As digital transformation becomes more important to businesses, cloud adoption is increasing. This accelerated cloud adoption will help Indian cloud services players grow quickly and gain access to a US$500 billion global spend pool. According to a report by NASSCOM, cloud computing will account for approximately 8% of India’s GDP in 2026 growing by four times to reach up to USD 380 billion in 2026.
Organizations’ continued appetite for digital technologies, scalability, and improved security are driving the rapid shift towards multi-cloud solutions. Organizations are investing in the cloud enthusiastically. 78% of digitally mature organizations believe that they have realized the full expected benefits of their cloud investments. By 2026, 40-45% of all enterprise IT budgets will be dedicated to the cloud.
Why is India an attractive destination?
India is an attractive destination for companies to set up their service delivery capabilities. India has a substantial supply of tech talent and a salary cost arbitrage of up to 70%-80% at junior levels when compared to developed markets. Companies that have used offshore service delivery centers to provide services to customers in developed markets have done very well. These companies have been able to maintain high growth rates (25%-30%) and operate at an EBITDA margin of 22%-28%.
Hence, there has been a spurt in investor interest in India-based companies in this sector. From 2019 to 2021, Indian cloud services players have raised over US$4.2 billion with valuations in the range of 2.8x-3.5x (annual revenue) or 14x-18x (EBITDA).
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The growth path for Indian cloud service players
The growth path for Indian cloud services providers is based on correct partner selection and building the service capabilities. The three major stakeholders of the cloud ecosystem are hyperscalers, cloud services players, and end customers.
Hyperscalers are vendors like Amazon, Google, Microsoft, etc that provide infrastructure, platform, and software as a service model for enabling customers to access compute, storage, and networking resources at scale.
Cloud services players support end customers in cloud adoption and act as partners to hyperscalers for reaching a large base of customers. Cloud services players comprise advisory firms, Value Added Resellers (VARs), License Service Providers (LSPs), and Managed Service Providers (MSPs). They support end customers to roll out and manage major deployments.
The end customers of cloud services include small and midsize businesses (SMBs), large enterprises, and very large or public sector enterprises. The large, very large, and public sector enterprises that constitute almost 50% of the market are characterized by higher spend pools and access to better margin profiles.
Big enterprises have a lot of money to invest. Therefore, their biggest considerations while choosing a partner for the cloud journey will be finding players who can support end-to-end requirements across multiple hyperscaler tech stacks. Having referenceable credentials and competencies certified from hyperscalers is also what big enterprises look at.
Large global system integrators (GSIs) offer solutions across the technology spectrum generally catering to very large organizations. “Born in Cloud” or cloud-focused service providers have found success by focusing on mid to large enterprise customers. They build teams with hyperscaler-focused capabilities to get recognition and access to new markets. Other vertically focused players called “Digital Engineering” players concentrate on building specific expertise.
What lies ahead for Indian cloud services providers?
Cloud service providers in India must continue to grow and differentiate themselves in a competitive market. This can be done by building the right capabilities and strong partnerships that will help their customers reach more people.
There is an increasing demand for companies with capabilities across multiple hyperscalers. But only a few (less than 1%) current partners of major hyperscalers have multi-cloud capabilities. Indian cloud service players can leverage this great growth opportunity and build capabilities around major hyperscaler tech stacks. Cloud services providers must build strong hyperscaler partnerships and address whitespaces in the hyperscaler partner network. They need to focus on building vertical solutions around data analytics and engineering for sectors that are ahead of the curve in terms of cloud adoption.
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