Small contracts are a big deal for IT : 24-08-2019

IT firms may see a shift to smaller deals from large ones earlier, as clients engage more vendors to execute digital projects, analysts said. 

The average timelines and values of large deals, too, have shrunk, they said. 

While the timeframe has reduced to three years from five before, deal sizes have also fallen to $15 million from $30 million a few years ago, they said. 

“In this market, (IT) providers are hunting for more rabbits than elephants because larger deals are less common these days…,” said DD Mishra, senior director analyst at industry consultancy Gartner. 

As firms move towards digital services, large deals will shrink and get broken up into multiple deals, he said. “So, while they (large deals) look good from a balance sheet perspective, it is becoming prudent to hunt for more profitable, valuable smaller deals,” Mishra said. 

Indian outsourcing companies have been slow to improve digital revenue. “They need to do it faster. The ideal would be 50% coming from digital sources,” he added. Cognizant’s CEO Brian Humpries said in a recent post-earnings analyst call that it would chase a large number of smaller digital services deals, as the software services company attempts to pivot into a large digital player. 

Companies like IBM, which did not compete in the mid-market segment, are now aggressively betting on it, said Sanchit Vir Gogia, CEO of Greyhound Research, a technology advisory firm. “IBM signed up 1,050 customers in one year alone in India, these are mostly midmarket customers,” he said. 

Automation, in terms of integration and maintenance of applications, has increased, and consequently, clients require less money to manage applications. “Any deal above $50-100 million then becomes the first to be cut down, sliced and diced,” Vir Gogia said. 

To be sure, top Indian IT service firms such as Tata Consultancy Services (TCS) and Infosys have won large deals over the past few quarters as clients look to transform their business by adopting digital services. TCSNSE 1.43 % reported that it won orders worth $5.7 billion in the June quarter, while Infosys said it had secured deals worth $2.7 billion in the period. 

Source : Mint