Are systems integrators a threatened species? Some analysts think so.

In a blog entitled "Will Cloud Integration Make Dinosaurs of Systems Integrators?" Loraine Lawson on itbusinessedge.com on May 25, 2009, writes:

"Heads up, systems integrators. Google is calling you out."

Lawson cites Peter Lorant, head of EMEA Partners Google Enterprise, who, in a talk at Channel Expo 2009, reportedly referred to system integrators as "out-of-touch dinosaurs."

The Channel Register quotes Lorant as saying:

"The days of the huge system integrators are waning, a lot of them are our partners, so I have to tread a fine line here. I've had conversations with some system integrators that went along the lines of ‘we know that you're toxic for the business, but we have to do it anyway because our customers are asking us to do this."

Lorant reportedly goes on to say that business users will embrace cloud offerings "because they totally rebel against this ivory tower that it has to be complex and you can't do anything unless you call your IT administrator."

While Lorant has an obvious stake in promoting cloud services, other analysts and observers share his view that cloud computing threatens system integrators.

Among them is Blaise Zerega, who examined the issue on techobserver.com on June 30, 2008, posing the question, "Will Cloud Computing Upend the Consulting Business?"

Said Zerega :

"Cloud computing presents a day of reckoning for traditional software. Some like Salesforce.com will make the cut. Others, like SAP and Oracle... well, there's still time for them to change their ways. But what about consultants? The high-priced service arms of software and hardware firms? Will they be spared the grim reaper?"

Joining the voices of systems integrator doom is author Nicholas Carr, who on businessweek.com on November 20, 2009, is quoted as saying:

"If cloud computing does not reduce the need for consultants then it has failed because one of the points is to get a much simpler IT infrastructure out there."

Moreover, says Carr:

"A lot of their [outsourcers] business is built on the complexity of maintaining internal systems so the more we get out from under that, the more their business will be eroded."

"The result is that some areas of the consultation business will disappear, such as the whole area of systems integration."

Research firm Gartner is in agreement with Carr, according to the Business Week article.

Times They Are A-Changin'

John Madden, an IT Services Specialist at Ovum, has been perhaps the most outspoken analyst on the impact of cloud computing on systems integrators. On TMCNet, in an article entitled "Bracing for Change: SIs and Cloud Computing" on September 28, 2009, Madden writes that, "Global systems integration firms in particular are worried that cloud services could irrevocably alter the SI business as we know it."

While conceding that "customers will still need third-party integration services to take full advantage of their IT investments for the foreseeable future," Madden asserts that:

"However, some customers that leverage cloud services in theory will no longer need an SI for complex, time-consuming and costly integration of their internal IT systems, especially if they're accessing services via a public cloud, or even a private cloud, that are maintained by a third party. When and if the cloud computing market finds a flashpoint, revenues from integration work are likely to take a hit."

Major Market Shift

The decline of systems integrators' business would be a major disruption for the IT industry. Worldwide IT services industry revenues, according to Gartner, totaled $806 billion in 2008. IBM has been the services market leader by a wide margin, with revenues of $58.9 billion in 2008, giving it a 7.3% market share, followed by HP (which acquired EDS), with $38.6 billion and 4.8%, according to Gartner.

Rounding out the market, Accenture is third with $23.7 billion and 2.9% market share, followed by Fujitsu with $20.4 billion revenue and 2.5%, and CSC with $17.1 billion and 2.1%. The remaining players make up 80.4% of the market and contribute $647.2 billion to the overall market revenues, according to Gartner.

For IBM, its $58.9 billion in services revenues in 2008 represented more than 50% of its total revenues of $103.6 billion. The loss of those services revenues would be a calamity for IBM. To mitigate the loss, IBM has embraced cloud computing whole-heartedly and launched a bevy of cloud offerings, including new cloud consulting services and solutions like IBM Cloudburst, a private cloud platform that includes IBM hardware, software, and services.

As Ovum's Madden observes, while cloud computing is still nascent and may fizzle out, "that hasn't stopped global IT services providers from ramping up their cloud-based offerings and including grand cloud visions in their future strategies."

"In truth," says Madden, "these providers have no choice but to take such steps to keep up with customer interest and, more importantly, to blunt the technology's potential negative impact on some of their largest revenue streams."

As Madden notes:

"Among services providers, systems integrators say they are bullish about the cloud's potential, but in practice they are as wary as enterprise customers have been. This is understandable; after all, SIs depend on IT complexity, building their businesses around tying together heterogeneous and often geographically dispersed IT systems (infrastructure, applications, etc.) so that they work together--hopefully-- like a well-oiled machine. The larger and more complex a customer's IT infrastructure, the greater the SI's revenue potential."

SI Shopping Spree

A belief in the ongoing necessity of providing traditional systems integration services was behind the recent spate of acquisitions by Dell, Xerox, and HP. As Bob Djurdjevic opined on his djurdjevic.com blog on September 30, 2009:

"What's bringing this about? From the buyer perspective, a desire to move up the food chain. Which means expand the reach and range of their IT services capabilities. That is why the predominantly hardware companies from yester years, such as HP, Dell or Xerox are now spending big bucks to beef up their services organizations and offerings."

SI Sea Change

As the traditional systems integrators consolidate, the rise of cloud computing is giving rise to a new breed of systems integrators. Cassimir Medford on redherring.com on October 24, 2008, described a study by Saugatuck Technology that found that:

"Though barely out of its infancy, cloud computing is spurring the first major overhaul of IT consulting and systems integration since the PC ushered in a fundamental revolution in IT delivery more than two decades ago."

Medford describes how a new breed of companies is emerging to integrate internal IT systems and cloud systems, citing as examples Bluewolf, Boomi, Jitterbit, Cast Iron Systems, and Hubspan.

"While corporate users are attracted to the cost-savings and the simplification of IT management that cloud computing represents," says Medford, "many, particularly larger companies, are first seeking ways to integrate cloud computing into their traditional IT systems and applications."

Medford quotes Mark Koenig, vice president of research at Saugatuck Technology, as saying:

"And SaaS companies are now beginning to change their business models to accommodate this, and that is what Bluewolf is doing."

"We offer integration as a service and we see this as a seismic shift in how integration and other services will be offered in the SaaS era," Corinne Sklar, Bluewolf's vice president of marketing, is quoted as saying.

Similarly, Loraine Lawson on her itbusinessedge.com blog on January 8, 2009, asserts that, "There's no doubt that integration has become a major issue for SaaS companies."

Lawson relates how Boomi has introduced a cloud integration platform called Atomsphere, which allows SaaS providers to provide cloud integration for their customers.

In an interview she conducted with Boomi CEO Bob Moul on December 29, 2008, Lawson quotes Moul as saying:

"When you talk about SaaS, it's about buying your application as a utility, as a service and if you think about it, it's kinda been odd that every other aspect of computing has made its way onto the cloud, whether it was computing itself, whether it was application development, all in the cloud - but not integration. So we saw that as a big market opportunity and that's what Atomsphere does. Atomsphere finally provides that layer in the cloud that allows interoperability between any combination of SaaS and on-premise applications."

Change or Die

As some observers warn, with cloud computing threatening their business model, traditional systems integrators have no choice but to change their practices or risk extinction. Among those issuing the warnings is Tarry singh, who on his www.ideationcloud.com blog on May 25, 2009, cites Google's Lorant, and warns:

"So if the SIs don't listen to those wake-up calls, as Google says, they might end up losing the customers as Google, Amazon and Microsoft will soon go after the consumer market and enterprise market themselves."

The remedy for systems integrators, says Singh, is to reinvent themselves to provide cloud services, either by building a practice or by acquisition, and to "Shun and dump all those traditional, dinosaur services and portfolios."

Addressing the topic in his blog on May 30, 2009, Singh warns that:

"SIs really will have a big problem at hand by Q2 2010 unless they quickly adopt technology trends such as Virtualization and Cloud Computing and rush to the markets fast! They will have to dramatically transform their data centers."

Michael Neubarth is a Contributing Editor to CIOZone.com