ADM on the road to recovery

Software development activities in the Application Development & Maintenance (ADM) outsourcing space may get postponed in the current downturn, but it will return with a throttle effect when the economy recovers.

The IT environment is facing extreme cost pressures with increased expectations and IT executives expect more from their ongoing IT applications. ADM outsourcing offers the full scope of services that accelerates IT spend return-development, implementation, and management.

It drives measurable improvements in product quality, reducing defect density, and increasing development productivity. Outsourced ADM contracts are said to improve productivity by up to 45% while it reduces IT costs by as much as 50%.

ADM outsourcing is a proven means by which companies can significantly reduce their costs, continuously improve the performance, stability and availability of their applications and free up their existing IT-staff to focus on their strategic initiatives.

It allows customers to reduce the cost and maintenance risk of all ongoing applications, while still retaining much needed control of their IT opex and core business focus.

The ADM Market

The ADM market is expected to grow from $51 bn in 2010 to approx $63 bn by 2014 at a rate of 5.7%. Keith Higgins, chief marketing officer, Symphony Services, says, "IT market is going through a period of massive change. As enterprise software enters a great renaissance period driven by mobility, cloud computing, and Software as a Service (SaaS), software manufacturers and developers are increasingly turning to experts in product development to help them deliver innovation and to market faster." By 2015, Forrester expects the market for development services to approach $69 bn.

The key ADM themes that dominated the market in 2011 were cloud, agile, security, analytics. These themes have held sway as providers and buyers both look at taking advantage of the transforming AMD landscape.

The explosion of technology and digital content, more pervasive network connectivity, and the continued proliferation of smart hand-held devices has completely reshaped the ADM market and will continue to dominate.

The ADM segment is still the mainstay of the IT outsourcing market. Led by US based majors such as IBM, Accenture, HP, and Cognizant and India based offshore vendors like TCS, Infosys, Wipro, and HCL, ADM activity still constitutes a large chunk of the overall IT outsourcing.

Recent years have seen the entry of other mid-tier vendors like Neoris, Auriga, and Softtek who have broken ground with non-India offshore delivery. However India continues to be the leading offshore location.

The in-house delivery of IT application, maintenance, and processes are still dominant in 2012-13. Research carried by Horses for Sources predicts 95% of ADM buyers reporting positive outcomes. ADM outsourcing saw near around 35% inshore activity together with more than 30% outsourced activity as sourcing model for managing the IT business. Companies have a renewed focus on maintenance operations and servicing existing applications is now of a greater importance to them.

ADM buyers are expecting nothing less than great quality, superior customer service and most important of all, top-notch solutions. In the coming time, more contracts are expected to pass on to emerging ADM destinations, like Brazil, Russia, and Eastern Europe.

The ADM industry is going through a significant transformation in their licensing, delivery and support models. Despite a trend towards increased ADM outsourcing to lower-wage economies, the cost of developing and maintaining applications can still consume more than half of the total IT budget.

The most notable theme that changed almost all ongoing trends for ADM market is the Cloud. With its on-demand, utility-pay for what you use and resource-sharing model, cloud has galvanized businesses and vendors across the industry and ADM market landscape.

All the leading ADM players have in 2011-12 enabled sections of their portfolio as cloud ADM service offerings with plans in the pipeline to widen their capability for Cloud ADM market. Other prominent ADM market trends are enterprise app stores and desktop services.

Exploring New Markets

The mobile and cloud application development is the hottest place to be in the IT industry in the coming year. With the rise of productivity and collaboration tools becoming more refined, open source ADM market gets in the play easier than ever.

Open source and collaboration tools from Dropbox to Linux-Ubuntu and to Cloud platforms such as AWS Elastic Beanstalk, application developers across the globe are expecting this to follow for coming years which clearly means new market implementations ADM outsourcing.

ADM buyers across geographies continued expanding their operations. While ADM market saw larger number of less-value deals, well-known names in the ADM space signed greater number of contract renewals. North America continued to hold the ace spot with the largest number of ADM deals, next to Europe, on a y-o-y basis. Cloud computing continued to be increasingly adopted in newer ADM deals.

Changing Landscape

"The global marketplace is still experiencing a series of conflicting and contrasting economic news reports, and the full impact of the economic uncertainty on the enterprise software markets may not be readily assessable until the end of the first half of 2012," asserts Tom Eid, research vice president, Gartner in its official press statement.

Spending in 2012 is anticipated to focus on industry-specific applications; upgrades to established, mission-critical software; integrating and securing established systems and infrastructure; and software as a service (SaaS) deployments representing extensions to, or replacement of, existing applications and new solutions.

According to Gartner, the worldwide spending on the enterprise application software is expected to cross $120.4 bn in 2012, with a 4.5% increase from 2011 spending of $115.2 bn.

With increasing number of organizations demanding application's functionality as a cloud based services rather than on-premise infrastructure, ADM vendors are offering more technology as subscription based solutions and ‘pay as you go' ADM offerings. This is expected to be a much needed step by ADM providers positioning them as more cost-effective and as a way to counter the effects of economic recession. SaaS and cloud based services are helping established ADM vendors to expand their overall revenue growth. On the account of enhanced SaaS and cloud application use, enterprise ADM market continues to evolve. As tighter capital budgets demand accurate leaner alternatives the ADM growth graph varies within geographies.

Cloud and Android Based Application Development

Cloud computing conversations are slowly morphing the ADM market in terms of cloud computing application platforms. Much as expected, cloud based ADM is becoming an IT norm and less of an exception. In the cloud world, software development has become more complex in terms of security, reliability, usability and performance and will keep the software development industry busy.

Ashok Saxena, head, India engineering center, Kronos reveals how the whole ADM space has changed to serve the market forces and meeting end-user expectations. Ashok says, â??Most of the cloud migrations we see today are applications for physical infrastructure and are now taking full advantage of the cloud possibilities.

The ADM market is experiencing an ongoing boom in software development for cloud computing that takes advantage of benefits but also issues that will open up opportunity for new software development verticals.

Industry experts believe, the impact of cloud service on the ADM market will change the selling and licensing of IT-applications, the way application data are handled will undergo a major shift which will induce the data driven applications into the mainstream market.

However for software development the underlying challenges of cloud will come into sharp focus as cloud's increasing benefits and risks will prompt the ADM providers to come to grips with it.

Besides, cloud Android is also accelerating the ADM landscape. The unprecedented growth of Android devices and the demand for suitable android applications are fueling a huge demand for ADM. Ron DuPlain, freelance lead android & mobile web engineer, says, "Today when everything is centered around mobility, application development has taken vital transformation, both in terms of development and strategy. Application development companies are focused to help subscribers realize the potential of rapidly evolving mobile technologies."

Application Maintenance and Testing

All application products need sufficient maintenance and both investors and developers tend to heavily focus on it. There has been a lot of innovation in ADM space and several maintenance tools and processes have evolved which enhanced the maintenance phase which in turn translates the overall quality of the application.

Ashok Saxena, head, India engineering center, Kronos asserts how the software development landscape has changed and in turn has affected the overall IT service delivery. He says, "When everyone is speaking about reducing costs especially overhead in particular, application's quality cannot be compromised, and this realization has led to a lot of focus on application maintenance as a discipline over the last few years."

The market for discrete application maintenance worldwide is expected to experience solid growth as cloud and mobility drive next phase of evolution, according to a latest report from IDC research. IDC estimates that global maintenance and testing services spending reached $9.4 bn in 2010, with projections for worldwide growth estimated at a 5-year CAGR of 15.4% through 2015.

While the US has led other regions in adoption of maintenance services, in terms of both traditional and newer cloud based maintenance services, there is an increase in regional interest and adoption of these services in Canada, Latin America, Western Europe, and parts of Asia-Pacific.

Independent maintenance and testing for applications is growing at 40 to 50% globally and with expected growth of about 35 to 40% in offshore locations, while various industry report forecast various geographies to evolve as major ADM locations.

India has grown to become the largest destination for outsourcing of software maintenance and testing services, accounting for 32% of the total global ADM outsourcing share. The application maintenance industry for India is growing, export revenues and the number of employees have doubled over the last 4 years in domestic space which is projected to cross $1.5 bn by 2020.

It's quite interesting to note that, US alone spends a total of $59 bn on software maintenance. Of this total spend, $13 bn is outsourced as a service to the Asian countries, India in particular.

The ADM market has demonstrated a CAGR of 19-23% y-o-y growth, in comparison to 47% by the independent maintenance and testing services.

Kalyana Rao Konda, vice president, AppLabs, says, "The consumer demands are leading to technology advancements and fierce competition between providers. The survival of providers has become subjective to the quality of the product with superior service. Software maintenance and testing plays a vital role in providing reliability and quality to consumers to ensure that they don't have a bad experience on using or buying the product they like."

The current competitive environment and consumer demand for sophisticated applications is putting increased pressure on businesses to deliver quality apps at reduced costs and within shorter time period. This ‘no scope for error' environment has increased the need for effective software testing.

Today, it has become one of the fastest growing areas of the corporate IT expenditure. On the other hand, meeting customer expectations has now become a challenge for enterprises across all the industries due to the faster delivery cycles and increasingly competitive landscape.

Krishnamurthy R, senior vice president and head, global delivery, Collabera asserts that from an engineering and business perspective, there is a significant increase in the amount and type of data that needs to be handled and crunched before decisions are made.

"There has been a drastic shift in the amount of development being done in the integration and testing stages in the lifecycle of an IT project, compared to what was happening 10 years back. This has resulted in an increased demand for services on data management/BI/analytics, integration, and testing sides of the business, which will continue to be key opportunity areas for all organizations," Krishnamurthy adds.

Enterprises operating across various industries and geographies have now realized the need to deliver quality products/applications and services to meet customer expectations.

Conclusion

With the economy of developed countries stagnating and the threat of recession retuning to major global players, companies will continue to rely on software development outsourcing and offshoring for cost control, lean operations, and scalability in 2012.

As cloud, SaaS, mobility, and other trends fundamentally re-shape software development, there is a large, growing market for specialized product development specialists. Year 2012 is just the beginning of some of these massive movements. There are a bewildering range of technologies on the market today.

The good news is that the service industry is becoming more and more specialized. Companies that want to take advantage of the hottest initiatives today-be it SaaS, cloud or enterprise mobility-can get all the assistance they need.

The right software development service providers will have in-depth knowledge of all these platforms and the competency to deploy them quickly and at a competitive price. They will also offer outcome based engagement models that fit each client's needs.