Software boutiques have potential to take the party away from big IT services companies

You cannot stop automation so says the below comic strip.

In the computer age, development of software too is seeing lot of automation. For example, developing a website for a new company/business is a matter of few days task now but it was a couple of month’s project a decade ago. A business user is able to manage much of the applications his company uses when compared to a big support team required to run the same. This means the same work is done by less people supporting it.

Today ET reported that Barclays plans to cut more than 30,000 jobs citing redundancy. (Read more at: http://economictimes.indiatimes.com/articleshow/48138995.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst).
Barclays is not alone. Much of the companies in BFSI (Banking, Financial Services and Insurance) are able to reduce the support staff, thanks to IT automation wave. It is nothing a new phenomenon. Bill Gates had warned about it in an interview. “People Don't Realize How Many Jobs Will Soon Be Replaced By Software Bots” (Link: http://www.businessinsider.in/Bill-Gates-People-Dont-Realize-How-Many-Jobs-Will-Soon-Be-Replaced-By-Software-Bots/articleshow/31969522.cms)

When IT jobs went offshore (or ‘Bangaloored’) India had benefited greatly through big 4 IT firms. Now the same jobs are being automated. New technologies and platforms are creating fewer new jobs than the number of jobs they are obsoleting. Hiring in big IT firms is slowing down. But the number of start-ups setting up shop is seeing a huge increase. ”Indian IT is a victim of its success” said Mohandas Pai (Read more at: http://www.moneycontrol.com/news/business/indian-it-victimown-success-start-ups-next-big-idea-mohandas-pai_2044061.html?utm_source=ref_article). Indian IT industry in the last two decades had created a big pool of talent while it drove productivity across all industries (majorly BFSI) where IT solutions were implemented. Those employees who understood the technology, needs of the customers are venturing out to become entrepreneurs. An estimate says, India has some 18,000 start-ups, expanding at the rate of 4,000 start-ups a year. Since Bangalore is already a home to many of the techies, they are creating companies in their neighborhood quite similar to the phenomenon of Silicon Valley. (http://bangalore.startups-list.com/)

All of these start-ups may not see great success but they are at the forefront in driving the technology. Some of them are innovative, flexible and cost effective. They may not grow big to be another TCS as it is not in their design and they are focused on a specific market segment instead of a wider portfolio. But when they see success it is most likely at the cost of bigger and established firms. IT budgets are closely monitored by major businesses of the world. The total spend do not grow at double digits now. So the market is not getting bigger every passing year for both big firms and start-ups to make money. As the market saturates, market share sets the winners apart from losers.

Much of the business data is moved to internet with the rise of web based applications replacing desktop run programs swiftly. The advantage of ‘body-shopping’ the bigger firms have would not give them any more upper hands over smaller firms in processing that data now. Cloud applications are making it easier through pay per use models avoiding heavy investments in IT infrastructure. Transformation is underway; it is a matter of time before the landscape changes. Now start-ups mostly funded by venture capitalists or founders themselves are not yet a dent on big firm’s earnings, they are mostly sharing the snacks. But they have all the potential of snatching the lunches from the big firms.

What do you think of Mu Sigma, a humble startup now employs a few thousand data scientists? Did big firms find the niche segment of analytics uninteresting? I think they did not play it right, so missed the bus. Acquiring successful startups and merging them into bigger companies may not always work as the culture required would be different and the margin structures do not allow a smoother integration. So the big may not continue to get bigger as they will have to share their meal with numerous small players. If they ignore small players, it will be at their risk.