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Ken Thoreson, a 30-year technology services veteran and president of Acumen Management Group Ltd., a Vonore, Tenn., firm that consults with SP500 companies, said the record consolidation is a result of the cloud computing revolution.
"The cloud is forcing consolidation," said Thoreson. "I absolutely believe M&A will continue at a record pace here for the next 18 months because of the need to be more efficient. Smaller partners are going to have a bigger challenge unless they verticalize or get into the cloud and maintain their profitability."
To be successful in the cloud computing era, Thoreson said, solution providers must sell a higher percentage of services to their customers. "You have to increase the wallet share of IT services for your customer base," he said. "Instead of only selling one or two application solutions to that customer, you have to sell them six to eight. You have to be the cloud utility provider."
Solution providers also need to be more effective in their sales and delivery model, said Thoreson. "Instead of a seven-step sales process, they are going to need to move to a two- or three-step sales process," he said.
CIOs on a CIO Insight panel at the SP500 event said they are adopting cloud computing services at a brisk pace and are looking for help from solution providers.
Niel Nickolaisen, CIO for Western Governors University, Salt Lake City, said he is now moving 24 legacy applications to Salesforce.com. That will put as many as 10 servers out of commission, said Nickolaisen. "That is hardware I will not be using anymore," he said. "I would be surprised if we buy much hardware in the data center over the next five years. I just don't see a reason for it."
On the other hand, CIOs are facing an almost insatiable demand for technology services, said Nickolaisen. "I don't have the staff, budget or time to meet all of that demand," he said. "I have to find somebody else to come up with the table stakes so I can work on the innovative stuff, the stuff that that is going to give us a competitive advantage."