2019 Public Sector Predictions: Ethics compound complexity as federal agencies rush to embrace commercial IT innovations

The march of technology challenges humans to keep up, leading to difficult conversations for the many technology firms clamoring for a slice of federal IT modernization spend

In 2018 U.S. federal government policy and budget aligned to amplify excitement around the long-promised application of private sector IT innovations to public sector missions. We began to see action as government policies such as the President’s Management Agenda and National Defense Strategy combined with a bipartisan budget agreement to send a clear message that government agencies need to embrace cloud operating models and explore new technologies to reduce costs, move faster and serve constituents more effectively.

In a prevailing movement TBR calls Wallet vs. Will, the federal market’s pursuit of commercial IT represents a fundamental shift from traditional procurement models predicated on bespoke, costly and difficult-to-replace proprietary technology to a more agile model leveraging configurable off-the-shelf solutions enabled by open standards. In the old model, prohibitive cost was the primary impediment to moving technology forward, driving top-down commercialization models out from the Pentagon, or the wallet holder. In the emerging model, the axis has flipped as technology is no longer the problem but rather the will of the humans interacting with technology has become the main obstacle to keeping up with technological advancement.

As technology moves forward at breakneck pace, government policy and regulations will struggle to keep up. Law as the codification of an agreed-to set of ethical standards remains woefully behind as society struggles with the implications of technology development on myriad issues, from a citizen’s right to privacy to warfighting. In 2019 familiar market trends such as transformative M&A in the IT industry broadly and in the federal services market specifically will continue to reshape the market and create new disruptions. However, we believe that the continued ethical debate around emerging technologies, as much as who holds the innovative IP around those technologies, will help shape the competitive landscape in the years ahead.

IBM builds out concierge services so internal IT departments can satisfy the business

TBR perspective

The recent IBM Cloud Analyst Day continued a theme introduced at IBM Think 2018, with numerous IBM executives reiterating “the axis has flipped” in the market for IT solutions. Nowhere has the axis flipped more than in the relationship between IT and lines of business (LOBs). Where IT hardware and software were once costly components, the IT department served more as a security guard meant to ration the business use of IT. Today, with virtualizing compute and storage turning computing ubiquitous and 5G set to disrupt network virtualization, IT must shift to the role of concierge — listening to LOB demands and then stitching together the requisite IT assets to enable successful execution.

At IBM Cloud Analyst Day, IBM Analytics General Manager Rob Thomas discussed the concept of data virtualization, made possible by adhering to specific run times that allow for abstracting the requisite data from where it resides and transporting it to where it is needed with pervasive encryption, to deliver the business insights required for the LOBs. That vision is what IBM described as the “ladder to AI,” or the climb the business must make to infuse its operations and integrated IT stack with artificial intelligence (AI) insights, deploying all IBM AI assets from SPSS to Watson.


At IBM Cloud Analyst Day, IBM Analytics General Manager Rob Thomas discussed the concept of data virtualization, made possible by adhering to specific run times that allow for abstracting the requisite data from where it resides and transporting it to where it is needed with pervasive encryption, to deliver the business insights required for the LOBs. That vision is what IBM described as the “ladder to AI,” or the climb the business must make to infuse its operations and integrated IT stack with artificial intelligence (AI) insights, deploying all IBM AI assets from SPSS to Watson.



Virtualization flips the axis on technology monetization and adoption

An exclusive review of TBR’s ongoing market analysis and tailored services frameworks

Technology monetization strategies continue pivoting from transaction sales to subscription sales predicated on building viable consortiums to generate the ecosystem flywheel effect. There has been an obvious shift in the consumption of basic compute resources from capitalized instances owned and maintained by enterprises to software-controlled, multicloud environments delivering “cloud economics” to traditional environments. Join TBR analysts Geoff Woollacott and Bryan Belanger as they analyze this shift and its expected impact on the market.

Virtualization and ongoing price point reductions shift internal IT departments from the role of security guard — rationing finite, costly resources — to the role of concierge — articulating the art of the possible to line-of-business users. In short, technology adoption will increasingly become a people problem addressed through consensus building around companywide business rules, while hardware has become a loss leader, as have some advisory services, to generate the long tail of sticky subscription services.

Don’t miss:

  • The general state of the technology monetization fabric and its disaggregation into discrete services components
  • The ongoing convergence of services providers, and the strengths and weaknesses of the conventional business models all struggling with the same pivot to participate in ecosystem flywheels
  • Common challenges needing market testing, given enterprise customers become increasingly unforgiving of monetization and service missteps


TBR webinars are held typically on Wednesdays at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. Previous webinars can be viewed anytime on TBR’s Webinar Portal.

For additional information or to arrange a briefing with our analysts, please contact TBR at [email protected].

Services Weekly Preview: December 3-7

As we wrap up the quarter, just a few key items are left including the four reports listed below, the Management Consulting Benchmark and predictions for 2019.

Here’s what’s coming this week:

Thursday: Our semiannual deep dive on DXC Technology’s healthcare IT services (HITS) practice includes our assessment that DXC’s long-awaited return to HITS growth remains elusive in the face of stubborn post-merger disruptions and poor contract performance. However, we had expected the company’s recent traction in APAC and select European markets would work in concert with rebounding IT spending patterns in the U.S.-based payer sector, the ongoing bull market in life sciences IT investment, and DXC’s acquisition of Molina Medicaid Solutions to launch a period of renewed HITS revenue growth. The report also includes scenarios on DXC’s acquisitions and the company’s activities in the Middle East.


  • In our mid-November initial report on Cisco Services, TBR noted that the company sustained growth in 3Q18 by attaching services to Cisco’s growth initiatives around next-generation solutions. Our full report will explore the drivers behind that growth and include scenarios around streamlining headcount in the Customer Experience business, which includes Cisco’s software, subscription and services activities; transforming clients’ IT operations at speed and scale utilizing predictive services powered by artificial intelligence and machine learning; and expanding cloud-related offerings by partnering with Google Cloud, SAP and Amazon Web Services.
  • With SAIC’s earnings release slated for Friday, TBR will be looking to see if the company conformed with our July assessment that SAIC needs to address federal priorities as a low-cost alternative in IT modernization, platform integration and training, as well as expand into underpenetrated areas of the federal market organically and/or through acquisitions.
  • Finally, our semiannual look at NTT DATA’s HITS practice will acknowledge that the 2017 acquisition of Dell Services’ healthcare assets was a major undertaking, but is now complete and has significantly enhanced NTT DATA’s capabilities across multiple healthcare segments. In addition, the report includes scenarios around alliances and virtualization in the healthcare IT space.

IBM-Red Hat economic implications: Is disruptive state the new steady state?

IBM’s assets combined with Red Hat’s business monetization models are a good bet to provide a scaled, secure and trusted platform, if IBM can adjust internally and convince its clients to do the same.

The market splash

When a blue-chip bellwether company buys a firm that broke the lock on proprietary operating system dominance something big is afoot. IBM’s market luster has faded somewhat, and the financial sharks are circling with calls for CEO Virginia Rometty’s head and for IBM to be broken up and sold off to warm the cockles of institutional investors’ hearts, who cannot see the market implications beyond 90 days. IBM has been here before, in the late 1980s when Digital Equipment Corporation had a higher market valuation than IBM based on a single architecture and operating system as opposed to IBM’s six or so disparate computing architectures and operating systems. IBM’s first effort to course correct with the 9370 minicomputer was essentially dead on arrival, but its second shot, the AS/400, lives on in server closets to this day as the iSeries.

But this new challenge is different, and IBM knows it. Its executives talk about how “the axis has flipped.” At TBR, we talk of the Business of One as others label this moment as Industrial 4.0. The core revolves around cheap compute. Moore’s law has been the fundamental economic axiom driving the rapid rise and fall of technology vendors for at least 60 years, though some say its effects are waning. Despite the undeniable shift, innovations around cheaper and cheaper compute, storage and networking sources will continue in ways fascinating to fathom, especially as quantum computing nears commercial viability. At once scale means nothing and everything in this Business of One era.

Scale: Vital and trivial at the same time

Scale means nothing amid the development of new ideas.

Scale means everything when it comes time to ensure business commerce can leverage the new ideas in ways that protect brand, customer privacy and regulatory compliance.

IBM understands this as well as, if not better than, any of its competitors. The challenge for IBM is the same one faced by Satya Nadella when he took over Microsoft: how to change a deeply ingrained and highly successful corporate culture to align to these new, seemingly contradictory market realities. A lot of economists get lost in the buzz of hypergrowth for scaled public cloud revenue. Public cloud, at its core, is nothing but a commodity utility offering. It has never been the IBM play, and it ought not to become its play now. The company’s domain is enterprise IT, not easy storage of family photos or digital music. Amazon, Azure and Google (“Amazurgle”), and emerging regional rivals, can meet these demands, especially when such companies derive the bulk of their revenue elsewhere through advertising or e-commerce.

What IBM has to learn is how to compensate the management layers on companywide execution rather than on siloed execution. You cannot hold firm on razor sales when to lose that sale means risking a lifetime of highly profitable razor blade sales.

The technology assets IBM stands to gain in the acquisition are well documented, particularly in a recent commentary by TBR Senior Analyst Cassandra Mooshian. But TBR has covered IBM and Red Hat for years, and after one particular Red Hat analyst day, TBR summed up Red Hat CEO Jim Whitehurst’s business strategy as “deja vu all over again.” Essentially Red Hat aimed, and is still aiming, to do in the PaaS layer what it did in the enterprise operating system layer. Red Hat’s success with this strategy would prove a boon to IBM, and IBM’s long working history with open-source communities should allay many (but obviously not all) of the concerns within those communities around the business following the proposed acquisition.

AWS shakes up the private cloud infrastructure market with Outposts

Outposts enable AWS to meet clients’ demand for private cloud

Amazon Web Services (AWS) unveiled at re:Invent in Las Vegas its new Outposts on-premises cloud infrastructure, which will enable AWS to become the sole cloud infrastructure provider for its clients. The underlying Outposts infrastructure closely resembles AWS’ public cloud data center infrastructure. Since the infrastructure will be similar, it is conceivable AWS will be able to tie customers’ public and private clouds together seamlessly, fulfilling customers’ desire to deal with one less vendor for their IT needs. AWS will deliver, install and maintain Outposts for customers.

The sheer volume of AWS public cloud customers creates a large base to sell Outposts to and takes aim directly at private cloud data center providers. Outposts will also directly compete with Microsoft Azure, and will generate accretive hardware revenue for AWS.

An advantage AWS has over infrastructure vendors is economies of scale, which will enable AWS to sell massive infrastructure volumes for low margins — much like an original design manufacturer — and become a price leader against OEMs such as Dell EMC and Hewlett Packard Enterprise (HPE). AWS also plans to arm its channel partners with the necessary capabilities to sell these infrastructure solutions, further enabling large sales volume. Moreover, AWS is better equipped than other infrastructure vendors such as Dell EMC and HPE to attach the necessary services to provide connectivity between public and private cloud environments due to its expertise in the public cloud space — and will gain the higher-margin sales to boot. IBM has strong services capabilities but lacks the commoditized infrastructure and customer volume to match AWS’ strategy. TBR notes that pricing details of Outposts have not yet been determined.

VMware gets a piece of the AWS Outpost pie with the VMware Cloud variant

VMware and AWS collaborated to provide VMware Cloud on a variant of AWS Outposts, which will be offered by VMware as a managed service. As this creates a conflict of interest for Dell Technologies, TBR believes Dell Technologies has its sights set on the higher-margin sales generated from VMware Cloud and will forego the loss of lower-margin hardware sales to gain it.

Although AWS’ announcement may seem like bad news for the private cloud infrastructure OEMs, the good news for them is that AWS’ Outposts will not hit the market until 2H19, giving the infrastructure players some time to develop solutions that can compete with AWS as it moves into the data center hardware market.

Digital and Compaq: A cautionary tale for IBM and Red Hat

Big mergers bring big risks: Compaq and Digital Equipment Corporation, a tragicomedy

Compaq proved in the early 1980s you could buy non-IBM hardware and not get fired in the process by creating a portable PC that could be lugged around by weightlifters. Ultimately, Compaq struggled trying to move up the stack into the peer-to-peer networking space, as Dell and Gateway undercut Compaq’s undercutting of IBM PC price points, and made a big acquisition of Digital Equipment Corporation to buy enterprise server direct sales and services. But culturally, Compaq choked off the very assets the company desired by imposing volume business sales cost controls onto an enterprise-selling organization. In the end Compaq wound up being absorbed by Hewlett-Packard Co. (HP), which has acquired many hardware companies over the years.

What are the lessons learned for IBM-Red Hat?

IBM has decided to invest one-third of its market cap in acquiring Red Hat for $34 billion. Essentially IBM bought the ecosystem engine necessary to create the flywheel effect of IP services and support. There are synergies, to be sure, on the support of open foundations that have accelerated product commoditization in ways that benefit customers and pressure technology vendor business models across the entire technology spectrum. At issue will be which pieces of two different cultures and business best practices prevail, for, as Peter Drucker famously said, “Culture eats strategy for breakfast.”

What can IBM learn?

Red Hat pioneered the business model of monetizing services around free products. This stands diametrically opposed to the best-in-class blue suit selling model made famous by IBM and increasingly less relevant in the digital economy. Red Hat generates 75% of its revenue through the channel. Given that scale matters less, IBM has to improve its downmarket selling motions. Red Hat best practices should be imported into the current IBM selling motions as quickly as reasonably possible.

Red Hat also has near-zealous support among the developer community. Again, allowing Red Hat leadership to help shape new developer programs, run the Red Hat way from the wealth of IBM assets, will be critical lest those supporters migrate to another Linux distro such as Suse or Canonical.

What can Red Hat learn?

IBM has enterprise trust to solve critical technical integration problems soundly and securely. It likewise has access to more CxO decision makers in the enterprise. Success of the proposed acquisition will be as much adding more product to an existing sales channel as it will be to tailor messages to the decision makers while preserving the uniquely ardent support Red Hat has with the teams writing the code.

More to follow from TBR

A more extensive TBR Business of One special report, IBM-Red Hat economic implications: Is disruptive state the new steady state?, will be out shortly, written with Professional Services Practice Manager Patrick Heffernan. Recent commentaries are also available by Cassandra Mooshian, Big Blue opens its arms, and its wallet, to Red Hat; and Michael Soper, Red Hat can save CSPs from themselves.

Dell EMC Services enables clients’ transformation to modern IT infrastructure environments

Dell Technologies’ core competencies remain rooted in products and infrastructure

The keynote sessions began with a Dell Technologies Capital update by Scott Darling, president of the venture arm. This group manages investments for all of Dell Technologies’ strategic business units, including Boomi, VMware, RSA, Secureworks, Virtustream, Dell EMC and Dell. Dell Technologies Capital has spent over $100 million in investments to broaden the company’s innovation ecosystem, taking various levels of financial positions in over 90 companies over the past six years. We believe Dell Technologies’ strategy of using this venture capital structure to spur innovation and gain access to creative new technologies across the startup community will play a critical role in the expansion of its strong market position as a key infrastructure provider enabling IT modernization.

Chairman and CEO Michael Dell also spoke at the event, discussing the topic of unlocking the power of data. He talked about how the company stores and protects more data than any competitor, and has the market opportunities to enable clients to extract value from data, from the edge to the core to the cloud. The presentation transitioned into a keynote by CTO John Roese that outlined six key areas of innovation that Dell Technologies will focus on to capture market share: powerful accelerated compute, high-performance data storage and protection, software-defined infrastructure, multicloud operating models, compute and analytics at the edge, and data mobility. The company will continue to invest in these six areas to make data and applications agile and adaptable to the large advances made in data generation through modern technology, and we believe this aligns nicely with the company’s overall goal of being the supplier of essential infrastructure across the globe.


The two-day summit began with a full day of keynotes spanning Dell Technologies’ (NYSE: DVMT) various lines of businesses and capabilities. The second day consisted of track sessions on infrastructure, client solutions, Internet of Things (IoT) and business innovations, including one-on-one discussions and small group meetings.

2019 Data Center Predictions: The pendulum swings as customer demands reshape how infrastructure vendors do business

The cycle of complexity is back as infrastructure vendor portfolio transformations make digitization achievable

Moore’s law economics has reached a point where compute no longer constrains IT automation. Due to the miniaturization of electronics, distributed computing is taking place at the microprocessor board level, as evidenced by the rise of graphics processing units (GPUs) and the resulting hyperconverged infrastructures. As such, refresh cycles no longer consist of replacing old, standardized Intel servers with new variants. Now IT departments look at the cost economics of the traditional standardized servers against the increasing number of compute form factor variants coming to market as purpose-built edge compute instances.

As compute form factors proliferate, there has been a shift in the type of skills IT departments require. Manual taskwork becomes automated. Technical skills have to incorporate more software functionality to operate the various management control planes that can monitor, manage and dynamically provision an enterprise IT instance. Physical IT becomes less relevant based on abstraction, which allows for enterprise IT to reduce the number of primary suppliers. The margin protection for infrastructure vendors will come from the power and simplicity of the abstraction layer, be it PaaS or management, orchestration and provisioning.

The plot thickens when emerging technologies are placed on top of this evolving landscape. Cutting-edge capabilities and the growing need to secure environments are further adding to the complexity of IT infrastructure, as is necessary to achieve desired outcomes. Meanwhile, consumers want to reap the benefits of these emerging capabilities without dabbling in the complexities. Infrastructure vendors will undergo many transformations — in how they partner, in how they go to market, and in how they innovate — to maintain relevance in a rapidly evolving 2019.

2019 Predictions

  • In an increasingly open-source world, the power of partnerships grows stronger within hardware-centric vendor strategies
  • Innovation will be reimagined by infrastructure vendors, as R&D is shifted to address the overarching demand by customers to leverage their key IT vendor as a one-stop shop
  • Emerging infrastructure technologies reshape customer demands, placing increasing emphasis on new ways of computing and managing data

Register for TBR’s webinar The pendulum swings: Customer demands reshape how infrastructure vendors do business, Feb. 6, 2019.

Cognizant’s 3 new acquisitions enhance digital and global reach

Cognizant has made seven acquisitions since the beginning of 2017, adding between 2,200 and 2,300 employees and over $500 million in acquired revenue (by TBR estimates). The company’s acquisition spree continued in recent months with three additional purchases. In August Cognizant bought SaaSfocus, a Salesforce consultancy based in Noida, India, with operations in Delhi and Mumbai, India, as well as Sydney and Melbourne, Australia. SaaSfocus has completed over 1,500 Salesforce engagements in India and Australia with clients across the financial services, insurance, manufacturing and automotive sectors, including Audi, Baxter and Holcim. SaaSfocus has also forged strategic integration, application and industry-specific partnerships with companies including Informatica, Jitterbug, MuleSoft, DocuSign and Cloud Lending Solutions. TBR estimates SaaSfocus will add between $3 million and $4 million in new revenue and over 350 employees (about 280 are providing service delivery from India).

In September Cognizant announced the acquisition of Kansas-based Advanced Technology Group (ATG), further expanding its advisory capabilities on the Salesforce platform, specifically around the management and implementation of quote-to-cash (QTC) solutions: configure, price, quote (CPQ) software; multiplatform contract life cycle management and billing; and automating QTC processes. ATG operates delivery facilities in Kansas, Missouri, Ohio and Montana and has IBM, Subaru and CenturyLink on its client roster. We estimate ATG will add between $2 million and $3 million in revenue and about 280 employees to Cognizant after it is fully integrated.

Finally, in early October Cognizant announced it would acquire Austin, Texas-based Softvision. Financial terms were not disclosed, but Cognizant was expected to pay as much as $550 million to acquire Softvision’s 2,800 digital product and design engineers working in 27 studios across 11 countries (though the majority of digital product development will be in North America). TBR estimates Softvision will add between $160 million and $180 million in inorganic revenue to Cognizant beginning in 4Q18.

Cognizant’s latest purchases deepen its digital engineering capabilities, particularly around Salesforce technologies, but short-term margin erosion can be expected as Cognizant integrates its latest buys. Even as enhanced Salesforce competencies position Cognizant as a leading cloud CRM, marketing and platform vendor, integrating three additional employee bases into a workforce already beset by high turnover may exacerbate Cognizant’s struggle to control attrition. Still, Cognizant’s newest acquisitions will further enable the company to fulfill its overarching strategy of driving digital to the core of client enterprises.

TBR continues to view Cognizant as a leader among the India-centric vendors, and the company certainly separates itself from peers with its aggressive acquisitions. Executing on integration remains the key, and TBR will closely watch (and report on) progress.