefan Ried and Holger Kisker. Yankee Group analysts suggest IaaS might represent $2 billion to $3 billion, globally. IDC also estimates IaaS will decline to $15 billion in 2014 and most of the analysts believe the IaaS market will be larger than the PaaS market and IaaS is one of the most talked about in the cloud space, which saw several important improvements, such as changes in pricing strategies, the appearance of new smaller players, and the entrance of some technology heavyweights.

Enterprise Strategy Group survey published in January 2012 highlights that of more than 600 enterprise and mid-market companies globally; only 27% said they were using public cloud IaaS services. That's up 10% from a similar survey published in early 2011. But 28% of respondents said they have no immediate plans to jump into the cloud, and another 24% said they haven't pulled the trigger on a cloud deployment yet, but plan to at some point in 2012. SMBs are at the forefront of IaaS adoption totally for IT infrastructure needs but large enterprises are selective in adoption and using public IaaS primarily for these specific use cases: R&D projects, load testing, move non critical legacy applications from expensive on premise to off premise, build & deploy new apps and as part of SaaS or PaaS usage. With some of the large enterprises that selectively adopted IaaS couple of years back and who effectively utilized it are becoming test cases for more large enterprises to adopt IaaS within their organizations. There are also concerns that the pricing has not fallen for some time till now but with the entry of more players particularly Large IT players, businesses can expect more choice of offerings and reduction in prices.

Global SaaS Market 2012 – Emerging Markets will drive growth till 2015

Software as a Service also known as on-demand software is a delivery model in which software and its associated data are hosted centrally and are accessed by users using a web browser. After more than a decade of use and vast improvements in the cloud computing technologies and many players like Amazon, Google, Saleforce.com, etc, major software vendors, developers and independent software vendors too invested significant resources both in terms of monetary, human and infrastructure to further develop the cloud computing. Initially IBM kick started the trend towards cloud computing with its On Demand computing initiative in 2003 and later in 2005 Amazon took the market forward with its cloud offerings like the Elastic Cloud 2 (EC2).  Even Indian IT Services Vendors and other small & medium players too are focused on cloud computing and particularly in Software as a Service offerings (SaaS). SaaS growth is an alternative to the on premises software and also Cloud-based licensing is different from traditional on-premises licensing and the market growth is only possible by cannibalizing the traditional software market. SaaS was expected to capture significant market share as its adoption benefits range from significant reduction in costs as buyers need not invest on the IT infrastructure on their premises, pay as you use model, easy to scale and upgrade, tighter IT budgets due to economic volatility in recent years and mobility i.e. access from anywhere and with any device.

According to Gartner, worldwide software-as-a-service (SaaS) revenue is expected to reach US$ 22.1 billion by 2015 as many companies are investing in cloud technology and is expected to grow healthily by 17.9% to reach USD 14.5 billion in 2012 from USD 12.3 billion in 2011. North America revenue is forecast to be US$ 9.1 bn in 2012 compared to US$ 7.8 bn in 2011, Western Europe revenue 2012 forecast US$ 3,2 bn compared to US$ 2.7 bn (2011), Eastern Europe (2012) US$ 169.4 million compared to US$ 135.5 million (2011), Asia Pacific (2012) US$ 934.1 mn compared to US$ 730.9 mn (2011), Japan (2012) US$ 495.2 mn compared to US$ 427 mn (2011) and Latin America (2012) US$ 419.7mn compared to  US$ 331.1 mn (2011). According to IDC, SaaS market revenue which includes cloud applications, application development and deployment, and system infrastructure software sales will rise to $53.6 billion by 2015 at a CAGR of about 26%. IDC also asserts that SaaS will grow faster than traditional software and will comprise 80% of the software delivered by new ISVs. By 2015, nearly $1 of every $6 spent on packaged software, and $1 of every $5 spent on applications, will be consumed via the SaaS model. According to Forrester, the public cloud market for SaaS is the biggest and fastest-growing of all of the cloud markets ($33 billion in 2012, growing to $78 billion by the end of 2015). According to market research firm Global Industry Analysts, the global SaaS market will reach $26.5 billion by 2015, as more companies will seek low-cost enterprise software solutions to accommodate limited IT budget growth, which could slow due to the global economic recession.

SaaS market growth is different in different geographies and compared to mature North America market that contributes 2/3^rd of the total SaaS market revenues is expected to grow by 16.7% and Western Europe the second best market expected to grow by 18.5% YoY, which is less when compared to 28% YoY growth for Asia Pacific excluding Japan, 27% growth for Latin America, 25% growth for Eastern Europe and Japan too is expected too see low YoY growth of 16% like in the other mature markets. Data highlights that SaaS market growth lies in the emerging markets as the countries in those markets are improving their IT infrastructure and looking to adopt SaaS technologies aggressively. Small and Medium Enterprises (SMBs) are driving the growth when compared to large enterprises that find it difficult to migrate to cloud computing from their existing on premise software and hardware systems as they have made significant investments in building these systems for years and due to other concerns like data security integrity, privacy, skilled man power, pricing and contracting issues, regulations, etc.  SaaS has become a common delivery model for most business applications, including accounting like expense management, financials, collaboration, customer relationship management (CRM), management information systems (MIS), enterprise resource planning (ERP), invoicing, human resource management (HRM), content management (CM) and service desk management.

Asia Pacific is high growth market for SaaS and this is driven by increased adoption in India, China driven by adoption of financial applications like accounting. ERP functions like Expense management and Employee Performance management, along with office suites, email and CRM sales are the other applications that are being deployed by companies in this region. Mature economic countries in this region like Australia, New Zealand, Hong Kong, Singapore, South Korea and Taiwan are driving SaaS adoption as they have good IT infrastructure that encourages increased adoption. Emerging countries in this region like Malaysia, Thailand, Indonesia, Philippines, and Vietnam where IT infrastructure is developing fast are also expected to increase SaaS adoption. Japan was affected by the 2011 earthquake and Tsunami but SaaS market is gaining traction as Japanese companies are looking at SaaS as a defense against future power outages and disasters but there are concerns in terms of security, costs, and integration. Despite Japan economic problems and tighter IT budgets the demand for SaaS solutions is increasing due to their lower implementation costs and faster deployment times. SMBs too are driving growth and according to AMI Partners, SMB focused market research firm, forecast that the SaaS market in Asia/Pacific (excluding Japan) will reach $1.5 billion by the end of 2012 and expects the market to more than double by 2015.

Expense management, financials, email and office suites are the business apps deployed through SaaS and Web conferencing is also highly used as most of the American companies have global operations situated across the world but the market is also facing problems in terms of limited flexibility of customization and limited integration to existing systems according to Gartner. Gartner analysts said in Western Europe, the most developed sub region, SaaS Market is rapidly increasing as North America-based SaaS vendors further penetrate the region and the number of local European SaaS vendors increases. In Eastern Europe and the Middle East and Africa, which are small and emerging markets overall, the potential opportunity for SaaS is more in the medium to long term due to ongoing infrastructure challenges that vendors need to overcome if they are to be successful in these regions. In Latin America, SaaS has been deployed in the areas of email, financial management (accounting), sales force automation and customer service, and expense management. While regional adoption will be positive, it is fully expected that Brazil and Mexico will drive a majority of adoption and revenue opportunities.

Mobile Application Stores Profile - Apple Inc.- App Store

Apple App Store - Number of Applications Downloads & Applications (Apps)

Apple App Store is a digital application distribution platform for iOS that opened in July 2008 and allow users to browse and download applications ( Apps) from iTunes Store. Applications range from business to game applications, entertainment to educational applications, and many more applications available for free or for sale.

As of April 2012, the iTunes App Store has over 600,000 apps available on Apple’s iOS platform and it added around 50,000 in previous two months. Around 200,00 apps are specially optimized for iPad. Apple tightly controls the App store and the approval process for Apps make sure quality of Apps.

According to data collected by 148Apps.biz from iTunes Store:

Total Active Apps (as per May 2012): 635,050; Total Inactive Apps (no longer available for download): 178,579; Total Apps Seen in US App Store: 813,629; Number of Active Publishers in the US App Store: 157,197

According to data collected by 148Apps.biz from iTunes Store- Most Popular Categories: Games (111,164 active); Books (63,604 active); Entertainment (63,432 active); Education (62,755 active); Lifestyle (53,420 active)

The App Store is now available to users in 123 countries and the number of app downloads reached 25 billion in March 2012. iTunes Store sells apps for iOS, as well as music, movies, podcasts and e-books, all of which contributed US$3.6 billion in first two quarters of FY 2012 and total revenues for FY 2011 is US$5.4 billion.  

According to IHS Screen Digest May 2011 research, Apple App Store expected revenue of $2.91 billion for 2011, up 63.4% from $1.78 billion in 2010. The report  further forecasted Apple App Store revenues to be  approximately $4.26 billion for 2012 (76% of Total Market) and $4.98 billion for 2014 (60% of Total Market).

Apple also said developers have made more than $4 billion from the App Store since it was launched in 2008. Apple receives a 30% cut of revenue generated by content sold through iTunes for iTunes operational costs and app developers and content makers get the remaining 70%.

Flurry Analytics reveals that Apple's App Store generates the most revenue for developers that means for every $1.00 an app generates in the App Store, it would generate $0.89 in the Amazon Appstore and $0.23 in Google Play.

According to Fiksu App Store Competitive Index which tracks the aggregate volume of downloads per day achieved by the top 200 ranked free iPhone apps in the U.S. In March 2012, the Index decreased by almost two million daily downloads - a 30% drop - to 4.45 million, down from 6.35 million in February.  

The Cost per Loyal User Index measures the cost of acquiring a loyal user for brands who proactively market their apps and for index purpose loyal users are defined as people who open an app three times or more. In March, the cost per loyal user held steady, moving less than 1 percent to $1.30, from $1.31 in February.

Post the hyper demand activity due to iPhone 4S launch in October 2011 and holiday season, dip in march 2012 is expected. Apple Policy against the use of robotic install tactics by app marketers also caused the slowdown but spending by mobile marketers was steady.

Global Mobile Application Store Revenues – Smartphones & Tablets drive growth

According to ABI research, Total mobile app store revenues from pay-per-download, in-app purchase, subscriptions, and in-app advertising will rise over the next five years, growing from $8.5 billion in 2011 to $46 billion in 2016. Pay-per-download dominates the category but in-app purchase is also rising. ABI Research estimates that 29 billion apps were downloaded worldwide in 2011; up from 9 billion in 2010, the market growing at 12% month-on-month with nearly 36 billion apps downloaded in 2012 to smartphones and tablets. According to Strategy Analytics, 2012 Global mobile media revenues will be $150 billion, which will be 17% rise from $128 billion in 2011 and consumer spend will increase from $121.8 in 2011 to $138.2 billion in 2012 and advertiser spend will almost double from $6.3 billion in 2011 to $11.6 billion in 2012. Applications are forecasted to account for 19% of global consumer spend, or $26.1 billion in 2012, rising 30.7% from 2011. Revenues will remain relatively flat, music will continue to be a strong category, accounting for 11.6% of consumer spend, or $16 billion and video will account for just 2% of consumer spend globally. Apple’s App Store and Android’s Google Play are now big business with 32 billion apps expected to be downloaded in 2012 compared with 23 billion last year.

According to Juniper Research, more than 31 billion apps downloaded to mobile devices in 2011 and estimates consumer app downloads are expected to reach more than 66 billion per annum by 2016. Annual revenues from consumer mobile applications will approach $52 billion by 2016 as consumer smartphone adoption accelerates along with the emergence of tablet market. According to International Data Corporation (IDC), the global mobile app downloads are forecast to soar to 182.7 billion in 2015. By the end of 2014, Gartner forecast over 185 billion applications will have been downloaded from mobile app stores, since the launch of the first one in July 2008. According to May 2011 IHS Screen Digest, combined revenues from the four major mobile application stores run by Apple Inc., Google Inc., Nokia Corp. and Research In Motion Ltd. will leap 77.7 %in 2011 to $3.8 billion from $2.1 billion in 2010 and revenues will continue rising in the next few years, jumping to $5.6 billion in 2012, $6.9 billion in 2013 and $8.3 billion in 2014. The total number of downloaded applications in 2011 is expected to reach 18.1 billion by year-end, compared to 9.5 billion last year, 3.1 billion in 2009 and by 2014, downloaded applications will top some 33 billion.

Mobile Applications or Apps are specialized software that run on a mobile device such as mobile phone, MP3 Player, Tablet that performs or executes a specific task and the apps have been existed for several years on personal computers, but real fame for mobile apps is because of Apple Inc.’s App Store that has revolutionized the mobile apps world through its App Store on iTunes, a unique monetization model, that encouraged developers develop apps that educate, entertain and assist the mobile users in their day to day lives. Today there are many different apps like games, music, social networking, photo/video, productivity, entertainment, etc and there are more than million applications that are downloaded close to 20 billion times onto smartphones, feature phones, Mp3 players and tablets. Apple Inc’s App Store, Google Inc.’s Google Play (Merged Android Market & Music Service), RIM’s Blackberry App World, Nokia Ovi Store, Microsoft Windows Marketplace, Samsung Apps are the most popular apps stores. In fact availability of millions of apps has fueled the sales of smartphones and feature phones and developers are making money through a 70/30 revenue split where in developers get 70% of revenues & rest to app store owners. Mobile device makers too are including powerful chips, advanced software and hardware like advanced display screens, long battery life, etc so that apps can run smoothly and customers can easily access, install and use them easily.

App Stores are critical for smartphones and tablets success and developers need to be attracted and encouraged to develop applications that are bought and downloaded by consumers. Developers need to be provided with necessary software development toolkits, constantly be informed various updates being made to the core software code, favorable revenue splits and conferences have to be organized regularly so as to keep the interaction going and since past couple of years many application stores have been set up by various players, which also created a tough competition among the various stores to attract and retain their developers. Developers have to constantly develop and innovate new applications, work to add new features, improve app users experience, localize the app according to user’s regional background, culture, language and make the apps more users friendly to survive in the highly competitive market. App Store owners too have to tightly control the content, organize the store properly and the quality of applications on the stores has to be maintained to attract consumers and earn revenues. Since consumers are looking for accessing the various products and services they use through their mobiles and tablets, businesses are forced to include apps as part of their integrated multi channel distribution systems and apps help businesses to engage and retain consumers which are also fueling the mobile applications market.   

Developers and Content providers are actively looking for other storefronts other than the current App Store fronts and with development of technologies like HTML5 will allow them opportunity to offer apps that consumers download directly and install easily without the App Stores. The competition is further intensified with mobile operators and telecom companies are offering their own app stores for consumers and there is even more competition for attracting the developers. But in near future Apple App Store will dominate the market distantly followed by Android and the monetization of apps at stores other than Apple App Store is a major concern and in fact slowing down the App Store revenues growth. Pay per click and Pay per download models are loosing to In App Purchase models as consumers are more interested in free apps and content and are not interested in paying for apps upfront. Games dominate the market followed by music and social networking apps, but photo/video sharing apps and productivity apps are gaining prominence.

Global Semiconductor Industry will continue its slow growth in 2012

Global Semiconductor Industry saw tremendous growth in 2010 post the global financial crisis as major semiconductor companies invested in manufacturing facilities to meet the raising demand from consumers fueled by sales of tablets, personal computers, datacenter server demand and mobile phones particularly smart phones. But the growth stalled in 2011 due to the volatile macro economic environment particularly the European Debt Crisis and the US economic slowdown, subsequent effect on other countries particularly nations like India, China, etc that saw slowdown in economic growth, natural disasters like the Japan Earthquake and Tsunami, Thailand Flooding too played their part but the global semiconductor industry survived these adverse conditions and grew modestly in single digit. The industry went through bad patch in 2009 due to the Global financial crisis where the YoY growth declined by 20% but it recovered in 2010 with a remarkable double digit more than 20-30% growth but due to the above mentioned adverse conditions growth was modest between 2-4% in 2011. But with the growing consumer demand for tablets, e-readers, personal computers like laptops, ultra books, smartphones, datacenters and cloud computing, etc the Global Semiconductor Industry is expected to reach approximately $412.8 billion in 2016 according to IHS iSuppli Global Manufacturing Market Tracker report. Global semiconductor revenue will reach $324.6 billion with 4.37% YoY growth in 2012 where as industry grew by only 1% in 2011 according to IHS.

Source: IHS iSuppli Research, April 2012

According to IDC, Worldwide semiconductor revenues increased more than 3.7% YoY to $301 billion in 2011, compared to more than 24% YoY growth to $282 billion in 2010. IDC expects 2012 semiconductor revenue growth to be in the 6-7% range fueled by accelerated growth in second half of 2012 when fab utilization rates rise and semiconductor cycle that started in mid 2011 will bottom out by second half. Gartner forecasts worldwide semiconductor revenue to total $316 billion in 2012, a 4% increase from 2011 level of $306.8 billion, up $5.4 billion, or 1.8% from 2010 level of $301.4 billion. Gartner is expecting a rebound starting in the second quarter of 2012, supported by inventory corrections, bottoming foundry utilization rates and global economy stabilizing. According to both IDC and Gartner, Intel is the market leader with close to $51 billion in revenues; Samsung is number 2 with $27 billion revenues (Gartner) and $29 billion revenues (IDC).According IDC Texas Instruments is third followed by Toshiba and Renesas Electronics but according to Gartner Toshiba is number three followed by Texas Instruments and Renesas. Also similar difference is there for number seven and eight positions according to IDC Hynix is seven and STMicro eight but Gartner classifies STMicro is seven and Hynix is eight.

Microprocessors performed well in 2011 after not doing so well in 2010 and are expected to continue to do well in 2012 with high average selling price and strong demand for Intel chips for use in Personal computers like notebooks & ultra books and servers. NAND flash memory revenues are expected to grow in 2012 just the way they grew in 2011 fueled by strong increase in mobile consumer devices and solid-state drives. DRAM pricing fell by 50% has affected the overall industry revenues in 2011due to falling ASPs and oversupply as it poorly performed where in the revenues fell by 25%. But DRAM will see slight recovery in 2012 as one of the major player Elpida filed for bankruptcy. Inventory is a major concern for the industry and according to IHS despite the semiconductor suppliers reducing their inventory by 7.5% over the last 6 months, total inventory remains at high levels both in terms of aggregate dollar value as well as in days of inventory but further reductions at least another 5%, expected through H1 2012, are necessary for chip makers to experience sustained demand and growth.

Gartner forecasts semiconductor revenue from media tablets will reach $9.5 billion as unit production is expected to increase by 78% YoY, semiconductor revenue from PCs will reach $57.8 billion as unit production expected to increase 4.7% and semiconductor revenue for mobile phones will reach $57.2 billion as production is expected to grow 6.7% in 2012. Consumer demand from Asia Pacific and Americas is expected to rise further but demand in Japan and Europe is expected to be seeing negative growth. The semiconductor industry is also seeing consolidation as larger players have significant cash reserves and looking to acquire smaller players as companies in the industry is positioning themselves for the next phase of growth with devices becoming more intelligent and needing support for high-level operating systems, connectivity, and application processing capabilities, according to IDC. A number of mergers and acquisitions came to fruition in 2011, most notably Qualcomm–Atheros, Texas Instruments–National Semiconductor, SMSC–Conexant, Broadcom–NetLogic, CSR–Zoran, and Microsemi–Zarlink and this trend is expected to continue in 2012 according to IDC. Ultimately the growth of the global semiconductor industry is dependent on macroeconomic environment stabilizing and improving with containment of European Debt crisis and growth returning back to emerging countries like India, China, etc that drive demand for PCs, tablets like iPads and e-readers, Smartphones like iPhones, no major natural disasters, and manufacturers of PCs like notebooks, ultra books, servers, mobile phones, etc launch new models and attract more consumers. Most of the research firms and semiconductor companies expect that growth will return by second half of 2012.

US Healthcare BPO 2011 till 2015 – Growth Opportunity for Indian IT Vendors

US Healthcare market is estimated to reach US$ 4.6 trillion by 2020 from 2011 spend of US$ 2.5 trillion and this provides an outsourcing opportunity of close to US$ 22.5 billion by 2015 from the 2011 level of US$ 14.5 billion according to research firm Nelson Hall/Technology Holdings. US Healthcare BPO market consists of Payer segment (healthcare insurance companies) and provider segment (hospitals) and the global healthcare industry particularly US Healthcare Industry is undergoing major changes in the past two years due to regulatory reforms, government policies and technology developments. Obama Care which is The Patient Protection and Affordable Care Act that was signed into a Law in March 2010 is expected to expand insurance access further to more than 30 million US citizens. But the short term opportunity that beckons Indian IT Vendors is the ICD- 10 (International Classification of Diseases, 10th edition) transition from the existing ICD-9 system of disease classification and transition has to be completed by October 2013. US Healthcare companies are already late for this transition as this classification was framed in 1993 and countries like Australia, UK, Germany, etc have adopted earlier. Also the new regulations forces the players in the industry to comply with rigorous, expensive auditing and reporting requirements, HIPAA standards, complex rules for Medicare and Medicaid, and IT standards but the most important priority right now is the ICD-10 transition.

Source: NelsonHall & Technology Holdings

Claims processing, which constitutes significant cost (60% of total cost) and is the most outsources function in the Payer BPO industry, followed by member and provider management and Wellness. But growth lies in the Payment integrity segment (CAGR 21%) as companies are focused on reducing Frauds, Waste and Abuses as costs need to be contained for surviving in the industry. Health Information Exchange (CAGR 19%) and clinical decision support services (CAGR 21%) will also see significant growth in near future. Provider segment is dominated by post intervention services but the there is significant growth opportunity in Medical Coding (CAGR 17%) as transition to ICD-10 is must by October 2013. Pre intervention services that include insurance verification, patient scheduling, etc and support services like revenue collection and cycle management also have significant growth potential in near future. There lies one billion dollar opportunity for the Indian IT & BPO vendors in US healthcare segment in near future. US Healthcare companies have traditionally been slow in adopting outsourcing and with ICD-10 transition and other regulatory and policy changes, raising costs, margin pressures, higher claims disbursement costs  have forced them to consider outsourcing a priority as Vendors  will help them in containing costs.

Traditionally US have been the largest market and most of Indian IT Vendors get more than 50% of the revenues from this region. Until recently BFSI is the dominant revenue generating vertical for top Indian IT Vendors and with US economic slowdown and European Debt crisis having significant affect on Banks and Financial Institutions globally, Indian IT Vendors have seen fall in growth. US Healthcare provides a significant opportunity for Indian IT Vendors as the Global Software and Outsourcing firms are expecting deals worth US$ 10-16 billion in this space due to various regulatory policies and healthcare reforms by the US government and Indian IT vendors are expected to bag half of these opportunities by 2015 particularly in care management, ICD-10 transition, electronic healthcare records, etc for healthcare and insurance companies. Indian IT vendors can help US Healthcare companies in terms of implementing technology, upgrade systems and software, lower administrative costs as such work can be outsourced to low cost destinations like India, and Indian Vendors have undertaken outsourced work in areas of claims, billing and other service areas. Multi-shore delivery model is necessary, onshore presence is a must due to the regulatory requirements for sensitive patient data and to further strengthen their offerings in the Healthcare segment, Indian IT vendors are further strengthening their onshore presence, recruiting local resources in US and also looking to acquire small and niche players in the healthcare segment so that they can acquire technologies, skilled professionals and clients.

The ICD-10 transition is a complex process as transition from ICD-9 will increase the coding volume significantly from 24,000 codes to more than 1, 55,000 codes and there is a shortage of medical coders in US by more than 30% and there is not much time for training and developing medical coders as the deadline of October 2013 is closing in. Indian IT and BPO vendors can grab this opportunity and can easily recruit young, talented life sciences and healthcare graduates, doctors, nursing staff and train them in medical terminology and knowledge who can then service the healthcare clients in the ICD-10 transition and other healthcare BPO functions. India has the scale in terms of large pool of healthcare and life sciences professionals who can be recruited easily at a comparatively lower cost and easy to train and US healthcare companies can definitely rely on Indian IT & BPO vendors to achieve the 2013 target for ICD-10 transition. Cognizant Technology Solutions is the largest player and it got 27% of total revenues from healthcare vertical and is rated in Top 10 Healthcare service providers globally and it has invested in this vertical significantly for years. TCS (5.3%) and Infosys (5.5%) has a very small presence in Life science and healthcare verticals get around 5% of total revenues and are focusing on increasing revenues from this vertical by way of acquisitions of small and niche  players in healthcare segment. Wipro gets 10% and HCL Technologies gets 9% of total revenues from Healthcare and they are also focusing on significantly improving revenues from Healthcare vertical. Overall there is a significant growth opportunity for the Indian Vendors in Healthcare vertical and they too are aggressively looking to capture the opportunity. 

Worldwide Social Network Users by Geographical Region – 2014 Forecast

Social Networking has seen rapid growth in the past couple of years with 1.2 billion social network users worldwide in 2011 and the users are forecasted to reach, 1.43 billion (2012), 1.66 billion (2013) and 1.85 billion (2014) according to eMarketer. Consumer Social Networking sites like Facebook, Twitter, Google+, LinkedIn, etc mostly used by consumers as well as businesses have been seeing tremendous growth as evident in the number of users like Facebook (850 million), Twitter (465million), LinkedIn (150 million) in 2012. These social networking sites had significantly influenced the lives of millions of users, how they communicate with friends and family, voice their opinions, collaborate and share knowledge, content and social networking sites too provided the tools and platforms that are easy to use, provided an unique experience, games and applications and kept users hooked to the sites as evident in the comScore report that online users spend 1 minute in ever 5 minutes on social networking sites. According to Radicati Group report, the total number of worldwide Social Networking accounts, including both Consumer and Enterprise accounts, expected to grow from about 2.4 billion in 2011, to about 3.9 billion in 2015. The number of Social Networking users is expected to rise from 798 million users in 2011, to over 1.2 billion in 2015. (Note: users typically have more than 1 account).

Source: eMarketer "Worldwide Social Network Usage: Market Size and Growth Forecast" report.

Asia Pacific is the dominant region due to the number of countries and online population is higher. China dominates the region with close to half of the users of the total Asia Pacific social network users are from China. Other countries from Asia Pacific that figure in the top ten social network users list are India, Indonesia, Japan, South Korea and Australia. Latin America is the second dominant region with Brazil dominating followed by Mexico and Argentina. North America is dominated by US and Canada. Eastern Europe is dominated by Russia. Western Europe is dominated by Germany, UK, France, Italy and Spain. Worldwide social network users YoY growth is expected to slow down from 2012 as the market reaches maturity where in the YoY growth for 2012 will come down to 19% from 23% in 2011 and is forecasted to grow by 16% in 2013 and by 11.6% in 2014. Social Networking sites like Facebook, Twitter, Google+, etc will drive the growth along with localized social networking sites in regions like Asia will also contribute to growth. Mobile devices will drive more social network users in the emerging markets as most of mobile handset makers are equipping the mobile handsets with social networking for the customer use.

HCL Technologies Limited - Revenue Analysis & Operating Metrics 2006-2011

HCL Technologies Limited - Financial Performance 2006-2011

Financial Performance:

• 2009 revenue growth was affected due to global recession and Financial crisis and YoY growth was only 17%. YoY growth picked up again in 2010 ( 24%) and 2011 (31%) 
• Reduced Operating expenses by almost half in 2009 (17% YoY) but again increased according to the revenue growth. 
• Negative YoY growth in net profit in 2008 (-11%) and 2009 (-6%) but profitability significantly increased in 2011 (35% YoY)

HCL Technologies Limited - Geography Mix 2006-2011 

Geography Analysis:

• Dependency on the US market is always high and the contribution reduced in 2011 compared 2010 but still 56% revenues come form the region. Peaked in 2010 with 62% of revenues. 
• Europe is the second largest market but the contribution fell in 2010 but again increased in 2011 and historically HCL had strong presence in Europe. 
• Rest of the world is also increasing compared to previous years and the company is looking to increase further. 

HCL Technologies Limited Vertical Revenue Mix 2006-2011

Vertical Analysis:

• Manufacturing is the core vertical but the revenue contribution has been falling. 
• Financial Services second largest vertical and growth is constant. 
• Telecom is the third largest vertical but revenues have fallen significantly since 2009.  
• Retail & CPG have fallen in 2007 and constant since. Healthcare revenues are constant in last two years. 
• Energy Utilities and public sector have seen constant growth since 2009. 

HCL Technologies Limited -Services Revenue Mix 2006-2011

Services Segment Analysis:

• Custom Application Services is the largest offering followed by Engineering R&D Services. Custom application services saw growth in 2011 and Engineering R&D services fell in 2011 compared to 2010. 
• Enterprise Application services is growing constantly in the last three years between  21-24%. 
• Infrastructure services are seeing significant growth from 15% in 2008 to 23% in 2011. 
• BPO services revenue is falling since 2006 from 13% to 6% in 2011. 

HCL Technologies Limited Contract Type 2006-2011

Time & Material contracts are the most preferred. But the Fixed price contracts are also seeing growth since 2008.

HCL Technologies Limited Onsite/Offshore Mix 2006-2011

Onsite has always been dominant contributor for HCL Tech but since 2009 the contribution significantly increased.

Source: Company Investors Site                               Website : www.hcltech.com/investors

Cognizant Technology Solutions Corp - Revenue Analysis & Operating Metrics 2006-2011

Cognizant Technology Solutions Corp - Financial Performance 2006-2011

Financial Performance:

• Except in 2009 (16% YoY) due to recession caused by Global Financial Crisis Cognizant had seen significant YoY revenue growth 2010 (40%) and 2011 (33%). But compared to other Indian Top players Cognizant has done really well during and after the recession and crisis. 
• Significantly reduced the operating expenses during FY 2009 and later increased operating expenses in line with the revenue growth. 
• Cognizant has overtaken Wipro and became the Number 3 player and is closely following on the heels of number 2 player Infosys. Cognizant had seen tremendous growth in the past few years. 

Cognizant Technology Solutions Corp - Geography Mix 2006-2011

Geography Analysis:

• Dependency on the North America is very high compared to other Indian Players and it gets almost 80% of revenues from the region. 
• Europe has been constant at 18-19%. 
• Rest of the World ( APAC, Latin America, MEA) revenues are small but growing slowly. 

Cognizant Technology Solutions Corp - Vertical Revenue Mix 2006-2011

Vertical Analysis:

• Cognizant is the dominant player in the BFSI segment and it gets significant amount of revenues from Insurance segment along with financial services segment. 
• Healthcare is the second largest revenue contributor and has significant dominance in this vertical and Healthcare spending in US is on the rise.  
• Manufacturing/Retail/logistics is growing over past three years.  
• Cognizant focuses on these few verticals for growth. 

Source: Company Investors Site                                     Website: http://investors.cognizant.com/