Cloud Computing

5 ways HCL will make money from the cloud

by Chris Murphy, InformationWeek USA, August 6, 2010

Explore how HCL Technologies expects to cash in on IT's current hot favorite

Cloud computing is the hottest conversation topic in IT infrastructure, but it has been more concept than cash at most companies. It isn't driving much business for HCL, one of India's large IT outsourcers, either. But, "it's at the cusp," predicts HCL President Shami Khorana, who leads HCL Americas.

It's worth watching how outsourcers attack cloud computing, since their product plans will give a hint of where and when companies start spending real money on it. Except for software as a service, companies haven't put a lot of their budget into the cloud. Our research finds Khorana might be right that CIOs are almost ready to crack open their wallets: one fourth of companies in our recent survey expect to be spending more than 20 percent of their total IT budgets on private clouds within 18 months.

What might they spend on? Khorana, in a recent conversation, rattled off five areas HCL can make money from cloud computing:

1. Running infrastructure: Running or remotely managing companies' IT infrastructure is a big part of HCL's business today, so it needs to extend that to cloud. It could mean just remotely managing a private cloud that runs in a customer's own data center, which wouldn't be much different from what it does today. It could mean running infrastructure or providing support for vendors who provide cloud services. Or, it could mean providing multitenant cloud services directly for multiple companies out of one HCL facility. That's a big part of why HCL bought a New Jersey data center last year from one of its client--to keep serving that client, but also expand its use to serve other companies.

2. Selling tools: As HCL builds tools for its own use to do tasks such as remote management of private clouds, it will also deliver those to customers.

3. Getting onto SaaS: A lot of software providers need to offer a software as a service option, and HCL is gunning to migrate those vendors to the cloud, and run the infrastructure for them.

4. Migrating to private clouds: HCL has started to see glimmers of this business--assessments of private clouds--but the next wave, if it comes, would be migrations and ongoing software development to support companies' private clouds. Private clouds try to mimic the flexibility and resource pooling of private clouds, within a company's own data center.

5. Building custom products: HCL is providing one client with a SaaS-based platform to manage and interact with its network of independent dealers. HCL sees opportunity in providing more of that kind of cloud-based service--such as an automaker managing all its affiliated dealers, for example.

Metrics That Point To Growth

Will cloud computing make the turn, from hot concept to a real presence in IT budgets? Part of that depends on how much companies are spending on new IT projects of any stripe. We made the case a month ago that many IT teams are on a "return to growth" path this year, slowly shifting out of the cost-cutting and maintenance mode that dominated 2009.

Khorana points to two growth metrics in HCL Technologies' latest quarterly earnings that bode well for growth: deals for the outsourcer to work on new product development, and enterprise app deployments.

Both are up in the most recent quarter, ending in June-- 13 percent quarter-over-quarter for enterprise apps work, and 11 percent for engineering and R&D services. The engineering and R&D, where companies hire HCL to write software for new products, include an order from an aerospace company in Europe, and a number of vendors in software and networking.

"So it does appear … at least from the results we've seen here, that discretionary spend is also on the rise, besides these run-the-business kind of projects," says Khorana. "In that sense, the prognosis looks pretty optimistic."

It's not all sunshine for HCL. Its gross margin slipped to 33 percent, compared with 38 percent a year ago. It used to have two USD100 million-plus customers, now it's down to one such whale.

So cloud computing isn't driving a lot of revenue yet. But Khorana says he has seen the shift in outlook the last year, among HCL's customer advisory board. In August 2009, the attitude was "some interest, not sure." By February this year, "it was 'we have a lot of interest, and our CEO is very interested,'" Khorana says.

When it comes to any hot technology, "my CEO is interested" is a growth indicator no good CIO will ignore.

About Author

Chris Murphy
Chris Murphy


Chris Murphy is editor of InformationWeek magazine and Global CIO columnist on IT strategy issues. He has been covering technology leadership and strategy issues for InformationWeek since 1999. Before that, he was editor of the Budapest Business Journal, a business newspaper in Hungary; and a daily newspaper reporter in Michigan, where he covered everything from crime to the car industry. Murphy studied economics and journalism at Michigan State University, has an M.B.A. from the University of Virginia, and has passed the Chartered Financial Analyst (CFA) exams.

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