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SaaS consulting shakeout: Appirio deal signals end of era

Wipro's pending purchase of Appirio, a cloud services firm, would further reduce the number of independent cloud consultancies in a rapidly consolidating market.

Wipro Ltd.'s pending purchase of Appirio, a company specializing in deploying software–as-a-service platforms such as Salesforce, would absorb one of the few remaining independent cloud consulting firms.

Under the terms of the transaction, valued at $500 million, Wipro would consolidate its Salesforce and Workday cloud application practices under the Appirio brand and company structure. Wipro, an international IT consulting firm with fiscal 2016 revenue of $7.7 billion, stands to absorb 1,250 Appirio employees and their SaaS consulting and deployment skills. The deal, announced Oct. 20, is expected to close by Dec. 31, 2016.

Appirio, based in Indianapolis, is thought to be the last of the large, independent Salesforce consultancies.

"The acquisition of Appirio by Wipro marks the end of the era of rapidly growing cloud consultancies, and there aren't any new companies currently poised to fill this void anytime soon," said Jeffrey Kaplan, managing director at THINKstrategies, a company based in Wellesley, Mass., that consults with IT solution providers on their cloud strategies.

Appirio, founded in 2006, belongs to a group of consultancies that launched, and expanded quickly, in the early days of cloud computing. Appirio, along with Cloud Sherpas and Blue Wolf Group LLC, were considered top-tier Salesforce consultants. Cloud Sherpas was the first of the group to be acquired, with Accenture announcing its plans in September 2015 and closing the deal the following month. Bluewolf was next, with IBM completing its acquisition of the company in May 2016.

The acquisition of Appirio by Wipro marks the end of the era of rapidly growing cloud consultancies, and there aren't any new companies currently poised to fill this void anytime soon.
Jeffrey Kaplanmanaging director, THINKstrategies

But even outside the Salesforce implementation sector, large independent cloud consultants are becoming few and far between. CSC in September 2015 purchased Fruition Partners, a consulting firm specializing in the ServiceNow cloud-based IT management platform. IBM in November 2015 acquired Meteorix LLC, a consultant focusing on the Workday SaaS human capital management product. And Accenture announced in September 2016 plans to purchase DayNine, also a Workday consultant.

"That whole generation has been consolidated, pretty much," said Michael Fauscette, chief research officer at G2 Crowd, a business software review platform.

Compelled to buy SaaS consulting firms

Fauscette, who has studied Appirio, suggested buyers such as Wipro, Accenture and IBM have been compelled to purchase cloud implementation firms as customers increasingly turn to SaaS.

"I think all of those firms have seen the writing on the wall: They have to move more and more to SaaS because that is what is selling now," he explained. "They didn't have a choice. They had to move into this world of SaaS implementation."

The acquired companies can also benefit from the wave of cloud consulting transactions. The extensive international operations of firms of the likes of Wipro and IBM facilitate cloud deployments for multinational customers. Glenn Weinstein, senior vice president of global services and CIO at Appirio, cited international scope as an advantage of the Wipro deal.

"Appirio has traditionally served enterprise customers who have increasingly demanded international reach for their cloud implementations for both Salesforce and Workday," he said. "Appirio has been somewhat limited in the past by our relatively modest global footprint."

But after joining Wipro, the combined team will "be able to serve virtually every global market," Weinstein said.

While the need to serve global enterprise customers is a factor in the pending transaction, the steady absorption of its consulting peers isn't, according to Weinstein.

"Prior acquisitions of the likes of Cloud Sherpas and Bluewolf played no role in Appirio's decision to sell," he said.

Industry implications

The consolidation of cloud consultants has placed SaaS consulting and implementation resources in the hands of a small group of companies. If the Wipro-Appirio deal concludes, Fauscette reckons the top five SaaS implementation partners will be Accenture, Cognizant, Deloitte, IBM and Wipro.

Smaller cloud consultants, however, will still have room to maneuver, according to industry executives.

"There is still a ton of business here," Fauscette said of cloud deployment.

He said smaller firms, particularly those specializing in building upon and extending popular SaaS platforms, still have an opportunity to grow in the cloud services market. He stated cloud consultants that build and deploy adjacent applications that extend SaaS platforms into particular vertical markets as one example of smaller firms that could continue to thrive amid consolidation.

"There are still plenty of narrowly defined deployment projects that can be addressed by smaller consultancies," Kaplan added. "However, their ability to compete for the larger deals is diminishing."

The ongoing SaaS consulting shakeout also has implications for customers purchasing cloud implementation services.

"The consolidation of the cloud consultancies will make it harder for enterprises to negotiate favorable deals and make them more reliant on the traditional systems integration companies," Kaplan noted.

Integration challenge

In buying Appirio, Wipro will be gaining a solid company with plenty of certified SaaS consultants, Fauscette noted. Wipro will also inherit Appirio's business model, which Fauscette said differs considerably from the practices of large, traditional IT services firms. He said companies in that category often pursue long-term, on-premises projects. Cloud consultants such as Appirio, in contrast, tend to work with customers on a succession of modular, short-term projects. He said it has been difficult for traditional firms to move to the more modular approach due to entrenched business practices. 

To get to those benefits, however, Wipro must successfully integrate Appirio. And that task is "always a little tough" when it comes to bringing together service providers, Fauscette said. That's because the key value of a service provider acquisition lies in the expertise of the acquired company's personnel. The acquirer's objective is to "keep most of that talent," he added.

Tony Safoian, president and CEO at SADA Systems, an independent cloud migration and IT consulting company based in Los Angeles, said the pending Wipro-Appirio deal validates the cloud services business model, but also comes with some risk. SADA Systems offers cloud services around the Microsoft, Google and Facebook platforms.

"The acquisition demonstrates the tremendous value of cloud-native companies and the buy-or-build decision traditional firms face when attempting to grow their portfolios," Safoian said. "On the other hand ... when nimble firms become part of something much larger, there is some potential that customers and employees may feel alienated. In the end, there are significant advantages -- from culture to agility -- to remaining independent."

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