Commoditization mitigation strategies require business model shifts and an ever-watchful eye on exascale cloud entrants

Volume or value?

Toward the end of 2018 in the data center market, two distinct vendor strategies emerged: Vendors began either increasing sales volume or selling lower-volume but higher-value solutions. TBR believes that in 1H19, now that vendors have determined their camps, they will begin to craft competitive strategies directly targeting specific peers. For example, Dell EMC has publicly stated its intent to increase its market share in both servers and storage, and we believe the vendor will target key competitors to gain this share. Similarly, Lenovo’s large-scale data center investments imply significant competitive goals.

In February Lenovo unveiled TruScale Infrastructure Services. This directly competes with Hewlett Packard Enterprise’s (HPE) GreenLake and Dell EMC’s Cloud Flex. It also addresses customer demand for private cloud infrastructure that is financed like a public cloud offering. TruScale is available for Lenovo’s entire stack of data center infrastructure solutions. In April Lenovo unveiled a server portfolio refresh, which likely reinforces its TruScale solutions and increases its competitive edge against Dell EMC and HPE.

TBR believes that during the next few months, Dell EMC and HPE will fight back against Lenovo’s marketing tactics to preserve market share. HPE has an advantage in that it is pursuing value-centric data center sales, so it is likely willing to concede less-profitable sales to Lenovo or Dell EMC. Dell EMC’s stated objective to increase market share in servers and storage will increase competition between the company and Lenovo as both aim to scoop up HPE’s lower-margin customers.

ODM participation heats up as commoditization drives provisioning simplicity

Because data center hardware becomes increasingly commoditized as software capabilities become more advanced, we believe data center vendors will increasingly find themselves competing against ODMs, especially for larger deals. Smaller customers will still show a preference for OEMs as they need the additional software and services provided with OEM data center solutions. Lenovo’s manufacturing capabilities give the company an advantage in the hyperscale space, where Lenovo’s past financials illustrated some successes, and enable the vendor to differentiate from its OEM peers.

On the hyperscale front, ODMs are rising to dominance, but OEMs such as Lenovo remain a force to be reckoned with in the space. As cloud becomes an increasingly central piece of IT environments, public cloud providers seek ways to expand their environments as cost-effectively as possible to preserve profits. TBR believes very large enterprises are likely to explore leveraging hyperscale vendors as well for their on-premises environments if it is cost-effective.

Consumption-based pricing models tie to the commoditization march

TBR’s Hyperconverged Platforms Customer Research continues to highlight the correlation between private cloud installments and HCI. Most recent findings indicated that 80% of respondents leveraged their HCI purchase for a private or hybrid cloud environment. Since customers are already turning to HCI for cloud, it is a logical next step for vendors to price HCI like a public cloud solution to deepen the competition.

With their channel partners also engaged, Dell EMC, HPE and Lenovo are the three main players in the consumption-based pricing space. Their solutions are not limited to just HCI, but HCI is one of the solutions that can be purchased in this manner. The key value proposition of consumption-based pricing for data center vendors is the ability to bundle software and services into hardware consumption-based deals. This is likely to boost the margin on the solutions. Further, it guarantees larger deals, as in many cases, these consumption-based pricing deals lock customers in for a predetermined duration that has early termination penalties.

No bigger stage: Have to get it right in New York City

Opening the New York City Experience Center (EC) long after the first one in Hallandale, Fla., launched allowed PwC to learn lessons about design, operations, talent and culture that will help ensure the high-profile NYC location excels in every way that PwC measures the success of these centers. According to PwC’s Seb Wocial, a design architect and member of The Difference team at the NYC EC, every design element of the new center built on ideas hatched and tested in its ECs, of which TBR has visited five others: Hallandale, Fla.; Frankfurt, Germany; Shanghai, Tokyo, and Toronto. Having seen the advantages of a stand-alone center in Miami and the challenges inherent with keeping the EC colocated with other PwC offices (such as in Frankfurt, Germany), TBR expected a more limited change to the physical space and was surprised by the PwC professionals’ intense attention to small details (such as where a carpet ends and hard flooring begins) and how enamored they appeared to be with their space. TBR has long maintained that digital transformation and coinnovation centers must be more than funky chairs and cool spaces, but very few of TBR’s visits to consultancies’ centers have included as much discussion of the purposeful architectural choices. One additional note: TBR has met with leaders and professionals working at the ECs and competitors’ similar centers and has seen the infectious enthusiasm they have for the environment and the work, which came through again clearly during this NYC visit. Finding the right people, like Wocial, a three-year veteran of PwC with a background in process optimization, and placing them in the collaborative and creative environments, accelerates change within the larger organization and continues to attract the best talent. 

Operations now, internal change later

Two elements of the new EC came as no surprise to TBR: an early preponderance of financial services clients and a steady stream of in-house sessions, designed to bring more of the BXT approach to NYC-based PwC professionals. While the more mature ECs have diversified their client bases (at least by industry), serving a heavy dose of financial services clients without explicitly making the NYC EC a banking hub echoes PwC’s approach overall. Other consultancies and IT services vendors have designated their innovation and digital transformation centers as single-industry-focused, a decision typically reflecting the vendor’s culture with respect to organization and industry alignment. The second element, internal sessions to promote BXT (Business, eXperience, Technology) and explain the EC’s capabilities, carries forward PwC’s best practices from established ECs and reflects a common thread through these kinds of centers: facilitating internal change in addition to serving clients. In TBR’s view, PwC’s ECs, like Accenture’s acquisition of Fjord, created a substantial ripple effect through the firm, changing culture and allowing long-tenured professionals opportunities to see what the firm could become. At every digital transformation center TBR has visited, this internal change has been discussed, but with varying degrees of commitment, with the most dominant variable the vendor’s expectations around return on investment (and corresponding metrics around number of client engagements — internal change gets shunted if the number of client engagements per month is the priority). Catalyzing internal change, of course, does not mean neglecting clients but does include careful selection of which clients use the centers and preparation prior to on-site engagements.

TBR had the opportunity to take an informal tour of PwC’s latest Experience Center (EC), hearing directly from one of the professionals running day-to-day client engagements about what makes the center work. The tour included discussions around operations, talent, and culture and what will be next for PwC, BXT and the ECs.

Data unification, enhancement and intelligence are key

Out from under the ERP and autonomous database narratives of Oracle’s (NYSE: ORCL) top executives, Oracle’s CX leadership was able to curate an inspiring event around its CX portfolio with themes of empowerment and valuing people’s time — both employees’ and customers’. The bulk of Oracle’s Modern CX event built on announcements made five months prior at Oracle OpenWorld 2018, most notably the capabilities that will be enabled through the launch of Oracle CX Unity and the acquisition of DataFox. These advancements will enable CX clients to engage with their customers in a more informed, timely and intelligent manner.

Through CX Unity, Oracle’s customer data platform, clients will be able to create and act on a unified customer profile that is retained and enriched within the persistent data store, for use across all other CX products, whether from Oracle or a third party. Ultimately, the goal is to leverage hyperpersonalized profiles that are updated from all CX systems in real time to best engage and delight customers. Integration across all front-office systems enables sales personnel to be aware of factors that may impact a sales opportunity, like a service ticket that implies sales personnel should hold off on a pursuit until a customer’s issue has been remedied.

The data curation assets that Oracle has acquired further enrich these customer profiles and contextual points. Augmenting the largely business-to-consumer (B2C)-oriented data that many of its previous acquisitions enabled, Oracle touted the ability of the acquired DataFox platform to utilize current, relevant market data to inform business-to-business (B2B) interactions, such as identifying when a prospective customer appoints a new executive or closes a new round of funding that may make the prospect more likely to purchase. These data assets, paired with the company’s first-party data, bolster Oracle’s Adaptive Intelligence Applications (AI Apps) portfolio, which is set to expand rapidly from eight to 17 AI Apps. Among those being added to the CX suite are Lead Optimization, Smart Talking Points, TAM Expansion and Churn Prediction.

Held in conjunction with Oracle’s Modern Business Experience, Oracle’s Modern Customer Experience brought together more than 4,000 customer engagement professionals to inspire a deeper understanding of the functionality Oracle is adding to its customer experience (CX) applications and prompt adoption against competitors’ offerings.