Mainstream adoption of NFV/SDN now set for early 2020s as operators face migration issues, says TBR

Despite challenges, operators will push forward with NFV/SDN and will scale their investments in these technologies. Operators must transform to stay relevant and competitive in the digital era, and NFV/SDN is a critical component of that transformation. — Senior Analyst Chris Antlitz

 

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Samsung heads in the right direction

Samsung introduced its new Galaxy Note 9 smartphone and two other products at a big event, Samsung Unpacked 2018, at the Barclays Center in Brooklyn on Aug. 9. The Galaxy Note 9 is a beautiful thing. It is better than last year’s model in many ways, and it has new features, including a remote control built into its integral S-Pen. As with most new models of highly evolved technology products, the enhancements are only exciting if you care about well-conceived and well-executed, though incremental, product improvements. This isn’t Samsung’s fault; it is very hard to pack new and exciting functionality into a highly evolved but constrained form factor.

The newly introduced Galaxy Home Speaker is also impressive; just 160 units of the smart speaker filled a basketball arena with impressive sound, complete with thumping bass. It also has a promising integration of the Spotify music service. Additionally, the new Galaxy Watch looks like a high-end watch, not like Apple Watch’s cough lozenge look, and the rotating bezel is a much more satisfying user interface (UI) than the Apple stem-winder. Bixby, Samsung’s smart assistant, included in the smartphone, watch, and speaker, is much improved over past versions, and it will put you through to Google Assistant on the phone.

Taken individually, these products are superb examples of the best of modern consumer electronics products. Plus, there are synergies among them. The best example shown was continuous music playing from smartphone to speaker and from one speaker to another in different rooms. This cohesiveness, Samsung believes, is the future of consumer electronics — open integration to provide seamless intelligent experiences. We agree. Samsung has identified the direction in which these devices must evolve and makes that direction clear both to the outside world and to the company’s thousands of designers and engineers.

Samsung’s proclamation of this direction was unusually loud, but the company is not alone in pursuing this quest. The company’s vision is not very different from one that Apple first expressed when it introduced the iPod to accompany its line of Macintosh PCs, and that which Apple continues to pursue. Google is moving in this direction with both its hardware products and software platforms. Microsoft retreated from its efforts in this direction with its withdrawal from the smartphone market, but TBR believes the company will, at some point, re-enter that space. Finally, Amazon is a major contender, with its smart speakers, tablets and streaming devices.

There remains much to be done to deliver this effortless, seamless experience. Currently, bringing together different products to provide a seamless experience requires effort on the part of the customer. This is essentially systems integration at home, and in many cases the benefit does not outweigh the cost. To be successful, these systems must interoperate, but at the same time vendors want to demonstrate that they work “better together.” Services and devices from vendors other than Samsung, Apple, Microsoft, Google and Amazon must be easily integrated and provide a seamless experience.

The spoken UI is critical to the success of these integrated consumer platforms. Controlling the home environment with a smartphone provides great power and flexibility, but is not worth the hassle; wall switches are a better UI than an app. A smart speaker, however, one that knows your history and preferences, is both powerful and easy to access and use. The problem with spoken UIs is that there are too many of them, and each keeps a separate store of information about the user. Until this problem is solved, Samsung’s goal of a seamless intelligent experience will not be achieved, and while the market for intelligent home devices will continue to grow, it will not grow explosively until all of the integration problems are solved.

Is ‘cloud repatriation’ real?

Cloud repatriation is real, but not real enough to change the prevailing cloud trajectory. Think of it as the exception, and not the rule.

It’s a question I’ve heard multiple times: “We heard that [insert giant company name] is taking their apps/data off [insert giant public cloud vendor name] and moving it back into their own data center. Is this the beginning of a big shift?” If your job is in any way related to selling products or services for enterprise data centers, “cloud repatriation” sounds like a promising concept. Amazon Web Services (AWS) and Microsoft have been eating the lunch of a whole bunch of IT companies, and those IT companies would like that lunch back, thank you very much. But is the exodus of customers from public cloud really happening? Well, I have some good news and some bad news.

Bad news first: Cloud repatriation is not a market-changer

Cloud repatriation is not real in the sense of being a major, market-shifting trend worthy of its own buzzword. I will not deny the existence of one-off customers making a monumental shift away from public cloud. TBR sees anecdotal evidence of companies leaving public cloud environments, but we don’t see a wholesale move to strictly on-premises environments. The numbers tell it all: TBR estimates the PaaS and IaaS market grew 16% overall in the second quarter, with the big three juggernauts (AWS, Microsoft, Google) growing 58% on average within the segment, accounting for about $10 billion of the quarterly segment revenue. If anything, the public cloud market is moving toward an oligopoly as it consolidates. But it’s not shrinking. The market growth is far outpacing the loss of any customers that may be defecting.

The good news: Companies continue to use on-premises data centers, negating the need for repatriation

Very few companies see a future without owning some kind of data center. Apps that never leave the data center do not need to be repatriated in the first place (although they will likely need to evolve to a more agile and scalable delivery method). As you can see in Figure 1, the bulk of companies expect to maintain a roughly even mix of on-premises apps and those in hosted cloud environments. Smaller companies are most aggressive in their desire to reduce their on-premises footprint while the largest companies make it clear they don’t see a future in hosting everything. These projections make sense to me, especially based on my conversations with IT execs in small and large enterprises. Smaller companies tend to be concerned about the proficiency of their own data center while larger companies are full of complexities that make moving to a new environment a challenge.

 

The reality: Most companies seek a balance

By and large, companies are evaluating the best fit for workloads, acknowledging that there is no one-size-fits-all solution. Regardless of the type of cloud(s) being used, more than 80% of users will either maintain or expand their environments over the next three years. The proportion of buyers planning for public cloud expansion exceeds that of those engaging in on-premises private cloud expansion. But the fact remains that there is not a mass exodus from any specific environment. Regardless of environment, changes and evolutions will occur, even within self-built private clouds.

 

Given that business-to-business buyers are all over the map when it comes to cloud adoption, where can IT vendors succeed? There’s no easy answer, however, when discussing this topic with my colleague Senior Analyst Cassandra Mooshian, she had this to say:

“Recognizing there will be both exceptions and changes for most customers over the next three years is important for vendors, regardless of their cloud point of view. Yes, there will be workloads that have migrated to cloud that will move back to a traditional or on-premises delivery method. However, there will also be services deployed on premises that could eventually be moved to a cloud environment as customer needs and costs change. Something simple, yet critical, for vendors is to understand that no two IT environments are the same, especially across market tiers. Vendors may want their customers to go all-in on cloud, but that just is not feasible for larger organizations or even smaller companies in regulated industries or regions.

“The key to vendor success is to understand that there will be workloads best suited for cloud, while others may work just fine in legacy environments. The kicker will be in helping customers embrace hybrid, understand what works best where, and ultimately integrate and orchestrate it across each customer’s unique blend of legacy and cloud workloads. Once trust is established and there’s a mutual understanding around the idea that all options can and should be considered, that’s when long-term relationships start, and each company has a ‘favorite’ vendor or two.”

To discuss this topic further or learn about TBR’s cloud customer research, contact me at [email protected].

 

Dell Technologies and Draper: Helping IT help business

“Focusing on business outcomes” has become a very shopworn phrase for industry pundits. However, nothing crystalizes the power and importance of the concept more than detailed discussions with IT departments of flagship enterprises followed by tours of the business units they support. Seeing both affords insight into how these IT and line-of-business (LOB) entities view their interactions.

Draper shared its transformation story with a coterie of industry analysts at Dell Technologies’ (NYSE: DVMT) request on July 31 at Draper’s main facility in Cambridge, Mass. The company proved refreshing in its candor as well as in its use of business language to talk about IT rather than using IT language to feign knowledge of business outcomes. Staying focused on business objectives is the way forward for IT vendors and enterprise IT employees alike, and Dell Technologies and Draper are speaking the right language.

Digital transformation starts with executive sponsorship, as cultural change must precede technological change

A recent TBR special report examines the fundamental shift in IT consumption in the public sector “from wallet to will.” In general, this discussion contends that the increased consumerization of IT and the move to virtualization, standardization and automation enable more customer-focused interactions between IT and the LOBs they support. Presently, this concept is slowly working its way into the public sector, and it is no shock to TBR that Draper now has to embark on this transformation, given how much of its activity focuses on government-sponsored projects.

Draper CIO Michael Crones provided an overview of Draper’s history and the recent organizational changes. With Moore’s Law economics driving lower entry price points for adjacent use cases, Draper is currently reviewing its archives of curated IP to determine how, with this newer, lower-cost compute infrastructure, the IP can be repurposed for broader commercial use cases.

Capitalizing on this IP inventory initiative, however, requires a major cultural shift in how IT is viewed, managed and deployed. Many firms fail to have executive management signal the importance of change by stressing the need for, and adherence to, shifting operating practices.

Hustlers, hackers and heroes: EY’s technology consultants of a transformative age

Recognizing the value in data nerated by professional cyclists, captured but not monetized, EY worked with a startup consortium and upended the business model for cycling teams, creating a new revenue stream and changing the riders from captive to tour organizers to data and experience providers. This client study echoed throughout EY’s Technology Summit as the firm repeatedly showcased its ability to lead clients through digital transformations. Critical to the company’s approach has been balancing separation and connectivity ? separation to create change, such as cyclists building a consortium to own their data, and connectivity to ensure technology changes meet security and compliance needs — enabling transformation that is both seamless and disruptive. The firm convincingly brought forward the message they can be hustlers (in a good, hard-working, get-it-done sense), hackers (making emerging tech work for them) and heroes (driving lasting business change).

Event Overview

At its Toronto wavespace, EY hosted TBR and around 30 analysts for two days of executive-level discussions, client briefings, and product and solution demonstrations by EY technology consulting professionals. The clients came from various industries, from banking to biking to consumer goods to energy, and participated in both the executive sessions and informal discussions, allowing TBR opportunities to gain deeper insights into the client-EY relationships. The company also included technology partners, such as Microsoft (Nasdaq: MSFT) and SAS, demonstrating the close cooperation EY believes it brings to its clients.

TBR Perspective

Behind EY’s digital transformation offerings, the firm has both assets and accelerators. In some engagements, the firm collects licensing fees on the former while deploying the latter to enhance efficiency and time to value. Looking at the company with a long-view lens, TBR sees a firm that has developed technology capabilities across core and emerging technologies to a point at which EY can alter its business model, taking advantage of legacy consulting skill and carefully honed managed services offerings, layered with the full scope of digital transformation. On top of this, EY consistently puts forward a practical, get-it-done message, reinforcing that the firm knows its clients’ business, knows technology, and can deliver immediate value beyond strategy and even beyond consulting.

It’s time to stop calling IoT a technology

Yes, we all do it. Every analyst, vendor and customer has referred to Internet of Things (IoT) as a technology. I have done it countless times, and so have my extremely talented and informed peers. However, it’s a misnomer, a shortcut, and a cop out, and if we actually think of IoT as a technology, it’s ultimately harmful to the adoption of IoT. IoT is actually a technique for solving business problems using a combination of technology components and services, rather than a technology in and of itself.

No one vendor does IoT alone ― it’s not a deliverable, self-contained technology solution. Rather, it often involves a “leader” company, generally a consulting company or an ISV, assembling a solution sourced from software, services and hardware components from partner companies. My colleague Ezra Gottheil likes to use a construction analogy. A general contractor will shop at Home Depot (the wide and increasingly saturated IoT marketplace) for all the components he or she needs to build a structure. The general contractor will also hire subcontractors (partners and specialized vertical ISVs) who have certain expertise. Even as we move closer to prepackaged IoT or shrink-wrapped solutions, multiple vendors will continue to be involved in delivery.

Some of these components can be grouped into the “new technology” bucket. As TBR closely monitors use cases and fills our use-case database, which currently has more than 360 entries, IoT projects are increasingly linked with augmented reality/virtual reality, blockchain and analytics. All of these new components, including IoT, are enhanced when used in cohesion.

But many of the components, such as servers, routers, mobile devices, sensors, connectivity, IT services and business consulting, have existed for decades. IoT is a new shiny label slapped on a technique IT companies have been using for decades: pulling together IT components to build solutions and help customers achieve their goals.

TBR believes when a vendor tells a customer “you should adopt this new transformational technology,” it is usually met with eye-rolling. IoT is no different. As soon as the “new technology” discussion comes to the table, customers instinctively rock back on their heels. It sounds like a large and long-lasting commitment, which leads to rip-and-replace cost fears, technology lock-in consternation due to a rapidly evolving market, and a general lack of understanding about the benefits.

TBR believes vendors should change the message. Begin with discovering what a customer’s business problems are, then suggest using the technique of IoT to begin strategically solving them in a stepwise manner. It’s not a rip-and-replace approach; it’s seeing where improvements can be gradually made to increase connectivity throughout an organization and ultimately deliver improved insight. It might mean adding sensors to legacy equipment, using IoT components and new analytic tools to tie together legacy data and create new insight, or implementing tangential technologies such as blockchain to better inform customers on their supply chain. Eventually, it could mean all of these combined.

At a recent vendor event, the CEO of a Boston-based IoT solution vendor asserted that IoT is now passe. True customer evolution, including problem solving comes from the bigger picture ― using the technique of IoT, tangential technologies, and internal and external data sources to supercharge efficiency and gain insight.

IoT as a technology is a lazy oversimplification. Let’s start messaging how the technique of IoT ―a new way of thinking about and applying technology ― can help solve current business challenges in an agile and cost-effective manner.

 

SAP Digital Business Services enables customers to create their own intelligent enterprise

After SAPPHIRE NOW in June, a burning question remained: How does SAP’s professional services organization fit into the company’s new intelligent enterprise vision? SAP’s Digital Business Services (DBS) Analyst Day provided the answer: DBS is the enabler to the intelligent enterprise, which is a system of SAP and non-SAP applications, underpinned by a digital platform and made intelligent by the SAP Leonardo technologies.

As the enabler, DBS will have several responsibilities including helping to create business cases, and road map, architect and implement the customers’ version of the intelligent enterprise. SAP certainly has the technical expertise in-house to architect and implement the intelligent enterprise and has reskilled and hired over the last few years to bolster its advisory capabilities, particularly as it relates to emerging technologies such as artificial intelligence. Critically, SAP’s partners have ample opportunity around the necessary change management responsibilities that are undoubtedly needed to ensure successful business process transformations.

Repeatedly during the two-day event SAP leaders emphasized that DBS helps the company accelerate clients’ time to value and reduces risk for all involved — the client, SAP, and any consultancy or SI partners. By being close to software-related services, not necessarily project-related, such as change management, SAP DBS plays to its core strengths and competencies and brings the value clients expect. More broadly, DBS assures clients that a large partner-led engagement meets SAP standards, often through a separate SAP Value Assurance contract between SAP and the client apart from the partner or project arrangements. This clear vision of what DBS does well, why, and how built on last year’s DBS Analyst Day, particularly when reinforced consistently by the DBS leadership team.

Predix is looking for a new owner

Reports surfaced on July 30 that General Electric (GE) has contracted an investment bank to auction off the company’s GE Digital unit.

When former CEO Jeff Immelt aimed to diversify GE into the software space to take advantage of the synergies between Internet of Things (IoT) and the company’s industrial machinery footprint, GE Digital was created. The unit got some things right. It was one of the first IoT vendors to message the importance of operational technology (OT) inside the IoT technique, emphasizing that IT vendors couldn’t do it alone. It was also one of the first companies to highlight the digital twin, allowing engineers to run simulations or see the effects of an asset via its digital doppelganger, a technique now utilized by most IoT solution companies. It also promoted the idea that almost everywhere across a customer’s organization, from light fixtures to robots on the manufacturing floor, the addition of IoT could deliver insight. The unit carved the path forward for its OT peers, most of which were fast followers that gained an advantage by first witnessing GE’s successes and challenges.

TBR believes there were a few missteps. GE Digital made one of the more fatal mistakes among early IoT companies caught in the hype wave: It advertised that it was able to provide solutions for everything from manufacturing to healthcare and from utilities to transportation. It is understandable that GE Digital wanted to mirror GE’s wide industrial reach, but it led to a jack-of-all-trades, master-of-none messaging. In actuality, GE Digital likely focused on its Oil and Gas, Manufacturing, and Energy and Utilities segments, however, TBR believes the pivot to specialization in specific industries was too late.

This phenomenon of overextending can also be seen in the mechanics of Predix, which was marketed as a broad, do-all, edge-to-cloud platform with analytics. In reality, Predix was a do-all generic platform that needed a lot of expensive customization and developer time to build tailored solutions for customers. Because of this complexity and platform breadth, GE Digital had problems messaging what it was best at and how it could help customers. We believe the company overemphasized the platform’s  wide set of capabilities and underemphasized packaged IoT applications that solved real business problems. Ultimately, messaging of the platform got mired in discussions of technical features and functions, rather than the outcomes and differentiation of the company’s analytics and platform versus those of competitors such as IBM.

However, what tripped GE Digital up the most was that it wasn’t a great partner in a market that thrives on partnerships. Large IoT deployments will often have a multitude of vendors involved, all with expertise in a specific component of the holistic solution. Instead of focusing on enhancing areas where IT companies are weak, such as OT knowledge, GE Digital tried to do IT and OT. Because GE Digital wanted to do it all, it didn’t play as well as it could have with IT companies boasting deeply established roots in customer companies.

GE’s initial go-it-alone stance also had the company building from scratch, with its tools, such as analytics or cloud platforms, and feature sets always playing catch-up with IT companies that have been building these technologies for decades. For example, GE Digital initially tried building out its own cloud services mirroring Amazon Web Services (AWS) and IBM Bluemix. It ultimately ended up partnering, but we think the company’s initial focus on creating a PaaS cloud kept the company bogged down in services that didn’t add a lot of value. Ultimately, GE Digital proved to be an unattractive partner to bring into an IoT solution, and its platform failed to differentiate it enough to remedy partner apprehension. The platform was also much more expensive to build from scratch than just partnering with peers, making running-at-a-loss GE Digital look like a huge drag to GE leadership, which ultimately sealed its fate.

Where are GE’s Predix assets going? It’s hard to say for sure. As my colleague Ezra Gottheil noted, GE Digital announced it was standardizing on Microsoft less than two weeks ago. Microsoft has been looking for ways for Azure to outpace AWS in IoT and other emerging technology, and being a long-standing IT company, improving its OT expertise would make it more attractive in the industrial space. Perhaps Microsoft, or a Microsoft partner, such as Rockwell Automation or ABB, may be a purchaser.

TBR is seeing other large OT companies, such as Siemens, thrive as they focus on their strengths as OT-whisperers and enhance, not compete with, IT brethren. We are also seeing vertically specialized small ISVs pop up, in the OT and IT domains, that are focusing their expertise on a narrow set of business problems and are being brought in as essential partners. GE Digital blazed the trail for these peers, but also became a cautionary tale for those following in its wake: Enhance partners, don’t compete; be interoperable, not closed; message and provide expertise in your strengths, don’t provide a broad generic solution.

Earnings recap: Amazon, Microsoft and Google grow fast and keep hold on the market — for now

Although the market is consolidating around AWS, Microsoft Azure and GCP, the trailing vendors are unable to match AWS’ quarterly revenue gains

Consolidation is occurring across cloud segments, with the most notable convergence occurring around the five leading PaaS and IaaS players, blending the lines between PaaS and IaaS. Customers and applications vendors are flocking to the leading players Amazon Web Services (AWS), Microsoft Azure and Google Cloud Platform (GCP). This is evidenced by these three vendors collectively growing 58% year-to-year in 2Q18, while the total PaaS and IaaS market is expected to grow only 16% year-to-year in 2018. This consolidation is helping the largest players continually capture greater market share and, as a result, largely dictate the growth of the PaaS and IaaS markets.

With the leading vendors’ CY2Q18 earnings results now public, it is clear that AWS continues to rule the PaaS and IaaS spaces, sitting at almost three times the size of second-place Microsoft Azure and sustaining greater quarterly revenue additions. Google sits in third place in mindshare for many customers, but trails AWS and Microsoft Azure in revenue by a large margin. These three vendors face increasing competition from Alibaba, which continues to expand its global reach, and IBM, which has seen more success in private cloud and hybrid IT.

 

AWS maintains its public cloud lead through continuous innovation, but faces growing opposition as new and existing competition strengthens

AWS accelerated revenue growth for the third consecutive quarter in 2Q18, up 48.9% year-to-year to $6.1 billion, further extending its lead in PaaS and IaaS. AWS’ position as the far-and-away market leader causes the competition to fiercely innovate and expand to challenge the vendor. However, AWS’ mindshare has been secured, and paired with its portfolio breadth, innovation pace and global availability, inserts the vendor into the bulk of customer and partner evaluations. AWS’ determination to innovate with and ahead of customer needs continues to drive service and feature releases, aimed at winning new workloads without compromising profits. Halfway through 2018, AWS has released 800 new services and features, an accelerated pace of service innovation from 2017’s record level.

Microsoft Azure continues its fast-paced growth, but will remain behind AWS in revenue for the foreseeable future

Microsoft’s Commercial Cloud revenue, which includes public cloud and private cloud versions of Office 365 commercial, Dynamics 365 and Azure, approached $6.9 billion as Microsoft nearly doubled the number of Azure agreements worth $10 million or more over the last year. Azure revenue grew 89% year-to-year to $2.2 billion in 2Q18.

Microsoft’s combination of traditional software, public cloud and on-premises private cloud positions the company to be the backbone of customers’ hybrid environments — a label few competitors, especially AWS and Google, can claim. As such, Microsoft is uniquely positioned to help customers extract the value from their integrated data and has put itself at the forefront of innovation and commercialization of emerging technologies such as artificial intelligence (AI) and Internet of Things (IoT) to capitalize on this leading position.

Google will be unable to retain its third-place position as it fights to shift market perception and fend off strengthening competition

Relative to AWS and Microsoft Azure, GCP is far behind in the PaaS and IaaS space but is trying to prove to customers that it is as enterprise-ready as its main competitors. As Google solidifies its cloud portfolio and builds out key offerings, the company has also prioritized improving its large enterprise go-to-market efforts under its One Google strategy. Google Cloud, which consists of G Suite and GCP, increased revenue by an estimated 56% year-to-year, nearly reaching $1.42 billion. TBR expects Google Cloud revenue will increase to $1.6 billion in 3Q18 as the vendor continues to execute its One Google strategy.

While Google is investing in its go-to-market activities and shows progress through growth, its overall reputation in the market has been slow to adapt from consumer-grade to enterprise-ready. To combat that market perception, Google Cloud focuses its innovation on mastering four areas of expertise: machine learning and analytics, security, application developer tools, and connected business platforms. Recent investments in hybrid enablement and improved rendering capabilities demonstrate Google’s ongoing commitment to becoming a leading cloud vendor in differentiated areas of high-growth opportunity. While Google will succeed in these discrete areas, TBR expects Alibaba to emerge as the third-place general-purpose PaaS and IaaS provider.

TBR launches new Cloud Customer Research reports covering infrastructure and applications adoption

Recognizing that a more mature cloud market needs deeper customer insight, Technology Business Research, Inc. (TBR) is launching two new programs: Cloud Applications Customer Research and Cloud Infrastructure Customer Research. While the vendor landscape is solidified from a leadership perspective, customer behavior has become even more difficult to decipher. TBR’s new programs will help subscribers to plan and take action to win more cloud business.

Many of the simple workloads, such as development & test, CRM and productivity, have moved to the cloud, but exactly what services will move next and how remain difficult questions to answer. TBR’s Cloud Customer Research reports address these new market realities, providing direct feedback on leading and emerging vendors and focusing the analysis on specific workloads in both the applications and infrastructure domains.

Insight provided through in-depth customer interviews allows subscribers to understand the nuance involved with customers’ cloud usage and leverage that information to directly influence their positions in the market. The result of the research is clear identification of market size, leading vendor share, vendor perception, vendor strengths and weaknesses, and case studies on workload adoption.

The two new Cloud Customer Research streams deliver insight that can be used internally to plan business strategies and field guides that can be used externally to initiate and close more competitive deals. While the two research streams will cover different markets (applications and infrastructure), they have a similar structure: analyzing market opportunity, customer behavior, vendor position and perception; offering engagement scenarios and field guides; and providing interview excerpts. TBR will conduct 400 surveys and 100 interviews annually as part of this program and will publish the two reports in September and March.

For additional information about this research or to arrange a one-on-one analyst briefing, please contact Dan Demers at +1 603.929.1166 or [email protected].