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Two niche suppliers have concluded that size matters in the IT service market.
Earlier this month, Premier BPO, a business process outsourcing company, acquired DinCloud, which specializes in cloud workspaces. The move underscores a shift where niche suppliers may require more resources to compete with industry heavyweights.
The deal features some potential synergies, for instance, the two companies both focus on the small and medium business market. Founded in 2003, Premier BPO is an outsourcing firm that provides back-office operations, such as claims processing; loan initiation and processing; sales and lead generation; and inbound customer service. The company, based in Clarksville, Tenn., has about 550 employees and markets to verticals such as telecom, transportation and logistics, and healthcare and medical devices.
In business since 2011, DinCloud, based in Los Angeles, offers hosted desktop virtualization services, cloud infrastructure services -- cloud backup and virtual private servers, for example -- and robotic process automation. The company has a workforce of about 70 employees. DinCloud's customers come from the financial services, healthcare and life sciences, higher education, retail and transportation sectors.
BPO is a mature industry that has been under pressure as cloud solutions have become more popular. Potentially, Premier BPO gains the infrastructure needed to compete head to head with cloud providers. DinCloud garners a new suite of offerings that it can market via the cloud.
Beginning to transition
The two companies have already begun merging their operations.
"Premier BPO and DinCloud seem to be further down the road to integrating the two firms than most firms are when they announce an acquisition," noted Jeff Kaplan, managing director at ThinkStrategies, a cloud consulting firm in Wellesley, Mass.
Many times, purchases get bogged down in melding the organizations, which often creates friction and uneasiness among employees. In this case, Mark Briggs, CEO and board chairman at Premier BPO, was appointed CEO of DinCloud, replacing founder Bob Din. Din, also founder and former CEO of En Pointe, spun off that company's cloud services group into DinCloud.
The challenges ahead
But significant differences between the two companies still need to be ironed out. For example, their product lines and business models vary greatly. Premier BPO relied on colocation services and competed with outsourcers such as Accenture, IBM, Infosys and Wipro Technologies Inc. DinCloud operates a cloud-based infrastructure and has been vying with industry behemoths like Amazon Web Services and Rackspace.
The two corporations also have antithetical channel models. Premier BPO relied on direct sales and has no partners. DinCloud was the opposite: It marketed its services exclusively through about two hundred value added resellers (VARs) and managed service providers (MSPs).
In the near term, the two firms' intent is to maintain the two separate brands and business models. Eventually, DinCloud's resellers will be able to market Premier BPO solutions. "As competition heats up, MSPs and VARs need to move up [the] value chain, and BPO services offer them that potential," noted Ali Din, chief marketing officer at DinCloud.
IT service market drivers
So, why did the two team up? Scale becomes important as markets mature. As cloud has continued to grow, competition has intensified. Giants, like AWS and Microsoft, are trying to enhance their services, so they appeal to more businesses.
Ali Dinchief marketing officer, DinCloud
That emphasis is creating a ripple effect in the channel. Consequently, niche channel firms need to grow and add services to entice more businesses. Premier BPO and DinCloud are not the only companies in the IT service market seeking to expand via acquisition. CloudJumper, a DinCloud competitor, purchased privately held IndependenceIT, which developed tools to automate applications, data and workspace deployment in the cloud.
Premier BPO and DinCloud carved out niche markets. By combining forces, they expand their service suite and add more girth to their business, ideally providing them with a foundation to build off as the IT service market continues to evolve.