What is digital revenueIt refers to an IT companys income from services offered to clients based on the digital platform and covers a broad set of services in areas of social networking, mobility, analytics, cloud computing and artificial intelligence.
Software vendors such as Tata Consultancy Services (TCS) and Infosys offer solutions on these platforms depending on the requirements of their clients.
According to a 2016 estimate by the World Economic Forum, the combined value of digital transformation to the society and the industry may exceed $100 trillion by 2025.Why digital and why nowTechnological advances over the past two decades have resulted in multi-locational data storage and distribution, faster computing, and high-speed mobile communication.
This has compelled the clients of IT vendors across sectors to modify and in some cases rethink their business models to stay competitive.
This is possible with the use of the digital platform.
For instance, a traditional retailer with physical showrooms can enhance the customer experience by providing them with a mobile application through which they can place orders and monitor their progress.What is the current share of digital revenue of IT vendorsBroadly, top IT companies earn over one-third of their revenue from digital solutions.
TCS and Infosys reported over 31 per cent digital revenue for the March 2019 quarter.
Among international vendors, Accentures revenue from digital, cloud, and security was $23 billion in the fiscal ended August 2018, accounting for 60 per cent of the total revenue.
IBM clocked $19.2 billion of revenue from cloud computing services or 24 per cent of the total revenue in 2018.Will IT profitability be impacted due to digital adoptionAs vendors prepare themselves to deliver digital solutions, initial investments in acquiring relevant talent and developing solutions may result in lower profitability.
For instance, Infosys has been lowering operating margin (EBIT margin) guidance since April 2018.
For FY20, it expects a margin of 21-23 per cent compared with the previous fiscals guidance of 22-24 per cent.
It has cited higher investments in the digital segment as a reason of lower margin expectation.