Consulting services for service-oriented architecture (SOA) is a "high growth" market, according to a recent report by AMR Research Inc.
Put in capitalism's simplest terms demand for people who know how to do SOA, exceeds supply.
"As demand for SOA skills accelerates faster than the supply of SOA-skilled IT staff, look for a high-growth, profitable market for consulting talent, much like Web consulting was at the end of the 1990s," writes Ian Finley, AMR research director, in the report, "SOA: The State of the Market."
IBM with its growing army of SOA consultants put out a press release today touting an IT spending survey in the AMR report that shows it well ahead of traditional consulting firms. Finley noted in the report that IBM is "well ahead of its traditional competitors" doing SOA-related client work.
The survey found that more than 67 percent of companies surveyed were either currently using or considering using IBM SOA consulting services. That put IBM ahead of three more traditional consulting firms, Accenture Inc., Capgemini Service SAS and Infosys Technologies Ltd. Finley labeled this a "surprising result," but found the reason for Big Blue's leadership "understandable."
"While IBM's leadership is understandable, given its leading SOA product suite and concerted marketing efforts, its degree of penetration in companies with active SOA projects is impressive," Finley noted in his report. But he also gave credit for the silver medalist, noting "Accenture has also made substantial investments in building its SOA brand and is reaping the rewards."
IBM was the only SOA software vendor to make the list of leaders in SOA consulting services. Other SOA vendors, such as Oracle Corp. and BEA Systems Inc. are not on the AMR list. Finley said this has to do with the uniqueness of IBM and the fact that SOA consulting isn't the most profitable thing for pure software vendors to get into.
"There's a big difference when you talk about IBM's consulting business versus a typical software company's business," he explained in an interview. "With most of the other software vendors the core of their consulting business is how to get the software running. It's not coming in and building new applications or building a new implementation. It is 'now you've bought the software, maybe we can help you use it.' That's the typical profile for a software company, but IBM is really a hardware company, a software company and a consulting company all under one brand."
If the software vendors go out and hire SOA consultants and make that a major part of the business, it will actually lower their profit margins, Finley said.
"The software vendors have a general conflict," he explained. "IBM has this conflict too. They all want to encourage partners as much as possible. Revenues are nice, but there are a couple problems with running your consulting business at the expense of partners. The first one is the consulting revenues are lower margin than software revenues. So what you'd really like for Accenture, Capgemini and the Indian outsourcers all to be pushing your software. If they are in their doing the consulting work and driving the sales of your software, you're making money. Your gross margin on software is something like 95-to-98 percent because it doesn't cost very much to print a CD and some manuals and ship it out. That way you get the profits that Wall Street is expecting you to produce as a software company.
"The other thing you do is put yourself in competition with those same partners you want to be a remarketing channel for you," he explained. "So most vendors will do some consulting where clients really want them to and to show their partners that there's a real opportunity, but they will try to drive as much business to the partners as possible."
Consulting firms in general stand to benefit from the demand for SOA implementations and the shortage of people with the necessary skill, Finley said in his report.
"Once a company is comfortable with SOA as its standard approach, it often seeks to shift all project work over to SOA," Finley wrote in the report. "Given the shortage of SOA skills in a typical company and the difficulty training some traditional IT staff in the SOA approach, consulting firms are well positioned to reap a windfall of SOA projects the coming years."
Because the SOA market is global, Finley said he does not expect it will be impacted by any downturn in the U.S. economy.
"This is kind of a sea change from what systems integrators and service providers has done in the past, such as integration between applications, implementation of ERP applications, along with IT planning and strategy work," he said. "All those things now are being converted over to SOA at customer request. In other words the customers are telling them we don't want to do things in the old way. We want to do this with the knowledge of SOA."