You say that, in order to survive, IT service providers will need to own or manage the full stack of IT capabilities on a massive scale in order to provide deep expertise in delivery of services-on-demand. Yet many outsourcing analysts say that customers have been moving away from single-sourced IT outsourcing deals to a best of breed approach. How do you explain that disparity?

The jury is still out on what will be the sustainable model. We believe that the [current] dynamics in the supplier landscape—for example, Xerox acquiring ACS, Dell acquiring Perot, HP acquiring EDS, Google partnering with CSC, Amazon partnering with Capgemini—are a precursor of what will be adopted by customers.

You predict that Microsoft (MSFT) and SAP could also be winners in the new world of outsourcing. They're not names one associates with IT services per se.

Think of Microsoft and SAP in the cloud. Moves are already afoot. Of course, this will require a huge change in their company DNA. Microsoft would have to forsake the model that made its success and agree to replace selling millions of licenses for software installed in physical assets by distributing and operating its platforms remotely. Their success also depends on the speed at which they build up the capabilities they are missing in network services, infrastructure, and cloud computing. But if these organizations can figure out an effective business model, they could be huge winners.

You argue that this coming revolution in IT outsourcing could mean more U.S. jobs and less offshoring.

Costs will certainly be cut or contained as we go to significant scale advantages on the back of standardization and one-to-many configurations in the cloud. And the flexibility brought about by software-as-a-service may actually favor domestic, low-cost locations like North Dakota or Georgia. High-speed internet access has already helped smart companies tap into a rural, inexpensive but stable labor force working in small delivery centers or at home to staff back-office or call center activities. Cloud computing and distributed applications may very well accelerate this trend and help retain entry- to mid-level jobs in the U.S.

What has been the reaction to your predictions within the outsourcing industry—from providers, analysts or other consultants?

We don't know yet, but we expect fear, apprehension and—in certain quarters—sighs of relief as we may be confirming what is understood but still not widely acknowledged.

What I haven't seen in your analysis is what all of this means for IT outsourcing customers. How should they prepare for the next generation of IT services?

Good point. Perhaps we will cover that next.