Gokul Blog — A conversation on VoIP, IMS, Cisco and Just about Anything

Deeper analysis of VoIP

Will the Outsourcing Companies Belly up?

Posted by tggokul on November 16, 2006

I am very concerned for  some of the outsourcing companies in India. I am not talking about the likes of Infosys and Wipro. Even though outsourcing is a major source of revenue,  they have other capabilities that will get them through. They will suffer but they will endure. I am talking about the mid/small size companies whose only source of income is outsourced projects.

This is what worries me. Let me give you an anology from my VoIP field ( come on, that is the only thing I know). There were a whole lot of VoIP service providers two years ago. But as of now, the only notable player is Vonage. Why did the other players go down? These VoIP companies, so as to compete with the major players sold on price alone. Their motto was ‘We never lose a deal on price’.  So they battled each-other to become the low cost leader and had to scale their business on low margins, no brand name, and little capital.  The prices were unbelievably cheap and there were doing this not because they could, but because they had to. Whereas Vonage lowered their cost only after they scaled up. They started at 49.99$ and then reduced it instead of starting low. If a monthly American bill was 100$, 50$ was a good bargain, but the other vendors reduced to crazy low levels and hence were eliminated.

I believe the same thing is happening in the outsourcing business as well.  Some companies are charging at unbelievably low prices to compete. If these companies believe capabilitywise they are in the same league as the IBMs, Accentures and HPs of the world, then they should be asking for the same money for consulting. If they want to compete on price, please do so but don’t reduce the price un-necessarily. The reduction should happen based on volume order.

Wake up people. Please don’t make the same mistakes as your buddies in the VoIP industry. Stand up and be counted.

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