Although his comments are accurate there's nothing terrible profound about them.
For quite a while everybody has realized that out sourcing was never anything more than labour cost arbitrage, dressed up with fairly empty "sales" rhetoric.
However he misses a more fundamental way in which clients and outsourcers interest are misaligned.
Because outsourcers are essentially selling bodies they have no incentive to become more efficient through labour cost reduction.
I suspect this failure is the real reason for the current "in sourcing" vogue. As software development and delivery becomes increasingly automated the labour cost component will drop, along with the pressure to outsource.
The outsourcers business model is fundamentally broken and it's only a matter of time before this shows up in the bottom line.
We did simplify software development _a lot_ since the dawn of computers. Compilers, IDEs, standard libraries... it's not really automation yet, but a programmer today is much more productive than a programmer forty years ago.
Outsourcing doesn't have to be based on pure time&material model. Software houses have huge incentives to become more efficient - using scale to their advantage, becoming experts in technology, etc. - all that to compete with other software houses.
I know from first-hand experience that this isn't the case.
Obviously T&M is the preferred contract structure for the service provider, but many projects get done on different metrics (fix-price, result-based, T&M with upper/lower bound etc.). It's quite a competitive industry, so a big client can negotiate for a different contract structure if the project allows it (obv. not for bodylease stuff).
Also, your assumption about labour-cost arbitrage isn't completely true. Many external consultants (incl. developers) make better salaries than internal staff.
For quite a while everybody has realized that out sourcing was never anything more than labour cost arbitrage, dressed up with fairly empty "sales" rhetoric.
However he misses a more fundamental way in which clients and outsourcers interest are misaligned. Because outsourcers are essentially selling bodies they have no incentive to become more efficient through labour cost reduction.
I suspect this failure is the real reason for the current "in sourcing" vogue. As software development and delivery becomes increasingly automated the labour cost component will drop, along with the pressure to outsource.
The outsourcers business model is fundamentally broken and it's only a matter of time before this shows up in the bottom line.