TBR projects CSP spend on edge compute infrastructure will exceed $82B by 2025

/0 Comments/in /by

TBR estimates over 1.2 million network sites and cell sites will become mini data center (edge) locations globally by 2025, up from nearly 9,000 sites globally at the end of 2019. The primary driver of edge build-outs during the forecast period is CSPs’ network transformations, which entail migrating to a cloudified and virtualized network, and webscales’ edge initiatives to support their cloud businesses and digital lifestyle endeavors. In this new architecture, network functions will be virtualized and housed in NFVI, which is essentially a data center. Network sites, such as central offices, have been the primary edge compute location to date, with cell site builds expected to ramp up significantly in 2021 and become the primary location for the CSP edge by 2025.

Webscales and disruptive startups are positioning early to capture new value created by edge computing, threatening to limit telco and cableco opportunity

In 2H19 several of the largest telcos in the world, namely AT&T, Verizon, Vodafone, SK Telecom, KDDI and Telecom Italia, established strategic partnerships with key webscales pertaining to edge computing. In each of these situations, the webscale provides the extension of its public cloud via a physical compute stack, which is being housed in the telco’s site at an edge location and integrated with the telco’s network. TBR views these partnerships as necessary for both parties but is wary that telcos will be largely confined to providing connectivity while webscales get point position at the edge to accrue most of the new value created from new use cases of the cloudified network.

Telcos and cablecos could generate significant edge-related revenue by opening their network sites to colocation opportunities. Existing network sites could be repurposed to house a telco’s or cableco’s equipment and the edge stacks of other companies, which would pay rent to the site owner. CenturyLink and Frontier are both all-in on colocating their existing sites, and TBR expects more telcos and cablecos to follow in their footsteps over time.

TBR’s Telecom Edge Compute Market Landscape, which is global in scope, deep dives into the edge compute-related initiatives of stakeholders in the telecom market including telecom operators, cable operators, and vendors that supply the telecom market. The report also covers leading webscales’ edge computing-related initiatives. The research includes key findings, market size, regional summary, technology trends, use cases, business models, operator and vendor positioning and strategies, and acquisitions and alliances.

SAIC and Unisys Federal: Penetration, growth and confidence, with questions around IP and integration

/0 Comments/in /by

Consolidation continues

SAIC’s agreement to purchase Unisys’ federal business for $1.2 billion (which includes present value tax assets of approximately $175 million) is just the latest example of the continued consolidation of the public sector IT services market, which has been ongoing for the past four years. For example, Leidos (NYSE: LDOS) purchased Lockheed Martin’s (NYSE: LMT) IT services business; General Dynamics Information Technology (GDIT; NYSE: GD) purchased CSRA; DXC Technology’s (NYSE: DXC) U.S. Public Sector business combined with Vencore and KeyPoint Government Solutions to form Perspecta (NYSE: PRSP), which subsequently purchased Knight Point Systems in 2019. The same year, SAIC purchased Engility, CACI (NYSE: CACI) made six acquisitions and Raytheon (NYSE: RTN) announced a “merger of equals” with United Technologies (NYSE: UTX), to be finalized in 2020. Additionally, Leidos recently finalized its purchase of Dynetics and announced the purchase of BAE’s airport security business only days before SAIC announced its plans to acquire Unisys Federal. Along with these marquee deals, the market saw a smattering of smaller and/or less strategic deals over the past four years. Much of this M&A activity has in some way emphasized scaling to compete for mega-deals such as Next Generation Enterprise Networks Re-compete (NGEN-R) or Defense Enterprise Office Solution (DEOS) contracts. Based on recent market activity and the federal government’s increasing emphasis on digital transformation and next-generation technologies, it seems unlikely the need for scale will diminish for federal market players anytime soon. For SAIC to acquire another company of this size so quickly after the purchase of Engility only underscores the importance the company’s leadership places on scale. In fact, this purchase would theoretically boost SAIC to fourth place in TBR’s Public Sector IT Services Benchmark (behind only Leidos, GDIT and Booz Allen Hamilton [NYSE: BAH]) based on the most recent trailing 12-month federal revenues of the companies we track.

Unisys Federal impact and opportunities

Aside from the additional scale in both employees and revenue, Unisys Federal will provide SAIC with deeper access to the Department of Homeland Security and Treasury Department through U.S. Customs and Border Protection (CBP) and the IRS, respectively. For calendar year 2019, Unisys Federal had approximately $179 million in obligations to CBP and $84 million in obligations to the IRS. Both agencies are relatively underpenetrated by legacy SAIC and should provide more opportunity for growth with other civilian agencies. Unisys Federal realized a CAGR of 10% over the last two years, far outstripping the average of 4.6% for the 15 companies tracked in TBR’s Public Sector IT Services Benchmark, supported by a $1.8 billion backlog (2.6 backlog-to-revenue ratio), which TBR believes should provide ample opportunity for the new SAIC to continue Unisys Federal’s strong growth, especially in cloud adoption and other modernization services. Most of this backlog consists of slightly higher-margin projects than legacy SAIC engagements. TBR expects this deal will improve margins for SAIC by somewhere between 20 to 40 basis points by the two-year mark. In addition to the scale, agency access and large backlog, SAIC now has the right to sell CloudForte, a key platform for Unisys Federal’s business in the public sector that typically forms the backbone for the cloud services the company has delivered and likely will continue to offer as part of SAIC.

TBR believes SAIC’s (NYSE: SAIC) purchase of Unisys Federal, announced on Feb. 6, 2020, will provide the combined company with broader agency access and a strong potential for growth while signaling the extreme confidence of SAIC’s leadership. We also believe the lack of IP included in the deal and the challenges associated with SAIC’s previous and upcoming integrations mean this deal likely carries more risk than reward. This acquisition comes almost exactly one year after SAIC’s purchase of Engility for $2.5 billion, which has yet to produce organic growth for SAIC, though SAIC claims cost synergies have been fully realized. The inorganic boost of Unisys Federal (which achieved approximately $689 million in revenue for the trailing 12-month period ending Sept. 30, 2019, with an impressive 10% two-year compound annual growth rate) will bring the combined organization’s annual federal revenue for the same 12-month period to approximately $6.6 billion on a pro forma basis.

Growing partnerships with key cloud vendors help sustain Capgemini’s success

/0 Comments/in /by

As Senior Analyst Elitsa Bakalova notes this week, “Partners are key contributors to Capgemini’s technology-enabled transformations around next-generation technologies, such as digital and cloud. The expanded partnership with Amazon Web Services enhances Capgemini’s AWS business in North America and improves its ability to advance cloud adoption in a strategic region for Capgemini’s global expansion. Additionally, the integration of Altran continues, and as of Jan. 27, Capgemini holds 53.57% of Altran’s share capital and at least 53.41% of Altran’s voting rights. Altran will improve Capgemini’s ability to deliver digital transformation to the industrial sector and position as an intelligent industry vendor that can provide solutions around Engineering 4.0 and Industry 4.0.” Across the IT services spectrum, TBR has seen substantial changes in the way vendors partner with cloud and software companies, an area we will examine in greater detail throughout 2020.

Additional assessments publishing this week from our analyst teams

“Tata Consultancy Services closed 2019 with continued revenue growth, which TBR attributes to ongoing investments in its solution suite and talent pool, alongside aggressive pricing. Strengthening its digital capabilities that enable technology-based transformation, at scale, for the company’s global clientele will drive further growth in 2020.”  — Kevin Collupy, Analyst

 “TBR expects T-Systems’ revenue growth will slightly accelerate in 4Q19 as the company benefits from an improved delivery network and a realigned portfolio that offers clients cloud, IoT and security capabilities that support growth initiatives. T-Systems leverages partnerships that enhance scale and help to embed emerging technologies within its core portfolio offerings and equip the company to drive revenue growth around these capabilities. As T-Systems infuses growth areas throughout its portfolio and realigns business segments to focus on these profitable avenues, including the establishment of an integrated telecommunications business that will house telecommunication services and classified ICT business, the company will be able to leverage more flexible delivery and innovation models to position as more customer-led and customer-centric.” — Kelly Lesiczka, Analyst

 “AsCisco integrates acquired assets to provide advanced security and intent-based networking solutions, we expect Cisco Customer Experience will benefit from pull-through support and maintenance opportunities, allowing it to sustain revenue growth in 4Q19. Additionally, portfolio growth to include hybrid IT and multicloud will also provide migration and management engagements, creating new areas of growth. Similarly, expanding its software and subscription portfolio provides consistent revenue streams, contributing to Cisco Customer Experience revenue growth through support and maintenance engagements. Leveraging its core strength areas, such as security, networking and SD-WAN, will help Cisco to maintain its existing engagements while also effectively combating competitive pressures from vendors pursuing opportunities in similar growth areas. Cisco’s technical expertise improves its ability to differentiate its professional services portfolio from that of its peers.”
— Kelly Lesiczka

“The cloud solutions agreement with the National Association of State Procurement Officials through September 2026 is a milestone for Capgemini’s cloud services business in the U.S. as the simple contractual process will expand the company’s activities in the public sector, which TBR does not believe to be a leading industry in the country for Capgemini, unlike its business in financial services and manufacturing. Capgemini will provide joint offerings with Amazon Web Services, Microsoft, BMC, ServiceNow and Virtustream.” — Elitsa Bakalova

“TBR estimates HCL Technologies (HCLT) will sustain revenue growth of between 15% and 16.5% year-to-year through 2021, and will operate within its guided range of 16.5% to 17% in constant currency for FY20. Acquisitions provide HCLT with expanded market share and enhance portfolio offerings to appeal to dynamic client demand and propel revenue. Developing HCL Software and incorporating partner assets to support integration and management opportunities will create recurring and higher-profit revenue streams. We expect HCLT will leverage its software business to capture higher-value services engagements, but the company must be mindful of cannibalization within its traditional services streams, which comprise the majority of revenue. Additionally, deal size remains smaller than in previous years, with most clients in the $1-plus million category as HCLT benefits from an increase in software license and deployment deals. TBR believes most deals during the quarter were generated with new logos, as HCLT looks to drive recurring revenue streams tied to the HCL Software business unit, which will generate additional growth in the $1-plus million category from cross-selling and upselling other product and software offerings.” — Kelly Lesiczka  

“IBM faced healthcare IT services (HITS) headwinds throughout 2019, plagued by media reports and customer dissatisfaction with emergent solutions leveraging AI, mainly Watson for Oncology. The newly appointed general manager of Watson Health, Paul Roma, will work to improve employee satisfaction in addition to building confidence among IBM investors and partners within the wider healthcare market. A more succinct portfolio and go-to-market strategy supported by recent internal restructuring efforts will be critical to returning IBM to growth in 2020, when TBR estimates the company’s annual HITS revenue growth will reach 2.2%. Further, IBM’s addition of Red Hat and background in emerging technology areas such as blockchain for insurance industries and AI — despite missteps in these areas in 2018 — will enhance the value of the company’s existing HITS suite and offer it differentiation in the market compared to peers.” — Kelly Lesiczka

Plus, this Wednesday, join TBR’s Chris Antlitz for his insights from TBR’s 2020 Telecom Predictions: “TBR’s research suggests 2020 will be a springboard year for the telecom industry’s development of the new architecture, with spend in the key markets of 5G, network virtualization and edge computing poised to ramp up significantly through the middle of the next decade. TBR also anticipates that systems integrators will play a much broader and key role in helping CSPs transform their businesses and networks and that webscales will increasingly encroach on CSP turf as they concurrently pursue new value created from the aforementioned technologies.”

HCLT builds its IoT practice on experience, expertise and IP

/0 Comments/in /by

TBR perspective

While HCL Technologies (HCLT) initially used its intellectual property (IP) to create complete solutions for its customers, it is now making available other third-party solution packages, white-labelled components and solutions for end customers, other systems integrators, and value-added resellers. The company’s partnerships with PTC and edge hardware vendors Dell Technologies and Hewlett Packard Enterprise (HPE) facilitate the delivery of integrated software and hardware solutions for engineering- and manufacturing-centric OEMs. These edge-to-cloud solutions integrate IT and operational technology (OT) data sources and are highly scalable; HCLT’s representatives estimated that they are now approximately 50% to 60% preconfigured and can be rolled out to multiple plants and locations in a pre-built factory model. Irrespective of HCLT’s decisions regarding routes to market, the company continues to create reusable IoT building blocks.

Reuse is at the heart of IoT maturity

The continual development of reusable solutions and components has always been the key to growth of information technology. In the wave of interest in IoT, starting about five years ago, the relative lack of reusable solutions and components demonstrated the immaturity of this segment. While growth has been substantial, it has not been explosive, similarly reflecting this immaturity. Technology Business Research, Inc. (TBR) estimates the current size of the IT portion of IoT at $565 billion, growing at a slightly accelerating 24.6% annual rate, and we do not anticipate growth to slow for at least five years. One driver of this acceleration is the accumulation of experience, expertise and intellectual property by vendors and customers.

Leveraging common technology and business processes across vertical divisions

Some of HCLT’s solutions, outlined here, require integration typically performed by HCLT:

  • Manufacturing: Remote Services Management, Inventory Management, Predictive Operations Monitoring, and Real-time Manufacturing Insights
  • Healthcare: Remote Patient Monitoring, Smart Clinical Trial, Medical Devices – Remote Monitoring and Servicing
  • Travel, Transportation, Logistics: Remote Asset Monitoring, Warehouse Automation, Building Automation
  • Energy and Utilities: Remote Asset Monitoring and Predictive Operations, Intelligent Linear Asset Monitoring, Active Grid Management, ADMS and AMI Testing, Distributed Grid Operations – Resilience at the Edge
  • Retail: Real-time In-store Insights, Warehouse Optimization, Cold-Chain Logistics, Supply Chain Insights

There is overlap of solutions across verticals, which reflects overlap in both business processes and relevant technologies. In keeping with IoTWorks’ orientation toward reuse, common pieces of solutions are joined to additional components to create new solutions. In the case of Real-time In-store Insights, HCLT added radar-based customer tracking hardware to keep track of customers with lower data-related costs, while improving customer privacy. HCLT Engineering designed the radar modules. An RFID-based asset tracker for end-user devices was adapted to help make sure airplanes have the full tool kit accounted for before takeoff. A similar solution applies to surgical kit tracking and compliance monitoring in hospitals.

Iowa caucuses: Digital transformation run amok

/0 Comments/in /by

Iowa’s first-in-the-nation, high-value, high-visibility caucus misfired last night, potentially costing the state its special status in coming years, which could trigger a massive economic impact due to the loss of revenue associated with early campaign activities (e.g., hotel stays, dining, gas, ads). The strategic value of rapid visibility bouncing into New Hampshire, first capitalized on by Jimmy Carter in 1976, is a reminder of how long Iowa has held this status and what a disastrous operational failure could mean. 

This poorly executed digital transformation (DT) will most likely cost Iowa its high-value job in the nation’s presidential primary process. Nevada purchased the same software as Iowa for its upcoming caucus and will now face pressure to quickly learn from Iowa’s mistakes and lay out a proper DT plan. DT can only proceed at the rate and pace of the slowest learners. Volunteers of all ages and technological savvy are, by definition, going to include some slow technology learners.

We’re seeking to elect people to navigate the new economic realities technology brings to bear on our way of life. There is great good that comes from technology adoption, but there are also negative impacts. Leaders, often from older demographics, don’t know what they don’t know when it comes to technology. Conversely, younger staffers versed in technology and tasked with the rollout may not understand the need for training of those from older generations. If they cannot execute simple tasks from a phone, how are they to craft legislation to mitigate against the moral hazards technology can inflict on our way of life?

So what went wrong? The Iowa democratic party didn’t know what they didn’t know

The Iowa Democratic Party apparatus sought to modernize the method by which they aggregate votes. Rather than phone the results into a central aggregation point, they decided, “There’s an app for that.” Additionally, the process of tallying votes was, likewise, shifted to accommodate the large number of primary candidates through the use of the second-choice ranking systems to release supporters of candidates who did not reach the 15% support threshold within each of the 1,700 caucus sites. So, a new process on the ground and a new process for communicating the results back to a central aggregation point ignited the dumpster fire that was the 2020 Iowa Caucus.   

Bad idea compounded by poor planning

TBR has a signature article around the concept of “Wallet versus Will” in which we articulate how the axis has flipped on public sector technology adoption. Government used to lead when cost was the driving inhibitor to technology adoption, as “protection of the commons” could justify heavy capital outlays for leading-edge technology. Today, the consumerization of IT has citizen IT as the public sector parallel to provide for convenience.

But the public sector and the ancillary offshoots of the major parties’ apparatus are not as attuned to how to go about DT, and this is why the process on full display to the nation’s political junkies last night looked more like a cigar blowing up in Moe Howard’s face.

Here are the basics of the implementation plan rolled out by the Iowa Democratic Party to its caucus site captains:

  1. The caucus captains were told to download the app on to their phone.
  2. The download had a caution that the app could alter the phone, asking the volunteer captains if they wanted to proceed. Some opted not to proceed given, well, they are volunteers and did not want to run the risk of harming their personal property in the process of giving their time.
  3. Some captains who opted for the app could not figure out the app because there was no formal training provided on its use.
  4. The backup system — or the old way of phoning results back to a centralized location — was not adequately staffed, resulting in volunteer captains sitting on hold for as long as several hours to provide the results. Part of the challenge in that process was also that the rules on the ground had changed, so the captains were also phoning to ensure they had made the correct calculations for the new training.

To recap: No formal user training for a body of 1,700 volunteers of varying ages and technology comfort. No tutorials that could have been done on the volunteer’s own time ahead of the caucus. No live testing of the process to ensure there was adequate capacity, and inadequate fail-over infrastructure in the event of go-live difficulties.

This disaster could have been avoided with some investments in change management and technology consulting. Iowa party leaders didn’t know what they didn’t know, and now Iowans will likely pay a steep price for this technology hubris.

Big changes for Big Blue

/0 Comments/in /by

Lots of news coming from IBM these past few weeks, and we have plenty of analysis on it from Geoff Woollacott, Stephanie Long, Elitsa Bakalova, Catie Merrill and Nicole Catchpole. IBM unveiled a new Power System and announced Ginni Rometty will be stepping down, making way for cloud champion Arvind Krishna to emerge as the new CEO, effective April 6. TBR’s 4Q19 IBM report will comment on these changes as well as touch on the overall health and performance of IBM corporate and its Systems Hardware business.

Additional assessments publishing this week from our analyst teams

“TBR estimates Wipro IT Services’ (ITS) revenue growth will accelerate in 2020, as the company leverages a broad network of centers opened throughout 2019, including centers dedicated to industry solutions and emerging technologies as well as centers that enhance core capabilities. An emphasis on centers will lead to cross-selling and upselling opportunities and improved client retention within Wipro’s addressable market. Additionally, increasing training and reskilling efforts will allow Wipro ITS to more effectively communicate its portfolio and manage client relationships to drive opportunities around its digital offerings. Wipro ITS’ ability to accelerate revenue growth will be contingent on securing deals around emerging digital assets — particularly through its now-robust cloud platform partner ecosystem — to expand its wallet share and mitigate its lack of digital scale compared to peers.” — Kelly Lesiczka, Analyst

“Recent acquisitions, such as that of Luxoft and Syscom, reinforce DXC’s focus on integrating acquired industry expertise into its distinct industry segments to create higher-value engagements and build longer-term relationships with clients. DXC will aim to capture technology demand in industries such as automotive, which aligns with industry strengths gained through strategic acquisitions such as Luxoft.” — Kevin Collupy, Analyst 

“Moving through 2020, Cognizant’s ability to create scale for its newly acquired digital solutions and services will be critical to driving growth, though its emphasis on digital will have an adverse impact on its traditional outsourcing business. We expect Cognizant will operate within its revenue guidance in 4Q19 as it emphasizes its digital portfolio to drive adoption of emerging technologies as well as looks to key verticals to generate use cases and drive growth opportunities.” — Kelly Lesiczka

“T-Mobile will end 2019 on a high note as the company’s annual postpaid net additions and adjusted EBITDA will surpass initial guidance expectations. T-Mobile’s momentum will continue in 2020 regardless of the outcome of the proposed Sprint merger, as the company’s widespread 5G coverage and expanding portfolio and service options will attract new customers.” — Steve Vachon, Analyst

In 4Q19 Google Cloud saw rapid revenue growth that paralleled and validated its continued and planned investments in infrastructure, R&D, talent, partnerships and expansion of its global footprint. TBR predicts this accelerated pace of growth, fueled by Google Cloud Platform and Anthos, will help the company close the gap with market share leaders Amazon Web Services and Microsoft. In addition, 4Q19 marks the first time that Alphabet disclosed Google Cloud revenue, a move that isolates and highlights the significant growth rate of this sector of the overall business. — Nicole Catchpole, Senior Analyst

On Wednesday Principal Analyst Ezra Gottheil and Analyst Eric Costa will host a live webinar and Q&A on TBR’s predictions for IoT in 2020 and beyond, including the more purposeful role of AI in IoT and how the conversational interface will demonstrate its relevance. Register today for “IoT settles in for the long haul,” and check out our Webinar Portal to view all of TBR’s previously aired webinars.

Get ready for a major culture shift at IBM

/0 Comments/in /by

“In a blog post, Merrill claimed that while CEOs typically come from a finance or sales and marketing background, the current market climate is one where expertise can help business leaders thrive. In IBM’s case, Krishna was previously the senior vice president of cloud and cognitive software at IBM and Whitehurst was senior vice president of IBM and CEO of Red Hat. ‘Krishna’s presence should assure customers, particularly those with primary concerns around IBM’s product road map and the ways in which IBM will build out the safe, secure and innovative ecosystems components for the new multi-enterprise business networks and company federations,’ Merrill said.” — ARN

IBM’s executive shakeup gets analysts’ stamp of approval

/0 Comments/in /by

“Analysts have also chimed in with cautious optimism, including Geoff Woollacott, principal analyst and senior strategy consultant with TBR Cloud and Software. ‘The current climate is a different kind of IT landscape. The requirements and demands from enterprises are vastly different, which necessitates a different kind of leader. Arvind Krishna is, therefore, well suited to articulate and assure customers going forward,’ he told WRAL TechWire by email. Elitsa Bakalova, professional services senior analyst at TBR, added that it will bring a ‘fresh perspective.’ ‘Promoting the CEO from within is something that typically inspires employees and will prevent potential challenges related to future strategic direction of the company. The new CEO has a long history with IBM, he is a technologists and an operations expert,’ he said. Catie Merrill, research analyst at TBR, however, maintained a ‘wait-and-see’ approach. ‘IBM, with the help of Red Hat’s platform, is looking to take customers’ mission-critical back-office workloads to the cloud, in what it deems to be ‘Chapter 2 of the cloud’. This is a competency that has yet to be proven but may hold true under new leadership.'” — WRALTechWire

AI, Accenture and Amazon: HITS acquisitions update 2020

/0 Comments/in /by

Accenture’s steady appetite, Amazon’s potential new offering and Google’s uncertain moves

Accenture’s acquisition of Clarity Insights follows the company’s INTIENT purchase and rounds out a typically active acquisition year for one of the leaders in TBR’s HITS benchmark. Clarity Insights brings Accenture AI and machine learning capabilities, 350 healthcare data scientists, and healthcare industry clients. As noted in our most recent full report on Accenture’s HITS business, “Accenture targeted the AI opportunity in life sciences in mid-2019, launching its INTIENT platform for collecting, storing, monitoring and analyzing data from life sciences clients’ business environments. The platform leverages Accenture Applied Intelligence to provide AI and analytics services, improving efficiency and data management.” Beyond extending Accenture’s capabilities, the Clarity Insights acquisition reinforces Accenture’s strategy around AI and life sciences that the INTIENT purchase supported. The report adds, “TBR believes Accenture must foster industry-specific partnerships to extend the capabilities of INTIENT and drive traction for the platform in the industry.” TBR will closely track how Accenture’s partnerships evolve and how the company drives new revenue based on these acquisitions.

Echoing Accenture’s focus on AI, Amazon acquired Health Navigator, a platform designed to foster more expeditious collaboration between healthcare providers and patients, in part through natural language processing and enhanced analytics. Amazon reportedly purchased the company amid efforts to build out Amazon Care, its in-house healthcare services, which it launched in September 2019. On the surface, Amazon’s healthcare-related acquisitions and moves denote neither an immediate threat to traditional HITS vendors nor a clear signal Amazon intends to become a different kind of player in the HITS space. Analyzing Amazon only on the surface would be foolishly shortsighted. Once the company irons out the challenges within Amazon Care, including fully integrating Health Navigator, TBR expects the company will craft a new offering for Amazon clients, potentially starting first with healthcare joint venture partners JPMorgan (NYSE: JPM) and Berkshire Hathaway (NYSE: BRK.A; NYSE: BRK.B). At 1.2 million employees for those three companies combined, Amazon would have a sizable test bed for enhancing current capabilities and developing new offerings. If Amazon can demonstrate an ability to provide top-notch healthcare services for its own employees and a few select partners, every household will wonder if the first step in getting healthcare should start with, “Alexa …”     

In acquiring Fitbit, Alphabet (Google) alarmed some data privacy and industry analysts concerned that the search engine and advertising giant bought the wearables company to gain access to massive amounts of personal, and specifically healthcare-related, data. Both companies’ executives declared data protections would be unchanged and the underlying reasons for the acquisition centered on Fitbit’s expertise and intellectual property around wearable devices and health-tracking applications, platforms and user experience. In TBR’s view, acquiring Fitbit conforms with Google’s overall expansion strategy and specifically boosts the company’s potential role in the overall HITS space. Enhancing Fitbit’s platform with Google’s AI capabilities could further minimize perennial HITS challenges, such as around data privacy and population health, but only if Google can manage the delicate tasks of leveraging user data without violating privacy, crafting and enhancing algorithms that improve the user experience, and maintaining the streamlined seamless flexibility of Fitbit even as the data flows into the highly regulated healthcare ecosystem.  

Big Blue turns purple

/0 Comments/in /by

Rometty steps down, making way for cloud champion Krishna as IBM’s new CEO

At close of business on Jan. 30, IBM unveiled Virginia Rometty was stepping down as CEO. Arvind Krishna, current SVP of Cloud and Cognitive Software at IBM, will take over effective April 6. It was also announced that James Whitehurst, IBM senior vice president and CEO of Red Hat, will become the new IBM president, also effective April 6.

Traditionally, CEOs come from finance or sales and marketing. Finance leaders are tapped when the bottom line is the priority; sales and marketing leaders are selected when the top line is the priority. However, the current market climate presents a different kind of IT landscape. The rapidly shifting requirements and demands from enterprises necessitate a different kind of leader.

Krishna’s presence should assure customers, particularly those with primary concerns around IBM’s product road map and the ways in which IBM will build out the safe, secure and innovative ecosystems components for the new multi-enterprise business networks and company federations. Installing a career technologist at the helm addresses the marketing challenge of countering competitors that rose to prominence in Chapter 1 of cloud computing. Large enterprises seeking to future-proof their investments in Chapter 2 of the cloud, as digital transformation continues to transcend the enterprise, will look to IBM for a well-articulated technology vision.  

While Krishna will message to the market, Whitehurst will work on needed cultural change as IBM president

Much of IBM’s recent struggles have revolved around execution, as the organization’s culture and operating practices were misaligned to the prevailing ways of working and innovative best practices that came from native cloud competitors. IBM historically has deployed ROI business case justifications in silos that worked well for transaction selling. This ROI process has to give way to a companywide viewpoint of overall revenue contribution — or lifetime customer value — regardless of which discrete technology assets receive the recognition in the internal accounting process. The two models are not compatible. In purchasing Red Hat, IBM acquired a company with vastly different operating practices that created a sustainable and consistent revenue model based around a free product. Fourth quarter results showing Red Hat’s sequential growth and the traction IBM gained with its Cloud Pak rollouts are leading indicators of the directional shifts these two executives will steward.

In promoting Whitehurst to the role of president, IBM signals to customers, investors and employees that it will be changing its internal operating models to be more like those of Red Hat. Symbolically, this indicates the acquisition was more a merger of equals and should allay the concerns of the broad Red Hat ecosystem of developers and customers IBM has to retain and expand to realize the value IBM expects to gain from the purchase as it takes aim at becoming a share leader in Chapter 2 of the cloud.

Rometty started to write IBM’s cloud narrative, yet with Red Hat now in the mix, the story is far from finished

In many ways, IBM’s true cloud story began once Rometty stepped in to run Big Blue in 2012. Just over a year after assuming the role, IBM acquired SoftLayer in an attempt to become the leader in cloud computing and catch the leader in public cloud infrastructure, Amazon Web Services (AWS). However, amid heavy competition, SoftLayer quickly fell behind, causing IBM to shed the brand and incorporate the acquired control plane into what became IBM Bluemix — a rebranding effort with inconclusive results as it would ultimately become IBM Cloud. Over the past eight years, Rometty has been ambitious in laying out her goals to capture “the big 3” — AWS, Microsoft and Google — yet the market remained skeptical as IBM consistently failed to deliver on its top line and the ability to catch industry leaders was viewed as a pipe dream. In many ways, this prompted the acquisition of Red Hat — a $34 billion bet IBM officially made in July 2019 to take the 80% of customers still operating on premises to the cloud. Microsoft, with its competitive platform know-how through Azure, successfully captured cloud in its infancy by shifting customers’ front-end applications. However, IBM, with the help of Red Hat’s platform, is looking to take customers’ mission-critical back-office workloads to the cloud, in what it deems Chapter 2 of the cloud. This is a competency that has yet to be proven but may hold true under new leadership. 

Systems Hardware has been on a cloud-centric pivot for a while, and Krishna is likely to reinforce and cement this transition

TBR believes that from a hardware strategy perspective, the CEO shake-up will have little impact. The z14 and z15 refreshes have focused on positioning the venerable mainframe as a critical gateway into the hybrid multicloud world by building in critical firmware and software features to deliver the mainframe capability with public-cloud-like operating characteristics, enterprise-grade security and data management capabilities. TBR does not see this changing anytime soon.

A new CEO brings promise of stabilization to IBM Services, which has performed inconsistently over the past few years

While IBM’s CEO transition is not strictly tied just to IBM Services, it is a positive move for the services business. Over the past six years, IBM Services’ revenue has been uneven, and has largely been in decline during the past five quarters. Filling the role of CEO with an employee who has been with the company since 1990 and has been instrumental to the development of IBM’s cloud business and the acquisition of Red Hat will likely bring a fresh perspective to IBM and IBM Services, which has been struggling to overcome growth pressures in traditional labor-based services, such as in Global Technology Services and Global Process Services. Meanwhile, IBM Services is experiencing growth in cloud-related activities as the company leverages its technology incumbency to advise, migrate, build and manage clients’ hybrid cloud environments. IBM Services will benefit from IBM’s new public cloud offering for financial services clients, the new IBM Cloud Paks portfolio, and synergies from the Red Hat acquisition as well as the related launch of consulting and technology services offerings for Red Hat and multicloud management. However, such offerings have yet to gain scale to offset lingering growth challenges in traditional services segments.

Krishna’s experience and expertise, including around operations, will help IBM Services continue with its technology-led transformation value proposition and also help overcome execution challenges, which were present during 2019 and negatively affected services revenue growth and profitability. The Cloud and Cognitive Software business, which Krishna is currently leading, has been a growing business; sharing knowledge and supporting the ongoing market trend of convergence between services and software will help IBM Services transform into a growing business.  

 What to watch going forward

This is as critical a juncture for IBM as when it installed Lou Gerstner from the outside in 1993. In this transition, IBM is splitting the responsibilities between an IBM insider as chairman and an IBM outsider instrumental in building one of the best technology operating models for the new technology era. From this vantage point, TBR will be evaluating and monitoring the following:

  • Reorganization: IBM has to change how it works internally to align with subscription monetization models. Executive measurements have to shift to align to the best practices Red Hat has deployed building a business around free products. IBM historically has jettisoned business lines that lacked discrete profit metrics as stand-alone products. We will be looking to see which members of the respective teams move into leadership roles under the new stewardship.
  • Developer reactions: It is said the developer is king. TBR would expect the developer community to be heartened by these appointments, and we will be tracking this sentiment in our ongoing cloud research streams.
  • Employee reactions: Will this result in high-profile exits or will this provide middle managers with the air cover necessary to act more like “wild ducks” in IBM internal parlance?
  • Customer reactions: This will flow from the ongoing Wall Street analyst briefings on quarterly results. Rometty was conspicuously absent from many of these calls, and we expect that one or both of these new leaders will be available for the all-important Q&A sessions of these briefings.
  • Competitor reactions: Market share positions in Chapter 2 of the cloud are up for grabs, with many entities, notably Microsoft, AWS and Google aiming to become the de facto hybrid cloud standards. Traditional peers of IBM fared far worse than IBM in Chapter 1 and will struggle to remain relevant as anything more than a derived decision for increasingly commoditized infrastructure. IBM likewise has the installed base advantage for protecting enterprise IP assets. At issue, of course, is whether it can maintain that customer trust by articulating a product road map that resonates, coupled with an organization that can deliver on that vision. Krishna and Whitehurst have clear remits and track records to suggest they can deliver.