Can Indian firms deliver cloud services from offshore?

The Indian offshore companies have become masters at moving code, call centers and research to high-skilled, low-wage regions. Their business model is synonymous with globalization. But cloud and SaaS delivery is best served by proximity and infrastructure reliability, and that may bring some changes to the Indian offshore model.

So far, US companies have been the big players in developing software-as-a-service and cloud platforms for developers and enterprises. But Indian companies that used their low-wage advantages to build global firms are also moving into this area.

Among them is the giant IT services company Wipro in Bangalore, which this week said it will offer a software-as-a-service platform that potentially puts it in a position to compete with providers such as Amazon.com and IBM among others. Wipro will focus on helping ISVs prepare software for SaaS delivery through an offering it developed with Oracle Corp. that utilizes its grid and middleware software.

But analysts say the infrastructure to support SaaS will have to be based in North America and Europe - near the service delivery. A call center may work overseas, but latency , regulatory and reliability issues may be too much for a SaaS service.

"Cloud computing is still very data central location dependent," said Tim Harmon, an analyst at Forrester Research. "If you want to serve North American customers with a cloud computing solution, you better co-locate your data center somewhere in North America," he said.

But managing hosting environments "is fundamentally not the business of a typical Indian company," said Ross Tisnovsky, vice president of IT outsourcing research at Everest Group in Dallas.

The Indian companies grew by adding people, not data centers. Wipro, however, may be in a better position than most. It got U.S. data center capability in 2007 when it acquired a New Jersey company, Infocrossing, for $US600 million. Tisnovsky sees Wipro "turning themselves more into IBM or ACS" with its data center and cloud moves.

Benjamin Ping, an analyst at Gartner, said that if Indian companies want to be "the hosting platform for American ISVs, then they are going to have far greater data center capability, in country, in the U.S., and they don't have that at the moment."

But offshore delivery will still be possible and aggressive pricing could make it attractive for some. Rob Enderle, an independent analyst in San Jose, said for some companie, offshore-based cloud services can be the least expensive, but latency issues and security "continue to provide advantages for domestic providers that many firms would likely be willing to pay extra for. "

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