Monetising the cloud
- Published on 30 October 2012
Reagile Moatshe and Steve Robinson are responsible for Investec South Africa’s Supplier Finance Division.
The overall purpose of supplier finance, or vendor finance as it is often known, is to provide corporate entities with different options to fund their capital equipment spend.
However this goal can easily be achieved using a range of vanilla lending solutions; without any real value being added to the client (the business that needs the finance) beyond that of freeing up capital in the short term.
Now is an opportune time for corporates, suppliers and financing institutions alike to consider potential shifts in the asset finance industry and the manner in which new developments in technology require a shift in strategy.
To put it bluntly, supplier finance is not just about providing a term loan – it is about structuring a solution that benefits a client’s business in the long run. It involves maintaining a steady focus on the horizon to identify new and innovative ways of converting capital expenditure into easily accessible benefits.
In effect, asset financiers are going to have to keep ahead of the curve in order to keep their industry relevant.
A good example of an imminent shift in market dynamics with implications for asset financiers is the growing popularity of cloud computing. This service offering will impact the technology financing sector considerably – at least in terms of changing the way it is approached.
Any asset finance group focused on technology equipment will need to understand that the spend on IT equipment by corporate clients will change as cloud takes root. Businesses will soon be spending less on traditional hardware and more on the service contracts they will enter into with cloud providers, because they stand to benefit from significant economies of scale and flexibility by renting storage space in the cloud.
We expect to see an increasing shift away from clients buying highly customised intelligent hardware to renting the required capacity from cloud providers over the next five years. The client will no longer need to own sophisticated equipment and devices because there won’t be anything on their hard drives. All the data will be located in the cloud. An additional advantage for clients is that cloud providers can get access to bulk software licences much cheaper than they can, and the cloud providers should be able to negotiate significant discounts on servers and storage equipment.
With cloud providers set to become major purchasers of technology infrastructure, they are going to need funding to invest in the necessary equipment, in many cases before they have committed streams of revenues from clients to fund the acquisition. Depending on the size of the capacity required, this could be a costly exercise upfront. Capital will need to be allocated and serious IT investment decisions will need to be made.
Even though the cloud has no physical hardware or a tangible resale value; the ability to access cloud infrastructure is going to be a business critical requirement. Having access to the capacity that the cloud provides will enable businesses to scale their technology costs and maintain access to leading edge hardware and software.
Taking a lead in technology can be the difference between success and failure. Major manufacturers HP, IBM, Google, and Apple are all developing cloud offerings and they may well dominate the global cloud space but South Africa needs its’ own cloud providers and we should see some significant providers emerge locally.
There are limited unique opportunities available to the supplier finance industry in the vertical space. Typically, all of the major corporates use technology and office automation solutions. The opportunities will come from the way the market changes and whether individual corporates or supplier finance houses recognise coming inflection points and develop solutions which allow clients to access the services they need.