VMware leans on partners IBM and AWS to go increasingly all-in on cloud

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What’s new from VMworld on the cloud front?

VMworld 2018 in Las Vegas came to a close just a few short weeks ago, but the impact from the slew of cloud-related announcements from VMware and its partners continues to reverberate. After multiple changes in course over the past 10 years as VMware reacted to the shift toward cloud computing, the company has found a strategy that works. VMworld 2018 showed the company doubling down on its partnerships with leading cloud providers and addressing customers’ cloud management pain points.

To extend VMware’s relevance in the cloud management space, the company announced both an acquisition and a host of organic portfolio updates during the conference. Notably, the company announced its intent to acquire CloudHealth Technologies to further its multicloud management and operations capabilities with CloudHealth’s platform and expertise in Microsoft, Google and Amazon Web Services (AWS) clouds.

Portfolio updates were announced across the vendor’s Workspace ONE, VMware Edge, vRealize, vSAN, vSphere, VMware Cloud Foundation and vCloud Director portfolios. Additionally, partner program enhancements through the VMware Cloud Provider Program and announcements with key partners AWS and IBM in regard to partner-based cloud solutions were made as well. While the portfolio updates are notable, much of VMware’s relevance in the cloud space as of late is coming from its alliances and partnerships. It took the shutdown of VMware’s own vCloud Air service, but the vendor’s partner-led cloud strategy reinforces the value of VMware in cloud and hybrid environments.

VMware’s alliance with IBM is a decades-long, increasingly strategic partnership that now spans customers’ and cloud data centers as the two companies work together to help enterprises modernize their traditional and virtual environments into truly hybrid environments. VMware and IBM look to optimize customers’ existing IT assets with strategic cloud workloads and functions as well as the help of thousands of VMware specialists within IBM Services. Additionally, their tenured relationship turned even more strategic in 2016 as IBM helped VMware re-enter the public cloud market with IBM Cloud for VMware Solutions. At the conference, the two announced vCloud Availability for vCloud Director on IBM Cloud, a disaster recovery solution for multitenant environments that enables IBM Cloud to serve as a failover for workloads on VMware environments. After the successful migration of a few key legacy applications to VMware HCX on IBM Cloud for American Airlines in recent months, IBM and VMware also unveiled JumpStart enhancements, announced at VMworld, to help customers migrate their existing on-premises VMware workloads to IBM Cloud.

VMware’s partnership with AWS is very well known, in large part due to the number of customers using technologies from each of the two vendors and because of both companies’ former reluctance to address new delivery methods. VMware was very much on-premises focused while AWS was solely public-cloud focused, making the partnership and VMware Cloud on AWS a notable shift for both vendors. At VMworld 2018, the two companies announced the expansion of their relationship, including the global extension of VMware Cloud on AWS into Australia, a Cloud Provider Hub that allows partners to offer VMware Cloud on AWS as a managed service, AWS Relational Database Service on VMware, NSX integrations, price reductions, Log Intelligence for VMware Cloud on AWS, Instant Data Center Evacuation and more.

Let’s dig a little deeper into these two partnerships and solution sets

While much of the focus as of late in terms of VMware Cloud partner developments has been on AWS, VMware’s partnership with IBM has existed for a longer period of time and encompasses more than IBM Cloud for VMware Solutions, thus the bulk of the integrations are well established and the two announce new features, integrations and functionality as their portfolios evolve. To note, back in August 2016, VMware announced that IBM would provide the first service offering for VMware Cloud Foundation and also train more than 4,000 services professionals with expertise around VMware solutions.

In line with market trends, VMware is partnering with as many leading vendors in their respective technology markets as possible, ultimately to meet and exceed the demands from its customers for multivendor environments, integrations and interoperability across environments. Each of the aforementioned partnerships fits its own customer set, albeit with slight overlap, and addresses specific customer pain points. VMware and AWS are poised to capitalize on midmarket and small enterprise opportunities, with an emphasis on cloud specifically, while VMware and IBM are poised to capitalize on opportunities in the midsize and large enterprise sectors, with a hybrid IT emphasis, optimizing customers’ blends of cloud and legacy IT assets.

While VMware’s partnerships with IBM and AWS may seem like six of one and half a dozen of the other, the differences themselves when looking at hybrid IT as a whole rather than cloud only, where IBM and VMware naturally have a longer, more strategic relationship that encompasses virtual and cloud environments spanning customer and vendor data centers.

To make this a little easier to digest, we’ve developed a table that includes some key solutions recently announced by VMware and AWS and compares them to existing and new IBM and VMware solutions in regard to how customer pain points can be addressed. While the technical functions available from both VMware partners are aligned, many of the target customers will be different.

 

It is our perception that the VMware and AWS partnership better suits organizations that embrace public cloud, whether for budgetary reasons, risk sharing or lack of IT staff. Alternatively, IBM is the partner of choice for IBM and VMware large enterprise customers. Joint IBM and VMware solutions are tailor-made for organizations with large on-premises data centers that remain fully functional and thus are not yet ready to be shut down in favor of public cloud only, serving instead as a blend between the old and new.

Sponsored by IBM

Comcast Business fuels digital transformation with its ‘Beyond Fast’ message, strategy and execution

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TBR perspective

The 2018 Comcast (Nasdaq: CMCSA) Business Analyst Conference explored how Comcast Business is helping its customers go “Beyond Fast.” The story arc over the day-and-a-half gathering highlighted Comcast Business’ emphasis on how it not only equips companies with connectivity but also helps them realize the business innovation and customer experience capabilities they truly desire to grow their own businesses.

Offering the best last-mile gigabit broadband coverage in the U.S. is the foundation of Comcast Business’ strategy; however, the unit and its leadership are focused not merely on promoting accelerated data speeds but also on leveraging Comcast Business’ growing network capabilities and business-enabling portfolio to underpin and advance its customers’ digital transformation initiatives. Customer testimonials were a focal point of the event as technology executives within the sporting venue and quick-service restaurant (QSR) industries shared and extolled how Comcast Business’ solutions have helped to enhance customer experiences, improve operational efficiency and reduce costs.

Though Comcast Business’ portfolio is maturing, Comcast Business continues to innovate with significant opportunities ahead, as the unit seeks to gain market share and increase revenue from its existing solutions. Unlike its largest competitors — AT&T (NYSE: T), Verizon (NYSE: VZ) and CenturyLink (NYSE: CTL) — Comcast Business is not encumbered by legacy assets, which has enabled the company to sustain double-digit year-to-year revenue growth over the past 30 consecutive quarters. Comcast Business has the potential to take up to $60 billion in market share from its main rivals as the company targets continued growth through its broadband services and adjacent solutions in areas including managed services, SD-WAN, unified communications, security and video.

Post SAIC-Engility question: who and what next?

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SAIC has now made their deal, so we can take them off the table as a buyer of scale. They have to digest Engility and make that combination work as the federal IT environment continues to change and change fast, as Technology Business Research public sector IT analyst Joey Cresta wrote in a research note Monday.

“SAIC’s long‐term challenge will be no different than it is today: the automation of transactional tasks and the technology‐driven compression of windows of competitive advantage threaten its legacy business model,” Cresta wrote. “(Intellectual property) monetization will help to define winners and losers amid these disruptive environmental factors.”

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Consolidation accelerates in government contracting. Who’s next in M&A?

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Joey Cresta, an analyst with Technology Business Research Inc. in Hampton, New Hampshire, who closely tracks the government services market, wonders if SAIC’s (NYSE: SAIC) deal for Engility — a marriage of two legacy companies providing systems engineering and technical assistance (SETA) services to the government — might signal the beginning of the end of contractors chasing scale.

That advantage, Cresta writes in a new research note, erodes in an era where in-demand, agile tech skills, industry partnerships and expanding intellectual property portfolios will provide more of a competitive advantage than size.

“If SAIC focuses purely on the scale advantage of the Engility deal rather than the IP monetization factor, it could in short order find itself in a race to the bottom,” he adds, “with diminished pricing due to labor automation hamstringing financial flexibility and capacity for continued reinvestment to keep up with the ever-accelerating pace of technological change.”

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The JEDI contract: We don’t see the force; do you?

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Considerable ink has been sacrificed parsing both the wisdom and the potential winners and losers of the Joint Enterprise Defense Infrastructure (JEDI) contract award, which is estimated to be worth up to $10 billion over 10 years. TBR wrote two commentaries around the topic in June that handicapped the potential bidders and outlined the fundamental consumption model shifts triggered by continued technological innovations changing public sector procurement factors from affordability to governance compliance — or from “wallet to will.”

The impetus for revisiting the contract flows from the Pentagon again pushing back the timeline on submitting proposals by three weeks. That the Department of Defense once again pumped the brakes despite a desire to accelerate modern technology procurement, while simultaneously ending the Q&A portion of the solicitation period, highlights the tensions and challenges created by the shift from wallet to will.

At TBR, we continue to question the efficacy of a single-source contract for cloud infrastructure services. This concept of working with one cloud vendor for compute was leading edge in the commercial space about a decade ago as enterprises wrestled with how to automate the seamless movement of applications and data between on-premises and cloud compute instances. With this technological problem largely addressed in the hybrid cloud era, the new technological challenge facing leading enterprises is automating that seamless deployment across multiple cloud environments.

In this adoption of new, consumerized technologies, we see the disruptive forces aiming at the public sector IT market opportunity. The Pentagon seeks a single-source captive solution, betting on one firm’s ability to stay ahead of the market on innovation for a decade. Such a bet makes little sense to TBR or to the industry executives with whom TBR has discussed the JEDI contract structure. Furthermore, much has been written lately about the concept of asymmetric competition, which postulates that open platforms actually shorten the competitive advantage windows technological innovations provide to technology vendors. In short, being able to exploit leading edge technology requires that companies lessen their reliance on single-source vendors rather than doubling down on them.

It has been argued that military strategists plan how to fight battles without fully appreciating the changes in warfare they will face going forward. Awarding a single-source, 10-year contract for technology innovation sounds like a continuation of that misaligned planning process. In the private sector, such deals trigger business exits from improper planning. In the public sector, the exposure to lagging strategic planning manifests in threats to national security.

U.S. operators will improve service revenue in 2H18 via continued subscriber growth and adoption of premium unlimited data plans

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HAMPTON, N.H. (Sept. 11, 2018) — Wireless revenue rose 2.4% year-to-year to $59.1 billion among U.S. carriers covered in Technology Business Research Inc.’s (TBR) 2Q18 U.S. & Canada Mobile Operator Benchmark. The increase came as a result of higher equipment revenue spurred by the adoption of premium devices as well as improving service revenue trends. Verizon and AT&T (when excluding the impact of the ASC 606 revenue recognition standard) were able to return to year-to-year service revenue growth in 2Q18 as the bulk of customers have transitioned to nonsubsidized service plans. Service revenue is also benefiting from customers migrating from lower-priced tiered data plans to more expensive unlimited data plans and will be further aided by the recent launch of new premium unlimited data tiers, such as Verizon’s Above Unlimited and Sprint’s Unlimited Plus plans.

 

Service revenue will also benefit from U.S. operators sustaining smartphone and connected device subscriber growth in 2H18. “Despite growing smartphone saturation, all Tier 1 U.S. operators were able to gain postpaid phone net additions in 2Q18 as opportunity remains to target first-time wireless customers, including young adults and immigrants entering the country,” said TBR Telecom Analyst Steve Vachon. “Postpaid phone subscriber growth is also coming at the expense of prepaid growth, which is slowing as more customers qualify for postpaid plans as the economy improves. Operators are also expanding their connected device portfolios in areas including wearables and connected car to bolster postpaid subscriber growth. The Apple Watch 3 has particularly bolstered postpaid connections as the device is the first Apple Watch model capable of receiving LTE connectivity.”

Combined wireless revenue among Tier 1 Canadian carriers rose 5.1% year-to-year to $6.2 billion due to continued postpaid additions spurred by shared data programs and expanding LTE-Advanced coverage. The postpaid market in Canada continues to flourish, with Bell Mobility and Rogers increasing postpaid net additions year-to-year in 2Q18, in part due to the country having a significantly lower wireless penetration rate, which is currently estimated at about 87%, compared to the U.S. Canadian operators are also bolstering postpaid subscriber growth by providing low-cost connectivity options to support connected devices, including tablets and wearables, as part of their shared-data family plans. Competitive pressures are challenging average revenue per user (ARPU), however, as Bell Mobility and Telus experienced year-to-year blended ARPU declines in 2Q18 as the companies priced more aggressively to maintain market share. ARPU declines were also driven by Tier 1 Canadian operators offering targeted promotions to combat aggressive pricing offers from regional companies such as Videotron and Shaw’s Freedom Mobile brand.

The U.S. & Canada Mobile Operator Benchmark details and compares the activities of the largest U.S. and Canadian operators, including financial performance, go-to-market initiatives and resource management strategies. Covered companies include AT&T, Verizon, Sprint, T-Mobile, U.S. Cellular, Rogers, Telus and Bell Mobility.

 

Ready when you are: Nokia prepared to migrate customers to 5G

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TBR perspective

At Nokia’s (NYSE: NOK) 2018 Analyst Conference, held in Tokyo in August, the company emphasized that its end-to-end portfolio, supported by a robust R&D program, is ready and able to take its customers into the 5G era. The vendor also stressed that 5G is much more than just a radio upgrade and that realizing the full potential of 5G requires a fundamental change to the architecture of the network.

Given how much disruption is facing the telecom industry, it was refreshing to see that Nokia is being proactive in aligning with where the market is trying to go, even if that means disrupting itself. Though a part of the company will remain focused on servicing the legacy platforms of the past, the other part of the company will focus on realizing the future. Given that most operators are stuck in between both worlds as well, it is fitting that Nokia will be able to support the migrations of its customers toward the network of the future.

Event overview

Nokia hosted a select group of industry analysts in a two-part event. The first part of the event was a two-day workshop about the company’s global Fixed Networks business, and the second part of the event was a two-day Asia Pacific and Japan (APJ) regional update to deep dive on specific trends occurring in those markets.

In addition to the usual market overview, strategy and portfolio updates, Nokia hosted several customers at the event, namely Infracapital, KDDI, NTT DOCOMO, SoftBank and Marubeni, to discuss their own businesses and share how Nokia is helping them achieve their goals. A representative from Japan’s Ministry of Internal Affairs and Communications was also present to provide an overview of Japan’s telecom industry and how policy is shaping that country as it transitions into the 5G era.

Hosting the event in Japan was pertinent and timely given the country’s history as an early technology adopter and its upcoming adoption of 5G. With the 2020 Summer Olympics less than two years away, Japan will showcase for the world cutting-edge use cases of telecom networks leveraging 5G technology. The country also symbolizes the monumental changes occurring in the telecom industry, namely that domestic operators are challenged to evolve into digital service providers to better compete against digital-native competitors in their home market, such as Rakuten, as well as realize new business models from the 5G era to grow.

SaaS sweetens the cloud pot but requires vendors to up their ante to participate

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Despite the simple graph in Figure 1 depicting SaaS market size, the space remains difficult to sum up. In the eyes of customers, SaaS options are proliferating and spanning a wide swath of business functions and stakeholders. Yes, SaaS is the largest segment of the “as a Service” cloud market—and yes, it will continue to expand. Beyond that, however, SaaS will remain a collection of separate markets, with most vendors specializing in one or two core and adjacent areas, instead of one unified opportunity. Some examples of this fragmented and overlapping landscape include Microsoft leveraging collaboration dominance to reinvigorate its CRM strategy with cloud delivers, SAP returning its focus to SaaS CRM after ceding the market to Salesforce, and Workday investing to build out a financials-focused SaaS business from its HR roots.

The market behaves in contrast to the IaaS market, which is highly consolidated around a standard set of often interconnected services and a small collection of vendors. In the SaaS market, growth will be achieved by new vendors addressing new workloads and features. From a vendor standpoint, there will be greater presence from legacy application providers such as SAP, Oracle and Microsoft, but also plenty of room for more niche providers as functional and regional niches develop.

While SaaS will grow the overall cloud opportunity, the challenge for vendors is that the SaaS opportunity will be more difficult to capture. That is not to say the historical model for SaaS adoption will cease to exist; there will still be SaaS purchases that are driven by lines of business (LOBs), transacted with a credit card in some cases, and deployed separately from legacy systems. At least some of the growth will continue to occur in that shadow IT model. However, much of the growth will be from SaaS solutions that deliver more critical services, are procured by joint IT and LOB teams, and are tightly integrated with legacy systems. These scenarios will require vendors both large and small to up their ante, bringing more sales, integration and support services to the table to win these more complex deals.

‘Best of breed’ spawns diversity in the SaaS provider landscape

The vendor landscape may be consolidating on the IaaS side of the cloud market, but that is not the case for SaaS. As seen in Figure 2, customers are most likely to increase the number of SaaS vendors utilized over the next two years, supported by a number of market trends, including new workload and feature adoption, platform ecosystems, and integrated multicloud deployments.

For workload adoption, there is a leveling of the playing field for which services customers are considering cloud as a deployment method. ERP, for example, used to lag in public cloud adoption but is now much closer to par with often adopted services like CRM and HR. Much of this increased consideration comes from enhanced comfort on behalf of customers for delivering sensitive workloads from cloud providers versus their on-premises data centers.

The other factor is the proliferation of complementary services available via PaaS ecosystems. The most tenured and largest example of this comes from the Salesforce Platform, which supports thousands of ISVs developing and selling solutions that complement and extend core CRM. Salesforce may have been the first, but other SaaS vendors, including SAP, Workday, Microsoft and ServiceNow, are taking the same approach, exponentially growing available SaaS services. The last driver is the continued rise of best-of-breed customer purchasing. For contracting and performance reasons, customers have long yearned for multivendor application environments, and now vendors are actually moving to accommodate that desire. Salesforce’s acquisition of MuleSoft and SAP’s introduction of the Intelligent Enterprise vision are the latest examples of how vendors are supporting customers in choosing and integrating solutions from numerous providers.

Expectation inflation raises the bar for SaaS providers

There may be a growing pool of revenue and room for more providers, but meeting customer expectations for SaaS solutions is anything but easy. Expectations have been on the rise, stoked by the greater control buyers have with cloud solutions versus on-premises software. The days of long-term software contract risk falling entirely on the customer are quickly coming to an end. Not only has the power dynamic shifted, but, as shown in the graph below, customers are successfully using more of their IT dollars to fund innovation over maintenance of existing systems. As a result, different evaluation criteria are being used for IT investments. Up front, there is a much more collaborative process between IT and LOB teams as they decide which offerings meet their underlying business need, not just what fits into their existing footprint. Calculating the benefits and return from SaaS investments is also a challenging task, as deployments use business outcomes as the ultimate goal. Although hard calculations seem challenging for most customers, it’s clear that enhanced levels of support and “customer success” roles are increasingly valued. Having these post-sale resources available and putting a greater focus on outcomes and other intangible benefits than on technology benefits seems to be the best way for SaaS vendors to meet inflated customer expectations for what the solutions can and should do for their business.

 

 

Legacy’s last gasp: SAIC, Engility and the importance of skills over scale

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SAIC’s planned purchase of Engility combines federal contractors with business models similarly disrupted by the march of technology

Themes of consolidation continued to pervade the U.S. federal government IT and professional services market on Monday, Sept. 10, with SAIC (NYSE: SAIC) announcing it will acquire peer Engility (NYSE: EGL). The proposed deal would combine two legacy providers of systems engineering and technical assistance (SETA) and ITO services to U.S. defense, intelligence, civilian and space agencies. The combination makes strategic sense for both parties as the commoditization of labor-based services compresses margins, compelling companies to look for scale advantages to optimize cost structures and maintain competitiveness to capitalize on the federal market’s current upswing.

The proposed deal would add to the lengthy list of market-shaping acquisitions and divestitures over the past five years. SAIC can be viewed as an instigator of the trend, as the company split from its former parent company, now Leidos (NYSE: LDOS), in 2013. Engility has also played a role in the industry’s consolidation through its acquisition of TASC in 2015. In the few years since, Leidos purchased Lockheed Martin’s (NYSE: LMT) IT services business, CSRA briefly gained independence before combining with General Dynamics IT (GDIT) earlier this year, and another new company, Perspecta (NYSE: PRSP), emerged from the combination of DXC Technology (NYSE: DXC) U.S. Public Sector assets with Vencore and KeyPoint Government Solutions.

While scale motivated all of these moves to varying degrees, SAIC’s planned purchase of Engility may represent the beginning of the end of this trend. As rapid technological change disrupts legacy business models, TBR believes the importance of scale will diminish. The deal will help SAIC in the near term, but what the company does next will determine its long-term survivability in the Business of One era.

Agile-ready everything: An India-centric special scenario

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In Technology Business Research’s (TBR) April 2018 Global Delivery Benchmark, we noted that reskilling existing resources is taking precedence over aggressive hiring, resulting in decelerating headcount growth for the 14 benchmarked vendors in 4Q17. While vendors claim that digital-related revenues contribute from 25% to over 55% of their total services sales, existing engagements continue to require nondigital skills as well. Recruitment initiatives help vendors fill skills gaps in areas such as artificial intelligence (AI), Internet of Things (IoT) and analytics. At the same time, vendors continue to build local presence by opening innovation hubs to support agile-based service delivery. The return on these investments has yet to be quantified, but TBR will continue to monitor this trend as these facilities become ubiquitous to how vendors conduct business.

Workforce, workplace, offerings, partnerships

Based on previous forays by India-centric vendors into consulting-intensive offerings, TBR remains skeptical that a trend toward agile will radically change these vendors, but the exception could be TCS. As the largest, TCS will be the biggest battleship to turn around, but the public, deliberate, and staged approach may create the kind of permanence necessary for significant organizational change. TBR has witnessed an emphasis in recent years by consultancies prioritizing recruiting, retaining and reskilling of their talent, especially in emerging tech areas and the consulting offerings tied to those technologies. By leading with two people-centric initiatives, TCS may have charted the proper course. Now, will the company follow it? And will its peers chase its wake?