Verizon Business showcases use cases highlighting ROI potential of 5G

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TBR perspective

The enterprise market represents significant revenue growth opportunity for Verizon as the company expects the combination of multi-access edge compute (MEC), private cellular networks (PCNs), IoT and B2B technologies will grow to an addressable market exceeding $30 billion by 2025. Verizon also anticipates the aforementioned technologies will generate over $2 billion in revenue growth for the company from 2022 to 2025.

The Verizon 5G Innovation Session held in Boston showcased the opportunity advanced 5G use cases provide in attracting businesses seeking to improve operational efficiency, streamline headcount, optimize on-premises safety and security, and enhance customer experience. Verizon Business, as well as other telecom operators, will face challenges that will hamper 5G monetization, however, such as business models that require revenue to be split with other members of the value chain including hyperscalers, ISVs and network solution providers. Telecom operators will also face headwinds in the MEC and PCN markets from certain clients circumventing operators to work directly with hyperscalers and OEMs, limited recurring revenue opportunities, and customers’ limited awareness and budget allocation toward enterprise 5G solutions, especially among SMBs.

A prominent theme of the event was the value of partnerships, such as with Nokia, in bringing use cases to life while also coinnovating with customers to expand possible use cases into a variety of customer business units. Verizon is holding similar events with partner Ericsson (Nasdaq: ERIC), and Verizon also has a relationship with Celona for its private 5G solution. The event showcased several use cases that can be enabled by Nokia hardware and software combined with Verizon’s 5G connectivity and delivered by Verizon’s systems integration practice. Verizon’s mature partner ecosystem can foster additional symbiotic relationships with other network solution providers and ISVs in the 5G era, which is unique in cellular technology history. As Nokia Head of Cross Portfolio Solutions and Partners Jason Elliott noted, “5G is purpose-built for enterprise, whereas 3G and 4G were not.”

Impact and opportunities

A focus on improving business outcomes will position Verizon Business to attract 5G clients

Use cases demonstrated by Verizon Business at the event highlighted how 5G solutions can help businesses address operational challenges while providing opportunity to significantly reduce expenses, especially regarding headcount. Robotics and manufacturing solutions are a prime example of this strategy as Verizon demonstrated multiple use cases in which robotics solved businesses challenges, including placing an engine inside a vehicle at an automobile manufacturing plant as well as pairing robotics with video analytics to inspect and monitor parked vehicles, including for potential suspicious activity.

Frictionless shopping was a prominent use case as Verizon showcased an autonomous store leveraging 5G MEC and AI-powered computer vision applications to enable customers to purchase items without the need for an on-site human cashier. TBR believes this use case will be particularly appealing to national retailers such as convenience stores seeking to open smaller locations that require minimal headcount. Large venues such as stadiums and arenas are another targeted segment for Verizon as 5G solutions are helping to optimize processes such as crowd control and admission while improving the fan experience through benefits such as providing projected wait times for areas like concession stands as well as immersive smartphone applications offering capabilities such as showing multiple camera angles of an event.

TBR believes a focus on equipping sales personnel to help clients identify how 5G solutions can improve business outcomes will be paramount for Verizon Businesses in attracting contract wins. Providing systems integration (SI) services is also beneficial for Verizon Business as recurring revenue from MEC and PCN deployments will be limited by clients using their own or unlicensed spectrum, such as Citizens Broadband Radio Service spectrum. Notably, Verizon did not directly mention collaborations with traditional SI partners at the event, potentially indicating that Verizon aims to work with clients more directly in this area to maximize revenue opportunities. An increased focused on SI services will also strengthen Verizon Business’ existing bonds with its large client base, enabling Verizon to more successfully upsell customers to advanced 5G solutions in areas such as MEC and PCN while helping the operator differentiate and counter hyperscalers and network equipment providers seeking to attract customers in these areas, independent of telecom operators. Verizon Business would face challenges in growing its SI personnel, however, as Verizon will need to compete against leading SI firms to attract talent.


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Verizon and Nokia benefit from each other’s strengths

Nokia and Verizon work together across several domains, and Nokia places a high value on its partnership with Verizon, which owns relationships with enterprises to which Nokia can sell its MEC and PCN solutions, particularly the Nokia Digital Automation Cloud (NDAC). Verizon is also bringing to bear its SI capabilities in MEC and PCN engagements with enterprises, enabling Nokia to minimize investment in selling and service delivery while remaining true to its core competency of selling communications networking hardware and software.

Nokia’s NDAC solution is a part of a robust set of private cellular network deployment options Verizon has for its international private 5G platform for enterprises across the globe. The quickly deployable solution includes Nokia radios, switches, mobile core, and either a Hewlett Packard Enterprise (HPE) (NYSE: HPE) or Dell Technologies (NYSE: DELL) server. The switch, mobile core and server stack is highly compact and can support up to 100 Nokia radios. Nokia demonstrated a hologram use case at the Innovation Session leveraging only a Nokia small cell, switch and evolved packet core (EPC) in combination with an HPE server. Nokia and Verizon have a significant reference deployment of NDAC with Associated British Ports’ (APB) Port of Southampton, for which the companies have rolled out a 5G PCN and greatly consolidated the port’s wireless infrastructure. A Nokia representative told TBR the ABP deployment consisted of seven macro radios running over the aforementioned NDAC stack, condensed from 250 Wi-Fi access points.

Nokia’s long-term revenue growth depends in large part on diversifying its customer base to include more enterprises. 5G and enterprise go-to-market partnerships with operators such as Verizon are essential to Nokia achieving its goal.

Conclusion

The Verizon 5G Innovation Session showcased compelling use cases highlighting the potential of technologies including MEC, PCN, IoT, robotics and video analytics to improve business outcomes for enterprises. TBR believes large customers such as manufacturing companies, arenas and stadiums, and national retailers will account for the bulk of Verizon’s MEC and PCN initial target customers as they have a more tangible business case and path to ROI for deploying these technologies and also have higher budgets to support costly accompanying solutions such as robotics.

TBR expects Verizon Business will continue to focus on serving its smaller clients with mainly traditional network solutions, such as through its 5G Business Internet fixed wireless service and unified communications solutions including BlueJeans while targeting specific industries through existing portfolio offerings leveraging 5G such as transportation and fleet management companies via Verizon Connect and first responders through Verizon Frontline. The expanding availability of Verizon’s 5G Business Internet service also enables the company to serve new broadband customers outside of its FiOS footprint and target clients seeking cost savings over rival broadband companies, including cable and fiber providers.

Verizon Business will face formidable competition in the MEC and PCN markets as AT&T (NYSE: T) and T-Mobile (Nasdaq: TMUS) are likewise evolving their portfolios and partner ecosystems to capture market share, though Verizon will benefit from being the first U.S. operator to form partnerships with all three leading hyperscalers (Amazon Web Services [Nasdaq: AMZN], Google Cloud [Nasdaq: GOOGL] and Microsoft Azure [Nasdaq: MSFT]) to enhance its position in these segments. Verizon Business will also be challenged by hyperscalers and network equipment vendors positioning to serve clients independently of telecom operators. Fostering relationships with partners such as Nokia and existing clients will be paramount for Verizon Business in countering these pressures, while equipping its sales and SI teams to ensure clients realize the full ROI potential of 5G MEC and PCN will be vital for Verizon Business to compete as a leading player in these segments long-term.

A select group of industry analysts, media representatives and customers gathered at the Verizon Innovation Center in Boston to learn about Verizon Business’ 5G customer strategies and developing use cases leveraging emerging technologies including MEC and 5G PCN. The event was co-hosted by Nokia (NYSE: NOK), which is providing underlying infrastructure to support many of Verizon’s (NYSE: VZ) 5G enterprise solutions, and included use case demonstrations, speaker segments and panel discussions featuring leadership from several Verizon Business customers. Verizon is hosting a half-dozen similar events across the country. Key representatives who participated in the event included:

• Aparna Khurjekar, SVP and chief revenue officer, Business Markets and SaaS, Verizon Business
• Jennifer Artley, SVP, 5G Acceleration, Verizon Business
• Andy Brady, VP, Enterprise Sales, Verizon Business
• Mark Tina, VP, Business Sales, Verizon Business
• Danny Johnson, director of Product Marketing, Verizon Business
• David De Lancellotti, VP, Global Sales, Nokia
• Jason Elliott, head of Cross Portfolio Solutions and Partners, Nokia
• Michael Israel, chief information officer, the Kraft Group
• Samia Mahjub, VP of Business Strategy for TD Garden and Boston Bruins

 

 

 

 

 

 

 

 

 

 

 

 

Native PaaS services delivered via hybrid architectures shape the cloud market in 2022

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Vendors innovate in PaaS, a cornerstone of investment for more mature enterprise customers looking to control costs, build client-facing solutions and generally drive business outcomes, post-migration. Throughout 2022, cloud service providers (CSPs) have continued to recognize that PaaS services are only as effective as the architecture they run on, which for many customers, includes multiple different clouds, edge locations and data centers.

 

Despite the negative impacts that inflation and unfavorable currency translation are having on vendor financials, the pace of PaaS investment will progress through 2023 as vendors look to compete in a saturating market and address what customers so clearly demand: choice, flexibility and freedom from vendor lock-in.

Download a free copy of Top 3 Predictions for Cloud Infrastructure & Platform in 2022


Prediction No. 1: Hybrid remains the new norm

Senior Analyst Catie Merrill: It is no secret that hybrid cloud is emerging as the preferred IT delivery method for enterprises, with scalability, choice, and diversification of assets among the leading benefits. Over the past several months, we have had conversations with customers across industry verticals highlighting this trend, and according to TBR’s 1H22 Cloud Infrastructure & Platforms Customer Research, 24% of respondents plan to move toward an entirely hybrid cloud environment in the coming years.

 

Throughout 2022, global economies have been grappling with heavy inflation and a strong U.S. dollar, and ongoing uncertainty around the economy may stall some hybrid implementations through the remainder of the year. However, our findings also indicate that unlike in the early days of cloud, cost is becoming less of a determining factor when choosing to move workloads off premises. As a result, many enterprises will progress with migrations, despite high prices, to supplement their data center investments and get the right solution tailored to their specific business goals.

 

In today’s market, hybrid cloud has largely come to encompass multicloud, another factor that has impacted adoption through 2022 is the tight labor market, including the ongoing skills shortage in IT. While the labor market does appear to be softening slightly, customers will still have to weigh hybrid cloud adoption and migrations on a workload-by-workload basis to make sure they have the necessary skills and expertise to address their requirements once in the cloud, which for many customers will mean having resources trained across at least three cloud platforms.

 

This trend bodes well for some of the large systems integrators (SIs) that have a pool of certified resources to help customers migrate and spin up workloads across disparate architectures. As a result, we can expect demand for cloud professional services, particularly at the advisory and implementation layers, to increase.

Prediction No. 2: Bringing cloud to the customer — distributed cloud moves from experiment to niche delivery method

Catie: Vendors’ pace of innovation in so-called distributed cloud solutions — those that extend public cloud services to customers in data center, private cloud and/or edge locations — has ramped up faster than initially expected. In particular, our assessment of Oracle is holding true, as in the past two quarters the vendor has taken significant steps to adapt its infrastructure portfolio to different delivery methods, including competing clouds, evidenced by recent launches like Compute Cloud@Customer and Oracle database services on both Amazon Web Services (AWS) and Microsoft Azure.

 

Meanwhile, it is largely business as usual for more established hybrid vendors like IBM, Microsoft and Google Cloud, with these companies investing in additional feature sets and applicable architectures for their solutions in a race for the control plane layer with offerings like Red Hat OpenShift, Azure Arc and Google Anthos. As we noted in our first prediction — rising demand for hybrid cloud — we expect vendors will continue to make investments like these and release offerings that address a leading pain point, infrastructure lock-in.

 

 

Prediction No. 3: IaaS is about scale; PaaS is about differentiation

Catie: IaaS saturation persists, forcing vendors to build out capabilities at the PaaS layer to increase client share of wallet. Such capabilities include low-code and no-code development, integration, data management, cloud brokerage tools, marketplaces, and databases, among others. As leading hyperscalers uniquely draw on their infrastructure establishments to cross-sell PaaS solutions, competitive friction with pure play PaaS vendors may increase.

 

However, in conversations with enterprise buyers, we continue to find that customers generally favor some of the more feature-rich, vendor-neutral offerings on the market from players like Red Hat, Informatica and Snowflake; through the remainder of the year and into 2023 we will be closely tracking how the hyperscalers invest in their PaaS portfolios and how buyer perceptions of hyperscale PaaS and pure play PaaS shifts.

 

 

 

 

Predictions is an annual TBR series examining market trends and business changes in key markets. 2022 covered segments included cloud, telecom, devices, data center, and services & digital.

Automation enables business continuity and offsets macroeconomic-pressured human-centered implications

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In 2022 the war in Ukraine has added another layer of complexity and implications for vendors to account for in staffing and human resources (HR), something many have been dealing with since the onset of the COVID-19 pandemic. The macroeconomic pressures caused by the war have also led vendors to prioritize employee experience in their business continuity plans. These macroeconomic pressures have also compelled vendors to reconsider the distribution of their global delivery models, over-reliance on a single country, and the true opportunity to scale the integration of automation in service delivery.

 

Two hundred days into the war and three quarters into 2022, vendors continue to rethink best practices in HR as supply chain disruption and labor shortages persist, while new threats including a potential global recession emerge, putting the promise of automation to its greatest test yet.

 

Download a free copy of Top 3 Predictions for Global Delivery in 2022

Prediction No. 1: The robots will hire each other, complicating the people part of global delivery

Boz Hristov, Principal Analyst: The trend is not going to be an overnight “turn the switch” kind of phenomenon, but instead will create long-tail opportunities and implications for ecosystem participants. With automation now table stakes, vendors and enterprises are facing the next phase of developing and adopting intelligent solutions that are less about technology architecture and more about recognizing patterns and recommending outcomes.

 

Rising wages pressure vendors to increasingly rely on intelligent automation solutions to ensure service quality and meet shareholder promises. While benefits have yet to trickle through vendors’ P&Ls at scale, early indicators suggest that improving contract pricing paired with the use of automation will enable vendors to develop better visibility into their staffing and profitability models as they minimize the need to use people for mundane tasks.

Prediction No. 2: Get paid for what you do, not for where you live goes global, with business model and business culture implications

Boz: The trifecta of the tight labor market, war in Ukraine and looming recession has challenged legacy HR policies and compelled vendors’ leadership to seek alternative routes to retain talent as attrition continues to pressure the very existence of their business models that are centered around quality and continuity.

 

The need to strike the right balance between onshore and offshore headcount has been dictating vendors’ global delivery strategies since the dawn of outsourcing as many continue to rely on the pricing arbitrage offered by low-cost locations. Accounting for the emergence of nearshore markets including Turkey and Egypt could present a short- to medium-term solution for vendors to leverage, especially if the war spills over beyond Ukraine. Doubling down on building on-site resources helps vendors offset potential geopolitical risks in Eastern Europe, but this could trigger financial risks, especially as onshore talent wages are several times larger than offshore rates.

 

Regardless of how long the war lasts, diversification will remain the watchdog for vendors for the next decade and beyond. While vendors maintain relatively diversified global footprints, India remains the go-to destination for the majority of vendors seeking talent. If the government of India picks a side against Western allies, this could cause vendors to further re-evaluate their business continuity plans. And just as vendors pivoted toward remote delivery when the pandemic began, we believe ramping up automation will allow vendors to decrease their reliance on India as a global delivery hub and possibly provide them with the necessary solution to combat the potential development of new clusters of state economies.

 

 

Prediction No. 3: Software developers defecting to TikTok challenge IT services vendors’ talent models

Boz: Similar to the previous two trends, this one has also held true throughout 2022 and will accelerate for the foreseeable future but with certain caveats largely depending on the pace and longevity of a global recession.

 

As legacy IT services vendors continue to hire in bulk, contenders across the spectrum, from McKinsey & Co., Boston Consulting Group (BCG) and the Big Four on one end to hyperscalers building their services arms and new tech platforms like Tesla and TikTok on the other end are constantly vying to build a right-skilled bench, resulting in job-hopping among new recruits.

 

Striking the right balance between scale and skill while accounting for new business and delivery models will also test vendors’ innovative recruitment and retention practices as economic outputs begin to slow down and news about tech industry layoffs start to appear in the headlines.

 

 

 

 

Predictions is an annual TBR series examining market trends and business changes in key markets. 2022 covered segments included cloud, telecom, devices, data center, and services & digital.

5G and edge computing remain top focus areas for telecom industry in 2022

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5G has been the primary focus in the telecom industry thus far in 2022. Communication service providers (CSPs) in key countries, especially the U.S. and China, continued their aggressive, nationwide public network deployments of the technology while a broad range of CSP and non-CSP entities participated in the nascent private 5G market opportunity.

Edge computing also gained momentum in the telecom industry in 2022, with select telcos such as Verizon building out edge computing environments to support their vRAN initiatives, and hyperscalers such as Amazon Web Services (AWS), Azure and Google Cloud Platforms building out metro and far edge sites at an accelerating rate.

Revenue growth from 5G and edge computing remains tepid thus far in 2022, but new use cases for these technologies are likely to emerge and scale as the digital ecosystem evolves.

Download a free copy of Top 3 Predictions for Telecom in 2022


Prediction No. 1: Supply-demand imbalance delays pace of 5G market development

Supply chains remain a challenge in 2022, especially for sourcing certain components such as semiconductors. But overall, the supply chain recovered over the course of the year. The ongoing zero-COVID policy in China as well as geopolitics remain a risk, but aside from a major event occurring, the supply side of the ICT industry should continue to normalize. The new focus areas in supply chains going forward are supplier diversification, friend shoring and resiliency.

Prediction No. 2: Hyperscalers scale out edge cloud

Hyperscalers have been active in the edge computing market in 2022, especially in the metro and endpoint device domains. Hyperscalers are still trying to figure out an economically and technologically feasible way to scale far edge infrastructure to support their growth initiatives. Ultimately, TBR believes hyperscalers will establish deep partnerships with shared infrastructure owners, such as towercos and data center REITs (real estate investment trusts), to site their edge stacks closer to endpoints.

 

 

Prediction No. 3: Government becomes leader in 5G spend among nontelecom verticals

Activity in the government domain to leverage private 5G networks has been significant in 2022, especially at the national level. Government entities are exploring a broad range of use cases for 5G in the disaster recovery, public safety and first responder, and defense segments of the market, and CSPs are playing a role in many of these engagements. The U.S. Department of Defense’s $600 million 5G contract remains the largest publicly disclosed contract to date globally for private 5G networks, and it will continue to support growth in the private 5G market over the next few years.

 

 

 

 

Predictions is an annual TBR series examining market trends and business changes in key markets. 2022 covered segments included cloud, telecom, devices, data center, and services & digital.

TBR launches Channel Partner Market Landscape research stream

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In TBR’s new Channel Partner Market Landscape research stream we look at both business strategy and evolution of leading players in the VAR and distributor community.

Read more

2022 was a good year for federal IT, but will 2023 be as growth-friendly?

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Federal fiscal 2022 (FFY2022) has been a good year for the federal IT market, even as IT spending was somewhat impeded by lingering effects of the pandemic, the rise of macroeconomic inflation, budget uncertainties and delays, and the ongoing disruptions to supplies of computing components.

 

The Biden administration’s federal IT budget request for FFY2022 was roughly 18% higher than for FFY2021; the actual growth figure will likely be closer to 10% after the final budget is enacted. Cloud-centered IT modernization, cybersecurity enhancement, and accelerating adoption of digital technologies (e.g., analytics, artificial intelligence, machine learning) featured heavily in federal IT outlays in FFY2022 and will again in FFY2023.

 

Download a free copy of Top 3 Predictions for Federal IT Services in 2022

Prediction No. 1: Increased U.S. federal cloud spending upends the IT services market

Senior Analyst John Caucis: In the federal enterprise IT realm, TBR observed a significant ramp-up of activity on behalf of traditional federal systems integrators (SIs) to enhance alliance ecosystems in 2021, particularly with commercially centric cloud vendors. Commercial cloud providers bring to the table not only cloud technologies but also the best practices learned implementing cloud in commercial instances. Federal SIs know the rules of engagement when navigating the usually onerous federal technology procurement environment.

 

Federal agencies are expected to spend over $11 billion on cloud technologies in FFY2022, 30%+ higher than the total value of federal cloud outlays in FFY2021 and 70% higher than cloud spend in FFY2020. Double-digit increases in IT spending are expected across civilian agencies in FFY2023, and spending on defense-related technology will also expand at a healthy pace — with the growth driven in large measure by cloud-related investment.

Prediction No. 2: Vendors prepared for flattening defense budgets and accelerating civilian spend will see early gains

John: Trepidation about defense spending cuts was largely dispelled by the Biden administration’s budget request of $722 billion for the Department of Defense (DOD) for FFY2022, representing a $17 billion increase from FFY2021. For FFY2023, the administration has requested $773 billion in total defense outlays, including cybersecurity-related spending north of $11 billion, up from $9.8 billion in FFY2021.

 

DOD spending on commercial cloud solutions is also expanding, as the Pentagon establishes enterprise IaaS and PaaS environments and lays additional groundwork for general-purpose clouds in the coming years. Investment in analytics to enhance combat-related decision making also continues to expand.

 

In the civil arena, the Biden administration requested $65 billion in IT spend for FFY2023, up 11% over FFY2022, including a similar 11% increase in civil cybersecurity outlays.

 

 

Prediction No. 3: Investment in advanced digital technologies will accelerate across all federal sectors

John: Digital solutions will underpin federal IT modernization initiatives, and agency outlays to update and enhance their IT infrastructures vis-à-vis digitally transformative technologies will expand in FFY2023 and beyond.

 

For example, in June 2022 the Office of Management and Budget and the General Services Administration announced that $100 million will be earmarked within the Technology Modernization Fund (the fund to support to federal IT modernization projects) to improve citizen experience using digital technologies.

 

The Biden administration’s executive order mandating the expansion of cybersecurity in 2021 drove the aforementioned growth in cyber-related allocations in the FFY2022 budget and will continue to spur accelerating investment to secure federal IT systems in FFY2023. The White House and federal agencies have issued similar directives regarding expanding the adoption of AI technologies across the federal government. The DOD’s Joint Artificial Intelligence Center saw its budget expand from $89 million in FFY2019 to over $278 million for FFY2021.

 

Federal spending on big data solutions and services was $6 billion in FFY2021 and could surge to nearly $8 billion by FFY2023.

 

 

 

 

Predictions is an annual TBR series examining market trends and business changes in key markets. 2022 covered segments included cloud, telecom, devices, data center, and services & digital.

Will IT services revenue grow despite the competitive talent environment?

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Revenue expansion in the IT services sector continues, driven by vendors’ investments in talent and portfolio expansion and emphasis on strengthening relationships with customers and alliance partners.

While political and macroeconomic challenges such as rising inflation and the natural gas crisis are factors that might create pockets of slower growth, TBR expects the overall IT services market to continue to grow in the coming quarters. IT systems have become corporate utilities that enable clients to transform business models, contain costs and accelerate growth, and TBR expects demand for IT services around digital transformation to remain elevated. For the rest of 2022, attracting and managing talent will remain vendors’ core challenge to successfully growing revenue and managing costs.

Download a free copy of Top 3 Predictions for IT Services in 2022


Prediction No. 1: Focus on talent management, refined during the pandemic, will recede in a post-pandemic environment

Senior Analyst Elitsa Bakalova: Talent management remained a core priority and challenge for IT services providers, and none of the standard HR approaches changed during the first nine months of 2022 as vendors strived to capture rising demand for digital transformation.

As TBR predicted at the end of 2021, attracting, retaining, upskilling, promoting and rewarding talent are all necessary HR motions and further accelerated during the past three quarters. There is an ever-increasing need for people as vendors build their benches to capture opportunities and support revenue growth. New job creation and the gradual alleviation of pandemic pressures have encouraged employees to pursue career-building opportunities, leading to elevated employee attrition of 20.8% in 2Q22 compared to 16% in 2Q21, 14.1% in 2Q20 and 17.6% in 2Q19, on average, for the 31 vendors in TBR’s IT Services Vendor Benchmark. While vendors continue to recruit via traditional methods, more are investing in reskilling and upskilling as well as launching educational initiatives.

Finding and keeping employees in the IT services market is increasingly difficult as talent poaching intensifies for a finite number of resources and companies’ bookings remain high. Vendors continue to place a premium on skilled resources, offering sizable signing bonuses and higher wages. Increasing labor costs due to wage hikes and robust retention bonuses along with rising facility, travel and communication expenses are pressuring IT services vendors’ profitability.

Prediction No. 2: The decarbonization shift from promises to actual results opens a massive opportunity for IT services

Elitsa: This prediction remained true during the first nine months of 2022 as vendors TBR identified as decarbonization leaders continued to invest in developing their services and solutions portfolios to support clients’ sustainability initiatives and address their internal decarbonization-related pledges. As we anticipated, IT services vendors are increasingly bringing clarity to decarbonization by harnessing emerging technologies such as blockchain as well as established analytics and AI solutions.

According to TBR’s first Decarbonization Market Landscape, “Although some firms have been active over the last few decades around developing and acting on decarbonization strategies, many were induced — be it from competition, stakeholders or regulatory evolution — to improve, update, revisit or outright announce new net-zero targets, which in recent years have become somewhat of a comprehensive measure of a firm’s overall decarbonization efforts. … With a wider set of buyers relying heavily on technology to measure and manage emissions as well as advisory services to assess, plan and verify new initiatives, professional services vendors will continue to be key players in the enterprise decarbonization space. … Vendors must take care to continue to learn and stay up to date on reporting standards and regulatory change, supporting both internal and commercial efforts.”

 

 

Prediction No. 3: Blockchain winter ends and 5G & edge bloom in 2022, bringing new enhanced revenue streams to IT services vendors

Elitsa: While IT services vendors have increasingly announced investments in professional and managed services to enable adoption of blockchain, 5G and edge solutions, the trend is not mainstream across all 31 vendors in TBR’s IT Services Vendor Benchmark. However, select vendors have invested in expansion in the segments to benefit from diversified revenue streams.

As TBR expected, partnerships between IT services vendors and technology providers have been a key lever for increasing the value of vendors’ solutions and expanding their portfolio and client reach. For example, IBM partnered with Telus to deploy an edge computing platform across Canada, which expanded the reach of IBM Cloud Satellite by running the distributed cloud solution on Telus’ 5G network. Telus will leverage IBM Consulting services to implement AI and automation solutions, including products such as Cloud Pak for Network Automation. Atos partnered with Verizon to integrate Atos Computer Vision into Verizon’s multi-access edge computing network. This integration will bring video analytics services that utilize AI to customers and will provide Verizon with access to Atos’ BullSequana Edge servers to further advance 5G solutions.

During 2022 vendors have also leveraged acquisitions to expand their capabilities. For example, Atos acquired U.K.-based Ipsotek in 2021, adding software and IP to its solutions offerings to expand its edge AI/machine learning offerings and introduce video analytics solutions through Ipsotek’s VISuite. In 2022 IBM acquired U.S.-based Sentaca, a telecom consultancy and systems integrator, which strengthened IBM Consulting’s capabilities around helping communication service providers integrate with cloud-native services and architectures to better enable 5G for their customers.

 

 

Predictions is an annual TBR series examining market trends and business changes in key markets. 2022 covered segments included cloud, telecom, devices, data center, and services & digital.

Turmoil in IT services: Talent, org charts and acquisitions

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Gimme 3 — Insight Interview with TBR’s Subject-matter Experts

In TBR’s new blog series, “Gimme 3 — Insight Interview with TBR’s Subject-matter Experts,” Principal Analyst Patrick M. Heffernan discusses our latest and most popular research with our analyst team.

This month Patrick chats with Senior Analyst Elitsa Bakalova about the IT services market, including how vendors take on talent challenges and internal organizational change.

 

Patrick: Talent in the IT services space seems to be a top-of-mind problem, and in the IT Services Vendor Benchmark you report that attrition expanded again in the first half of this year. Even with vendors hiring more and increasing pay, will talent remain a headache for the remainder of 2022 and into next year?

Elitsa: People are the key resource for IT service delivery, so talent has been and will remain the No. 1 priority for IT services providers during the coming years. Finding the right skills to deliver digital transformation services increases vendors’ chances to fulfill demand and accelerate revenue growth. But attracting and keeping skilled talent are particularly difficult when there is a shortage of skills and those skills come at a higher price that not all vendors can pay. Employee attrition has been on the rise since the beginning of 2021, with two forces driving it: increasing demand for digital transformation and employees’ pursuit of their own happiness.

Enterprises that planned to start digital transformation activities or were in the early stages of transformation in 2020 slowed down their initiatives due to the uncertainty caused by COVID-19. Those enterprises, along with new ones, are now accelerating their digital transformation initiatives and looking for support from IT services providers. Vendors need talent to address the pent-up demand, and some are hiring in bulk, adding thousands of people across the pyramid, often heavily weighted on freshers. Naturally there is rising competition between IT services providers to attract as many resources as possible from universities and poach talent from peers to reach their hiring goals for the year. The jobs supply is high, and I think it will remain that way in the near term.

Turning to employees’ need to be happy and satisfied with life, career and family, when pandemic pressures began to ease in early 2021 some employees started looking for a career change that would likely lead to an increase in pay and job satisfaction. At the same time, vendors began offering new jobs that employees already trained and certified on new skills saw as a great opportunity for career progression with another IT services provider.

Patrick: In one of the benchmark’s quarterly focus sections, you highlighted internal reorganizations: IBM Services splitting into IBM Consulting and Kyndryl, Atos working on splitting into two separate entities, and NTT DATA splitting off the domestic Japanese business. Which vendor will be next?

Elitsa: It is hard to say which vendor will be next, but we can speculate based on our analysis of vendors’ performance and position among peers with similar business models that have undertaken internal reorganizations. Revenue growth and profitability improvement drive IT services vendors and when the two are not in concert, vendors begin to look for ways to adjust portfolios and change internally to reverse the negative effects. Both IBM and Atos were experiencing revenue growth and profitability challenges due to commoditization and low profitability of traditional IT services activities while other parts of their businesses such as digital, cloud, cybersecurity, consulting and application modernization services were growing profitably. Those two vendors sought to improve performance by restructuring declining and less-profitable business units, giving them the flexibility to align strategies and investments with specific markets in which they operate.

 

In our IT Services Vendor Benchmark we see some vendors in the same position. DXC Technology, T-Systems and Unisys have been repeatedly going through internal reorganizations so they can be less reliant on traditional IT services and improve operational efficiency through cost optimization, changes in global service delivery models, and increased use of automation. Despite these efforts, we have yet to see material changes from the reorganizations because those three vendors continue to see declining revenues and razor-thin profitability. Maybe at some point instead of divesting noncore assets, as DXC Technology has been doing, these vendors will split themselves into separate entities — one around traditional IT services and one around services tied to next-generation solutions — similar to IBM Services and Atos.

 

Patrick: Looking at go-to-market trends, you mentioned six of the 31 benchmarked vendors made notable acquisitions in the first half of 2022. Do you think acquisition activity will pick up in the next few quarters?

Elitsa: Near-term, we don’t see a major change in acquisition activity. While a global economic slowdown may cause pockets of tight spending on acquisitions for some less financially stable IT services providers overall, the overall acquisition pace will remain unchanged. Uncertainty typically makes for a good spending environment for consultancies, and the financial services industry continues to face technology disruption, which service vendors aim to capitalize on by investing in industry and technology expertise to drive planning and strategy discussions. Acquisitions are a way to quickly build expertise, and I think vendors will be willing to pay a premium to gain skills.

 

As we see from this month’s blog, it’s been a challenging time for IT services vendors. We’ll be keeping an eye on the market over the next few months to see if macroeconomic factors force any changes in these trends or the IT services vendors’ strategies. Additionally, each quarter we’ll examine the strategies, performance and relative positioning of 31 of the largest IT services vendors as part of our Professional Services research stream. The research also covers go-to-market trends and breakdowns by service line and geography, and an exhaustive set of financial metrics.

 

 

Supply chain issues delay private 5G network market development

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Enterprise and government interest in 5G remains robust and broad, but supply chain and other supply-side issues continue to delay market development. TBR now expects the private 5G market to ramp in the mid-2020s, once the supply chain normalizes, key standards are ratified and commercially ready, and the device ecosystem proliferates.

 

Join Principal Analyst Chris Antlitz Thursday, Nov. 3, at 1 p.m. EDT/10 a.m. PDT to learn the reasons market development for private 5G networks has been relatively slow and when the market will reach the scale phase.

 

In this FREE webinar you’ll learn:

  • Why the private 5G market has been developing relatively slowly
  • When the private 5G market is now expected to scale
  • Which verticals and use cases will drive growth in the private 5G networks market

 

Register now

 

 

 

Previous TBR 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].

VMware Explore touted as ‘center of multicloud universe’

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VMware is heralding VMware Explore as “the center of the multicloud universe,” aligning its annual conference with the company’s ambitions to become the de facto control plane for hybrid, multicloud environments. During his keynote and subsequent breakout sessions at the newly named VMware Explore global cloud conference, VMware CEO Raghu Raghuram laid out the company’s case for why and how it will succeed in achieving these goals, focusing much of the discussion on product initiatives that add to its end-to-end platform and modernize legacy products.

These products target the growing need for “cloud-smart” infrastructure management, and VMware, with one foot in the cloud and the other on premises, continues to make a compelling case for many enterprise customers. Throughout the event, VMware management highlighted the importance of strong partnerships that support product integration as a key to execution, impacting not only its vSphere business but also multicloud products. The company was joined on stage by hyperscalers, such as Microsoft (Nasdaq: MSFT) and Amazon Web Services (AWS) (Nasdaq: AMZN), to discuss ongoing joint product initiatives that are expanding customers’ ability to preserve past virtualization investments while migrating these environments to the cloud.

Specifically, the new Azure VMware Solution fills a critical gap in the VMware Cloud Universal program, and new flexible consumption options are opening doors for smaller enterprises looking to utilize VMware Cloud on AWS. In multicloud, new integrations with rival IBM (NYSE: IBM) involving both its Red Hat OpenShift and IBM Cloud Satellite were announced, underscoring both vendors’ commitment to openness and flexibility to deliver on the promise of “any cloud, any Kubernetes.” With product launches and partner initiatives indicating an innovative future, VMware Explore 2022 felt entirely like business-as-usual, and one could be forgiven for forgetting the significant transaction that looms in the future.

Innovating to enable modern applications and cloud-smart IT strategies

vSphere 8 brings modern application capability to update the virtualization platform and support modern applications with new DPU functionality

In VMware’s opinion, cloud-smart strategies require enterprises to retain some workloads on premises due to cost considerations and performance requirements, pushing the company to continue to innovate with its popular vSphere platform. With vSphere 8, customers gain access to the long-promised Project Monterey. Originally announced at VMworld 2020, Project Monterey rearchitects vSphere to support data processing units (DPUs), providing far better performance when running data-intensive, modern applications in the cloud, on premises and at the edge.

Specifically, DPUs augment the power of the CPU or graphics processing unit (GPU) by providing a place to offload core infrastructure tasks like networking and data storage. This frees up core capacity up to 20%, allowing the CPU or GPU to focus on the specialized tasks present in modern applications like AI, machine learning (ML) and high-performance computing (HPC). Instrumental to Project Monterey, the company partnered with chipmakers NVIDIA (Nasdaq: NVDA), AMD (Nasdaq: AMD) and Intel (Nasdaq: INTC), and hardware OEMs Dell Technologies (NYSE: DELL), Hewlett Packard Enterprise (HPE) (NYSE: HPE) and Lenovo, relying on this ecosystem to support the hardware integrations necessary to offer DPU architecture support with vSphere 8.

TBR believes that with Broadcom as a major chipmaker itself, vSphere and future innovation around silicon architectures could be an interesting possibility. Regardless, the improvements in compute performance added through vSphere 8 are unlikely to change the long-term trajectory for the virtualization platform. Public cloud providers continue to invest heavily in specialized server chips to come to market with application-optimized instances capable of delivering superior performance in the cloud for many modern applications. Instead of differentiating, these updates prolong vSphere’s relevance by enabling customers to preserve their past virtualization investments.

 

Introducing hybrid, multicloud management with VMware Aria

At VMware Explore 2022, the most noteworthy announcement was VMware Aria, which, according to VMware, will represent the core of the company’s multicloud management strategy going forward. VMware Aria is a new hybrid, multicloud management portfolio built to alleviate modern IT complexity challenges, which VMware management accurately refers to as “cloud-chaos.” The portfolio includes a set of end-to-end solutions for managing cost-performance optimization and consistent policy implementation across any cloud. The foundation of the portfolio rests on the announced VMware Aria Graph and VMware Aria Hub. Customers will manage and apply policies within the graph via the VMware Aria Hub, the portfolio’s control plane, while the graph data store serves as the engine of the offering, providing a connection to an enterprise’s complete array of IT assets, from multiple public clouds to virtual private clouds and on premises.

VMware Aria Graph’s application mapping serves as the basis for newly announced end-to-end management services: VMware Aria Guardrails, VMware Aria Migration and VMware Aria Business Insights. Aria Guardrails helps enterprises automate policy implementation at scale to support multicloud networking, security and configuration through an everything-as-code approach. Meanwhile, VMware Aria Migration promises to accelerate multicloud migrations with automated assessment, planning and execution, and Aria Business Insights provides full-stack process analytics by leveraging machine learning and AI to support infrastructure optimization and security.

TBR believes VMware’s position as a virtualization provider could provide the company with an advantage in attracting enterprise customers. With many enterprises preserving their virtualization investments in the near term, tight integrations with vSphere could create meaningful value for complexity-conscious customers. Further, as VMware management claims, the expertise in infrastructure management VMware has accumulated over the years through the development of the company’s virtualization platform will serve it well as it builds products that reduce complexity in multicloud management.

However, VMware must execute on this promise by maintaining its investments in R&D, as well as its go-to market effort. As the fight for the multicloud control plane grows, any deviation from the company’s current investment path would likely be detrimental to adoption as others maintain their pace of innovation. Further, with headwinds to virtualization unlikely to abate, failure to remain competitive would have significant ramifications in VMware’s ability to generate sustainable long-term growth.

Partnering to deliver on ‘any cloud, any Kubernetes’

VMware Explore 2022 follows a year of transformation regarding the company’s relationship with its partner ecosystem, and commentary during the conference suggested this change of heart is here to stay. As VMware pivots toward the cloud, it will need to engage with not only hyperscalers but also professional service providers as the company looks to accelerate vSphere migrations and drive adoption of its cloud-native portfolio.

Over the past year, VMware has seen significant success in bolstering its relationships with services partners, a reflection of recent ecosystem investments that are adding technical resources to joint customer engagements. While management highlighted these recent successes, conference announcements focused on collaborative product initiatives and integrations, aligning with the conference theme of “any cloud, any Kubernetes.” Considering Broadcom management shares similar views on shifting the business toward the cloud, TBR believes that the momentum in partner engagement is unlikely to change following the acquisition, at least as it pertains to significant revenue generators like vSphere.

‘Any cloud’ achieved with the addition of Azure to VMware Cloud Universal

While multicloud offerings like VMware Aria and Tanzu represent a long-term growth opportunity for VMware, shifting vSphere customers to subscription-based consumption methods is a more near-term strategic objective for the company, requiring it to work with hyperscalers to provide the necessary infrastructure component. So far, the company has been successful in this pursuit, with subscription revenues growing over 20% year-to-year in recent quarters.

On track to its FY2023 subscription revenue goals, subscription growth is driven by vSphere migrations, which are supported by joint product initiatives between VMware and its hyperscaler partners. Adding to the VMware Cloud Universal program, the company announced the general availability of the new Azure VMware Solution, improving vSphere migrations to Azure’s public cloud. Over the past year, VMware’s partner initiatives with Microsoft have largely mirrored its efforts across the public cloud landscape, with its cloud-native applications recently becoming available on the Azure marketplace.

However, VMware continues to view AWS as its preferred cloud provider, emphasizing the partnership at VMware Explore with the launch of new consumption options for the VMware Cloud on AWS. VMware’s favoritism toward the company threatens its multicloud reputation, especially given AWS’ restrictive stance on multicloud environments. Going forward, this perception can be combated by accelerating development programs with its other hyperscaler partners, such as Microsoft Azure, to bring the same level of capability and the same breadth of consumption methods to all cloud environments.

Integrating with rivals to deliver on ‘any Kubernetes’ promise

As VMware positions VMware Aria at the core of its multicloud strategy, the underlying Kubernetes deployment platform is becoming less of a differentiator, with “any Kubernetes” integration taking precedence. Announced at VMware Explore, VMware will enable cross-platform container deployment with rival Red Hat OpenShift, a move that recognizes the likelihood enterprise customers will consume multiple Kubernetes platforms.

While “vendor-neutral” has been a common marketing phrase used to describe the lack of direct affiliation with a public cloud provider, this integration pushes platform openness further. Given VMware’s and Red Hat’s market share, TBR expects other vendors will be pressured to follow their lead, initiating an “any Kubernetes” approach across the industry. Outside of product integrations, IBM Consulting was named a global systems integrator (GSI) for VMware, adding to an expanding list of GSIs building their VMware-related business. IBM’s focus on executing on its hybrid cloud strategy makes its partnership with VMware more of a necessity based on the company’s enduring presence in the cloud.

Conclusion

With the conference emphasizing a multicloud future, VMware Explore 2022 felt like business as usual, an indication for TBR that strategy will remain unaltered post-acquisition. Led by its product-focused CEO, VMware’s ability to innovate was on display as the company pivots toward cloud-smart strategies. VMware’s updates for core products, like vSphere 8 and vSAN 8, are creating enduring value for enterprise customers, prolonging their secular decline. Meanwhile, VMware Aria takes the company into its next chapter of multicloud management. Now, VMware must execute on this pivot by maintaining its pace of innovation and the growth of its partner ecosystem.

With Broadcom (Nasdaq: AVGO) CEO Hock Tan watching from the front row, Raghu Raghuram and the rest of VMware management hosted the newly named VMware Explore global cloud conference, a change from its namesake VMworld. The rebranding, which is significant based on the prior event’s reputation as a go-to event, appears to be driven not by the pending change in VMware’s ownership but by the company’s efforts to position itself as a provider of more than its virtualization platform.

Major announcements emphasized VMware’s ongoing evolution from an on premises virtualization provider to a leading enabler of “cloud-smart” IT strategies, with launches for VMware Aria, vSphere 8 and vSAN 8 exemplifying the company’s ability to innovate. However, while an innovative spirit remains at VMware today, a feeling of uncertainty around future innovation existed among conference attendees this year as stakeholders grapple with the impending change in ownership. While much is to be determined, prior public statements by both companies describe the transaction as transformational to Broadcom Software Group, and TBR walked away with our prior stance unchanged, believing in incremental benefits for VMware if investments in strategic areas remain consistent.