As Outsourcing Megadeals Slow, Nielsen Makes $1.2 Billion Bet on Indian IT Services

When Tata Consultancy Services (TCS) announced that it would sign a $1.2 billion IT services contract with The Nielsen Company on Oct. 18, the outsourcing world was atwitter with talk of what this—presumably the first major Indian megadeal—says about the future of IT services. Is it a breakthrough for TCS? Are more billion-dollar deals on the way for Indian providers? Are the IBMs and Accentures of the world losing ground?

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But the deal may actually reveal more about the outsourcing customer, Nielsen, and its IT leader, Mitchell Habib, than it does about the larger outsourcing industry. Habib is an IT executive who prides himself on assessing business conditions and leading organizational change with all deliberate speed.

“Nielsen is moving quickly to transform an outstanding group of operating businesses into an integrated, market-focused organization that delivers high-value information services to our clients,” said Habib, executive vice president in charge of Nielsen Global Business Services, in a statement. “This arrangement with TCS will help us streamline and simplify our IT infrastructure and application platforms and operational practices across our businesses, support the development of integrated solutions and give us much greater flexibility to respond quickly to changes in the marketplace.”

On the face of it, the $1.2 billion deal is sizable and falls under the generally accepted parameters of an outsourcing “megadeal” ($1 billion or more). But that total contract value is actually spread out over a decade in this case.

“This could be the largest single contract out of India,” said Dean Davison, vice president of research for NeoIT. “But part of the ‘game of perception’ that is being played is that this is a 10-year deal, making the annual value about $120 million. While any service provider would love to have that size of a contract, it does not make it quite as special.”

TCS isn’t breaking any rules by touting this as a breakthrough. The company simply has adopted another one of the tricks utilized for years by its U.S.-based rivals like IBM and EDS. A $10 billion dollar deal sounds quite impressive, says Davison, less so when you read the fine print.

One reason the Nielsen-TCS deal is so large, however, is because its scope goes beyond IT services to include business process outsourcing (BPO) and knowledge process outsourcing (KPO). According to its announcement, TCS will help Nielsen integrate and centralize multiple systems, technologies and processes globally, and assume responsibility for certain finance and human resource business processes, which will be executed on new BPO platforms built by TCS. The vendor will also set up an “innovation lab” for Nielsen to help it “conceptualize the next generation of business solutions for its end-clients,” says a TCS spokeswoman.

Now that’s a big deal. “Analytics is a huge part of Nielsen’s solution,” Davison said in an e-mail message. “This deal moves a lot of that analytic function to India via TCS and should drive the capabilities up (throw more people at the same problem for the same cost) or drive costs down (the traditional offshore value proposition).”

It’s also the kind of nearly “end-to-end” deal that used to go to IBM, EDS, CSC and the like, that Indian providers like TCS and Wipro say they want to win.

Outsourcing Megadeals Not the Rage They Once Were

But outsourcing analysts don’t anticipate a rash of billion-dollar-plus deal announcements out of top-tier Indian outsourcers. Growth in the number of big, soup-to-nuts deals overall has slowed, and some reports indicate that those that are getting signed are decreasing in value. (See “U.S. Appetite for Outsourcing Deals Slowing Down”). “There aren’t more billion-dollar offshore deals because the number of billion-dollar deals overall is decreasing,” says Gartner Research Director Dane Anderson. “Organizations are chunking things down into more digestible pieces.” It’s likely that major offshore players will make inroads into future megadeals, says Anderson, but they’ll “be fewer and farther between.”

Had anyone wanted to put money on what customer might be the first to sign the first, real India-based billion-plus deal, however, Nielsen would have been a safe bet. (British Telecom signed a $1 billion, five-year deal with Tech Mahindra last December that is bigger in annualized value than the Nielsen-TCS deal and narrower in scope. But BT is part owner of Tech Mahindra.) Headquartered in New York and Haarlem, The Netherlands, and operating in 100 countries, Nielsen is an offshore outsourcing veteran, including most notably a 1999 deal between Nielsen Media Research and Teaneck, N.J.-based Cognizant Technology Solutions (CTS), an outsourcer with its major operations in Chennai, India. (Note: Both Cognizant and the AC Nielsen Corporation were part of Dun & Bradstreet before a 1996 spin-off.)

And Mitchell Habib, Nielson’s executive vice president of global business services, hired in March 2007 to oversee all operational and IT functions, has a history of offshoring, as well. (For more, see “Mitchell Habib Surfaces at Nielsen”.) Before joining Nielsen, Habib served as CIO for two Citigroup business units and in CIO roles at several divisions of Indian outsourcing pioneer General Electric (GE).

Although both company and IT leadership have offshore experience, the deal with TCS remains a gamble. Nielsen “gets more value from TCS because the deal is larger and TCS can innovate more to streamline the current workflow,” says Davison, adding that there’s a caveat: “With a single provider, Neilson takes a risk that could compromise its business if TCS doesn’t deliver.”

For its part, TCS said it has built in contract language to minimize such risks. “TCS has certain goals it is responsible for meeting throughout the terms of the contract and Nielsen has guaranteed a level of revenue to TCS as we meet each one of these goals,” a spokeswoman said in an e-mailed response to questions.