On April 2nd, IBM India announced its new service partnership with Bharti Airtel, the India-based telecommunications services provider with operations in 20 countries across Asia and Africa. Touted to be a new agreement, the deal builds on the 10 year relationship between the two organisations – a deal that was signed for US$ 750 million in 2004 and eventually touched US$ 2.5 billion. Led by the new Airtel Bharti CIO, Harmeen Mehta, the deal involves IBM India managing Airtel’s Infrastructure and Application Services (including analytics) in India over the next five years.
While the official press release can be read here, much has been speculated in the recent past on this deal – more specifically, IBM has been tainted and said to be losing out in the battle between multiple IT vendors. While vendor bashing is usual (and expected), below is a quick list of aspects that Greyhound Research believes have been given a complete miss by most who have reported on this deal in the recent past.
- First things first, the deal size – Although IBM has refused to comment on the deal size, Greyhound Research estimates the deal has been inked in the range of US$750 – US$850 million for a period of five years. Greyhound Research predicts the deal to touch US$1 billion over the next five years with incremental focus on Analytics and Big Data.
- Let’s compare this deal in the right context – Bharti Airtel of 2014 is not the same organisation as 2004. At the time when this deal was inked in 2004, Bharti Airtel was in a hyper growth mode and needed extensive support from an external IT vendor to support the rapid growth and also build internal capabilities to support the IT setup. Bharti’s business has grown 10x over the past decade in India (remember, this renewal only impacts the IBM Bharti deal in India and not other international markets) – between 2004 and 2014, the subscriber base has grown from 4 million to 200 million. The company is now in a relatively mature stage where it needs to effectively run (read maintain) what it has built as part of its IT setup over the past decade and only add incrementally.
- The speculation on Bharti’s decision to split the deal is a sign of the times – De-risking is a priority for most end-user organisations. It has been speculated that Bharti Airtel has decided to split the deal between multiple vendors – it’s important to note that these speculations are misplaced and the deal remains intact with IBM India. Greyhound Research believes such decisions point to the end-user organisation de-risking its sourcing model. As most have missed and overlooked, this is not the first time Bharti has exercised this option – in 2010, Bharti had split the US$ 500 million deal in Africa between three IT vendors. Many other such examples exist where IT decision makers are not only moving away from using a single vendor for all of its IT operations, but are choosing a variety of delivery and sourcing models like Cloud and managed services to service its operations.
- Strategic Outsourcing (SO) is dying a natural death and being replaced by Cloud and Managed Services – this impacts both deal size and term. Strategic outsourcing deals are increasingly being replaced by cloud and/or managed services delivery methods to leverage the cost and delivery benefits arising out of these delivery models. This deal is a classic example where the end-user organisation – Bharti Airtel in this case – is leveraging these newer delivery models to better manage money and time spent on servicing its existing infrastructure and application portfolio.
- The deal focuses on the customer experience (read analytics) to help Airtel launch new products and services. Analytics and Big Data capabilities have been proven to add significant business value for telcos globally. IBM India is expected to use its analytics portfolio spanning Unica, SPSS, Cognos among others to help Bharti Airtel enhance customer experience and launch new products and services. While this is surely a lofty task but one of the key reasons that makes this ‘a winning deal’ for IBM India.
What’s your Standpoint?
Do you think this deal is a losing deal for IBM India or a smart move by Bharti Airtel? Leave a comment and share with us your experience or send me an email on sgogia@greyhoundgroup.com.
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