Will AI Hype Generate a Server Market Rebound?

Post-pandemic, IT infrastructure vendors have experienced a challenging year, with the steepest decline in demand occurring in the general compute segment. At the same time, the rush to develop AI-based solutions and establish competitive advantages using AI has led to insatiable demand for AI-ready servers.


Join TBR Principal Analyst Angela Lambert and Analyst Jacob Fong Thursday, Oct. 26, 2023, for a 30-minute live discussion and Q&A on the implications of AI for the server market and how leading vendors are positioning for growth.

In This FREE Session on AI’s Impact on the Server Market You’ll Learn:

  • Recent server market revenue performance and drivers
  • AI-centered go-to-market strategies being deployed by leading server vendors
  • How increasing demand for AI impacts TBR’s growth expectations for the server market through the end of 2023 and into 2024




TBR Insights Live is held typically on Thursdays at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. Previous sessions 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].


PwC Utilizes a Human-led and Technology-powered Approach to Drive Growth

PwC invited the analyst community to its office in London to meet with members of the company’s leadership team in the EMEA region, along with PwC clients and technology alliance partners, and provide an update on how PwC is helping clients innovate through transformation and execution. PwC opened the event highlighting how PwC’s community of solvers address clients’ pain points, such as training and retaining talent, improving customer experience, and meeting social and regulatory requirements with a sustainable point of view. The company then led a series of sessions covering PwC’s innovation strategy, managed services business and technology alliances. Client sessions with Vanquis, Inmarsat and a large energy provider presented a view of PwC in action.

PwC Is Taking a Human-led, Technology-powered Approach to Addressing Clients’ Challenges

The first session was about PwC’s innovation strategy. Rima Adas, partner and EMEA Industries leader, opened the session by outlining four key areas that the company planned pursue to address clients’ needs in EMEA starting July 1. The topic of transformation is high on clients’ agenda, and PwC is working to ramp up transformation activities around cloud, customer experience, finance, human resource management and operations. The company is also pursuing opportunities in three other areas: risk and regulation, specifically around cybersecurity; environmental, social and governance (ESG), specifically around sustainability; and deals advisory services, specifically around creating and preserving value.
Adas noted that PwC is also exploring future bets, such as mobility transformation, energy transition and the metaverse. Growth enablers for the company include PwC’s alliance network, managed services capabilities and delivery model across regions, rather than focusing on clients’ home countries. PwC’s emphasis on industry expertise, along with its broad geographic network and portfolio mix of advisory, tax and audit services, positions the company for success.


Paul Terrington, partner and EMEA & U.K. Consulting leader, explained that demand for transformation-related consulting support remains strong across the region and that clients are driven by an imperative that if they do not reinvent business models, their organizations will not be relevant and will not survive. While PwC is helping clients address challenges, speed is essential to implement clients’ transformation agendas. Key elements for PwC’s activities are platforms enabled by managed services, its broad range of alliance partners, and solutions designed for industry needs.


Andrea Poore, director, U.K. Retail Enterprise Transformation, noted that while PwC is utilizing its consulting expertise and proximity to clients to understand their needs, the company’s learning culture reinforces its success. For example, organizing lunch-and-learn events to discuss specific topics and highlight winning methodologies that PwC brings to engagements helps the company deepen its client relationships.

GenAI Has the Potential to Disrupt Clients’ and PwC’s Business Models, and PwC Is Ready to Capture the Wave of Opportunities

PwC is investing $1 billion over three years to expand the company’s capabilities and capture opportunities around generative AI (GenAI). As Adas explained, GenAI has the potential to disrupt the business of not only clients but also PwC. The company is building on its alliance with Microsoft (Nasdaq: MSFT), specifically around Azure OpenAI Service solutions; exploring opportunities with other technology partners; and upskilling employees to change the way clients operate and to improve PwC’s service delivery. According to Terrington, PwC is utilizing consulting with technology and data at the core to address clients’ needs, for example by using GenAI to boost productivity. Positioning topics such as trust, responsible AI and AI ethics at the center of its GenAI strategy will enable PwC to move at speed and capture opportunities in an area that is disruptive for businesses and, as Terrington explained, “plays well with PwC’s human-layered technology agenda.”


TBR analyzed PwC’s recent developments in GenAI in the Spring 2023 Management Consulting Benchmark Vendor Profile: PwC. According to the profile, “GenAI needs use cases, and PwC can be a compelling client zero … [PwC’s recent GenAI announcements in the U.S., Canada and the U.K.] emphasized three aspects of the investments. First, the investments will build on and extend PwC’s existing strengths and experiences deploying AI with clients, a reminder to the consulting and technology ecosystem that PwC is not just chasing the GenAI hype. Second, PwC will accelerate adoption of AI internally, both for its operations and for the delivery of its consulting engagements. Third, at least part of the investments will be spent on upskilling employees on AI to help them ‘work faster and smarter, help grow their careers, and advise clients on the benefits of AI as well as other transformative technology,’ according to the PwC US press release.”


Managed Services Represent a Growth Opportunity for PwC

PwC is also expanding its managed services activities, a capability that is “not new to PwC,” according to Jamie Houghton, partner and EMEA Managed Services leader. As clients go through transformations and struggle with technology debt and a lack of capacity, they increasingly request more capabilities from PwC, creating managed services opportunities. According to Kieragh Nelson, partner and U.K. Managed Services Operate leader, “Managed services are at heart of PwC; they are fully integrated and not sitting at the side but across all of what PwC does.” PwC is using an agile delivery system in managed services and has a managed services lab with skilled technologists and solution and commercial architects who are responsible for designing models, driving consistency and connectivity, and bringing best practices and technology assets to clients.


While managed services account for between 4% and 5% of PwC’s annual professional services revenue, in TBR’s estimates, it is a fast-growing business for three of the Big Four. EY’s managed services revenue share is similar to PwC’s, while Deloitte’s managed services account for between 8% and 10% of its professional services revenue, in TBR’s estimates. On the other hand, KPMG has the fewest managed services offerings in its portfolio compared to the rest of the Big Four. Managed services is an appealing market, especially in the current macroeconomic environment as more buyers are shifting from discretionary spend to run-the-business managed services awards, which could entice KPMG to explore this area further, thus pressuring its consulting value proposition.


According to TBR’s Spring 2023 Management Consulting Benchmark Vendor Profile: PwC, “Using managed services as a continuation of its strengths and existing capabilities with a few primary focus areas, the firm more naturally embeds the opportunity within client engagements. More specifically, PwC develops managed services that stretch across business needs to support business acceleration and deliver on outcomes by prioritizing its strategy, risk, cyber, tax and risk practices.”

A Unified and Connected Service Delivery Ecosystem and a Global Value Proposition Contribute to PwC’s Managed Services Expansion

Utilizing a connected service delivery ecosystem comprising onshore, nearshore and offshore resources improves PwC’s ability to deliver managed services with flexibility and at scale. During the event PwC called out its managed services delivery network in EMEA, which includes facilities in the U.K., Germany, Portugal, South Africa, Egypt, and multiple locations in India and Central and Eastern Europe, discussing features such as interconnection between locations, industry emphasis, and operational mindset and discipline at the core. The company identified the facility in Belfast, Northern Ireland, as a core service delivery location in EMEA.
Notably, in Belfast PwC invested in developing an operational infrastructure that enables employees to utilize standardized approaches and processes as well as technology assets and platforms for running services. PwC’s Belfast facility, which has approximately 4,000 employees, serves as a showcase office that enables clients and partners to experience success stories and increase confidence and trust with PwC. PwC has replicated this standardized approach across its geographies. The managed services business utilizes a global value proposition and go-to-market approach and has a common service architecture with delivery assets and global delivery centers as well as a common service catalog.

Understanding Industry Challenges and Addressing Them Through Managed Services Increase PwC’s Value Proposition

PwC works with client partners in its industry teams covering 30 sectors and seven industries and gains an understanding of industry-specific issues. Creating managed services solutions that align with specific use cases and technology assets enables PwC to establish a detailed and informed picture around what capabilities clients need and what domain expertise the company should provide. Such activities accelerate PwC’s manage services expansion and improve its go-to-market messaging around the pace and speed of service delivery.

Alliances With Technology Partners Are an Integral Part of PwC’s Go-to-market Approach

According to PwC’s session on innovation with technology alliances, a significant portion of its business has an attached alliance component that contributes to revenue growth. Alliances are an integral part of PwC’s New Equation global strategy and require a symbiotic relationship at the account level around how to curate solutions and bring industry solutions to life. PwC’s alliance relationships are industry-led and follow a customer-first approach to best address clients’ needs. Establishing partner ecosystems and pursuing one-to-many relationships by working with several alliances at the same time in a client engagement expand PwC’s offerings and resources, enabling it to scale delivery through repeatable assets and generate faster results.
PwC has established an EMEA Impact Center that works on solution generation, presales and sales to accelerate activities with alliance partners across regions. The company has nine strategic alliances, including with Google Cloud (Nasdaq: GOOGL), Amazon Web Services (Nasdaq: AMZN), SAP (NYSE: SAP), Oracle (NYSE: ORCL), Workday (Nasdaq: WDAY), Guidewire (NYSE: GWRE), Salesforce (NYSE: CRM), Adobe (Nasdaq: ADBE) and Microsoft; more than 40 micro alliances, such as with UiPath (NYSE: PATH), Palantir (NYSE: PLTR), Workiva (NYSE: WK) and Sage; and a growing resource base that delivers alliance-related services, up 25% year-to-year at the time of the event. PwC also noted that it increased alliance-related wins and intends to triple the number of wins by 2025.


PwC has an established position in its main areas of expertise: advisory, audit and tax services. Diversifying its portfolio by expanding its managed services capabilities improves the company’s value proposition and its ability to offset pressures on discretionary spending resulting from macroeconomic uncertainty. The company’s human-led, technology-powered approach will be a core lever for its success.
According to TBR’s 1Q23 IT Services Vendor Benchmark, “Even if the global economy continues to slow during the rest of 2023, TBR expects clients’ IT spending will remain, though with some tightening of discretionary budgets, as IT is a necessity that enables clients to establish new business models, grow revenues and create efficiencies. While buyers are focusing more on run-the-business awards and less on discretionary spend engagements, vendors that have balanced consulting and managed services portfolios will perform well. Vendors can find ways to use their positions in the technology and managed services space by bringing in consultants that can mine for additional opportunities. While this is an opposite model from the traditional consulting-led discussions, buyers’ budgets are also pivoting toward measurable outcomes enabled by technologies and are less focused on blue-sky new ideas.”


TBR attended PwC Analyst Day in Boston on Sept. 13-14, 2023. The topics and messages aligned across both events, such as the initiatives around business model reinvention. More analysis on PwC will follow in TBR’s special report on the Boston event.

Google Cloud Debuts New Era of AI-powered Cloud Services with Duet AI

AI took center stage at Google Cloud Next 2023, where Google Cloud CEO Thomas Kurian shared the company’s optimism and vision for a technology that will transform the way businesses work and operate over the next decade. A front-runner in AI innovation for nearly seven years, Google (Nasdaq: GOOGL) has cultivated a strong brand in the space by helping customers draft emails in Gmail, experience immersive locations in Google Maps and improve outcomes in Search, to name a few examples. Google Cloud — the highly strategic and now profitable division within the broader Alphabet corporation has nurtured Google’s AI technology, brand and customer relationships to transition to an enterprise-grade cloud provider and position Google Cloud Platform (GCP) as the best place to run AI, machine learning (ML) and analytics workloads. Now with the latest subset of AI — generative AI (GenAI) — taking the tech market by storm, Google Cloud is prepared to advance this position, using internally developed large language models (LLMs) to bolster the GCP and Workspace portfolios and offer customers a “new way to cloud.”

TBR Perspective

For years, Google Cloud has distinguished itself from legacy peers as a born-in-the-cloud provider, allowing it to commit to the latest frameworks and tooling that help digitally native customers build cutting-edge applications. This core value proposition closely aligned with the central theme of Next, which focused on delivering customers a “new way to cloud.” If the old way is solving a technical challenge through labor-intensive manual processes, then the new way is leveraging highly automated AI-based solutions that allow customers to personalize, secure, predict and ultimately realize business outcomes. Google Cloud is striving to help customers do just that by embedding GenAI throughout its portfolio, which may not only encourage current customers to keep expanding their GCP investments but also attract the legacy enterprises that are ready to unlock the potential of cloud and GenAI.

Kurian prefaced the event with an overview of GenAI, and one piece of Google Cloud’s GenAI strategy quickly became clear: Google is striving to offer the broadest set of LLMs among peers. With Pathways Language Model (PaLM) 2, Codey, Imagen and Med-PaLM, Google offers its own set of generic and industry-specific models, but when combined with partners like Meta (Nasdaq: META) and Anthropic, as well as the open-source community, there are over 100 foundation models available from Google.
This approach reaffirms Google’s commitment to offering customers maximum choice when it comes to the models they use, including the ability to customize models based on internal data. Aside from supporting an array of models, Google will continue to refine PaLM 2, which has expanded from 4,000 to 32,000 tokens, or the equivalent of roughly 85 pages of text. These developments will be important as they power new products and features, including the new cognitive tool taking GCP by storm: Duet AI.


Announced in May, Google Cloud’s Duet AI is described as an “always-on AI collaborator” that works behind the scenes to complete productivity tasks in Workspace and perform developer functions, such as automated coding, in GCP. At Next, Google Cloud announced the general availability of Duet AI in Workspace, officially allowing customers to take advantage of GenAI features, such as describing an image you want with a few keywords and having it populate within Google Slides or automatically classifying rows of data in Google Sheets. These capabilities are all about improving the user experience and strategically helping Google Cloud cross-sell GCP services to the vast base of 10 million paying Workspace customers.


At the event, Google Cloud also announced it is expanding the capabilities of Duet AI on GCP in preview, with general availability slated for later this year. There are several new preview capabilities to unpack from context-aware code generation to automated API publishing within GCP’s Apigee API Management service. One of the capabilities we found most compelling, however, is support for Duet AI with Database Migration Service (DMS), as it speaks to Google Cloud’s strategy of using GenAI to attract more legacy workloads and become a competitive modernization partner for the traditional enterprise.


In the scenario that Brad Calder, VP and general manager of GCP, introduced at Next, customers can use Duet AI to migrate Oracle Database workloads to Google Cloud’s AlloyDB. Currently, much of the database schema and code is automatically converted to AlloyDB, but for functions specific to Oracle (NYSE: ORCL), it can be challenging for developers to make coding changes required for migration. With Duet AI, customers will be able to open the DMS console and to manually code just one Oracle function and have that coding change automatically applied to all other cases. While we do not believe Duet AI will be enough to sway invested, customized customers away from Oracle Database, it will help Google Cloud better compete with Amazon Web Services (AWS) (Nasdaq: AMZN) and Microsoft (Nasdaq: MSFT) for the subset of customers prepared to leave their legacy Oracle systems behind.


It is still early days for Duet AI, but with over 1 million users to date, the service is gaining acceptance throughout both Workspace and GCP. Complementing Google Cloud’s existing Vertex AI solution, which is for more advanced developers to help them better build with GCP IaaS and PaaS, Duet AI is about making AI easily accessible under the hood for line-of-business teams and novice coders. Targeting both these personas, Vertex AI and Duet AI will define Google Cloud’s AI portfolio going forward and potentially help the company attract both digitally native and traditional enterprise customers.

Workload-optimized Infrastructure Is Core to the GCP Strategy

The rise of data-intensive workloads with specific compute requirements has driven Google to re-evaluate its infrastructure architecture over the past couple of years. At Next, Google Cloud mentioned its under-the-radar Titanium architecture, which Google Cloud claims has been powering certain services for years. With the Titanium system, tasks such as block storage and virtual networks are offloaded to dedicated chips — infrastructure processing units (IPUs) codeveloped with Intel — to reduce reliance on the host CPU and help maximize performance. TBR notes this approach mirrors what AWS did over a decade ago with the Nitro System, the core architecture powering all its next-generation EC2 instances. Like AWS, Google Cloud is using its architecture to support customers beyond general-purpose workloads, and considering the compute requirements for GenAI workloads, we can expect Titanium to power all future generations of Google Cloud’s IaaS services.


Google Cloud also launched the v5e tensor processing unit (TPU), which is integrated with popular GCP services, including Vertex AI, and promises more than double the performance per dollar for both AI training and inference workloads compared to the v4 TPU. One other key attribute of the v5e TPU is its versatility, as customers can choose up to eight virtual machines (VMs) and 250 chips, allowing them to manually configure their hardware based on the size of the LLM.

The new TPUs come as Google Cloud competitors, namely AWS, leverage their custom chips to support the compute demands of LLMs and GenAI and offer the market an alternative to what seems to be an increasingly scarce supply of GPUs. Even so, customers clearly value NVIDIA’s AI hardware, and that is why Google Cloud continues to support GPUs and is bringing its A3 VMs, based on NVIDIA H100 GPUs, to the market next month.

Bringing GenAI to Security

In TBR’s own discussions with enterprise customers, we have uncovered several established GenAI use cases across customer service, administration and software development. Security, however, appears to be a budding area of interest, especially considering the current lack of trained security professionals in the market. At least for now, Google Cloud appears to be a front-runner in this space, as the company has its own LLM trained on security use cases (Sec-PaLM 2) to predict threats and help explain behavior surrounding malicious scripts.


Further, Google Cloud has integrated Duet AI with Mandiant Threat Intelligence, which applies GenAI to actually summarize what a hacker is trying to accomplish. Security remains the top concern for customers, and TBR findings reveal that customers generally expect their cloud service providers to do more to address security natively, so steps Google Cloud can take to make security easier for the customer will be well received. The Mandiant acquisition and other investments in security are also key to Google Cloud’s enterprise positioning and efforts to attract customers that do not use GCP beyond analytics and AI.

GenAI Presents New Opportunity in Google Cloud’s Consistent Partner Strategy

Two of Google Cloud’s biggest differentiators have been its partner-first strategy and data analytics capabilities, and the company converged and advanced both during the latest Next event. The rising interest and investment in GenAI capabilities is a ripe opportunity for Google to improve its standing in the cloud platform and infrastructure spaces, and the flurry of partner announcements indicated the company is looking to seize the moment.


The partner announcements reflected the breadth of Google’s ecosystems strategy, impacting programs spanning ISV to alliances to global systems integrator (GSI). Two of the biggest SaaS companies, SAP (NYSE: SAP) and Workday (Nasdaq: WDAY), were part of the new announcements during the event. Workday is now live on GCP, a major win for the platform. The relationship dates to 2021, when Workday named GCP as its preferred cloud partner of choice for specific verticals, including healthcare, financial services and retail.


Even more than just being hosted in GCP, Workday will eventually take advantage of Google of GenAI capabilities, including building new features into the flow of its core human capital management (HCM) and finance offerings. The packaging of core SaaS offerings with GenAI features is an emerging trend, as vendors including Microsoft and ServiceNow (NYSE: NOW) have already announced pricing for packages that will shortly be available. The relationship with Workday gives Google Cloud the opportunity to integrate its AI assets in a leading SaaS property, creating revenue growth opportunities but also awareness within a large customer base.


Google Cloud and SAP also had new joint announcements at the event, building on a long history between the two vendors. As Kurian noted when presenting at SAP’s Sapphire event earlier this year, “Google Cloud has had an amazing collaboration with SAP going back five years.” Google Cloud’s parent company, Alphabet, runs on SAP for core systems and is a vocal advocate for SAP S/4HANA. At the Google Next event, it was announced that their joint relationship would be extended yet again, as SAP will utilize Google foundation models via Vertex AI and SAP data to develop solutions for customers that advance sustainability initiatives and to improve safety and manufacturing processes within the automotive industry.


Beyond the big-name alliance announcements, Google Cloud is looking to become a hub of the AI ecosystem and cited progress in that regard. Google Cloud now has more than 100 foundation models from third-party and open-source contributors in its model garden. Google Cloud’s model garden includes open-source contributors like Confluent (Nasdaq: CFLT), DataRobot, Elastic (NYSE: ESTC) and MongoDB (Nasdaq: MDB) as well as more commercial participating organizations like Acxiom (Nasdaq: ACXM), Bloomberg, CoreLogic (NYSE: CLGX), Equifax (NYSE: EFX), NIQ and TransUnion (NYSE: TRU).


The announcements at Google Next advanced partner initiatives, following a consistent strategy to build the partner ecosystem. From a strategic perspective, Google Cloud is focused on profitability and sustainable growth, and partners are the key to achieving those goals. Heading into the event, Google Cloud sustained a profit for two consecutive quarters, with partners allowing the company to develop multifaceted relationships that maximize clients’ GCP consumption.


In the months leading up to the event, Google Cloud reinforced its commitment to partners through the updated Partner Advantage program, which offers product-specific tracks, financial incentives and new certifications to support partners as the opportunity around GCP expands, particularly in the area of GenAI. Additionally, Google Cloud promised to provide partners with greater access to its internal resources, training programs and best practices, suggesting the company is becoming more hands-on with its GSI partnerships, from presale to postsale, to ensure initial migrations and custom projects are successful.

The Evolution of Acquisitions, GenAI and Digital Transformation in IT Services and Consulting in 2023

Each quarter TBR’s Professional Services team reviews the activities, investments, financial performances and announcements of a wide range of vendors, including management consultancies like McKinsey & Co., market behemoths like Accenture and technology-centric services companies like Dell Technologies. The team then extracts trends affecting vendors, their technology partners and their clients across the broad ecosystem. In this blog, TBR’s subject-matter experts share their predictions for 2H23 based on trends in acquisitions, organization and talent, sustainability, and generative AI (GenAI) seen in 1H23. For quarterly performance analysis of individual vendors, start your Insight Center™ free trial today!

Acquisition Activity Is Low and Trending Down in 2023 and into 2024

Vendors acquire for skills, scale and clients — this has not changed. And yet, a more expansive and favorable ecosystem diminishes the need for massive scale as does the realization that no one can compete with the largest vendors on the strength of scale alone. (Accenture [NYSE: ACN] is closing in on 750,000 employees).


Similarly, trained and certified resources and even intellectual property can be more easily leveraged through partnering smartly. And with clients spending in smaller increments and with elongated budget cycles, maybe acquiring for new logos has lost some of its urgency. Accenture — normally an acquisition-a-day company — has been slowing down in 2023. Tech Mahindra and CGI (NYSE: GIB) also seemingly dialed back their acquisitive pace.


In the U.S. federal IT services sector, an area TBR covers in detail, analysts have seen a significant slowdown in acquisition activities, with no major moves since 2019 and many of the covered vendors redirecting capital to internal investments to optimize or to pay down debt.

  • That said, within the IT services and digital transformations space, migration to S/4HANA remains a substantial opportunity, and many vendors still lack sufficient scale to meet demand. TBR anticipates that a push to pick up SAP (NYSE: SAP) talent could drive a 2H23 wave of SAP-specific acquisitions.
  • Still, why acquire IP and technical skills, when you can just partner more smartly, leaning on the talent and client access in your ecosystem? As you partner better, you should be able to continue growing while acquiring less.


As with nearly every trend, TBR sees an outlier: Bain & Co. It is the smallest of the MBB (McKinsey, Bain and Boston Consulting Group [BCG]) consultancies. After 40 years of entirely organic growth, Bain has made at least three acquisitions in 2023 and 12 since the start of 2018.


As TBR noted in the Spring 2023 Management Consulting Profile: Bain, “Acquiring and embracing new technologies is no longer a hurdle to overcome but rather a springboard to broadening Bain’s capabilities and expertise so the firm can better serve its long-standing clients. Bain’s current acquisitions strategy is steady and should prove incrementally advantageous, rather than being disruptive to the firm’s operations or brand.”

‘End to end’ Is Ending, and GenAI Might Kill It

At an analyst event this spring, TBR heard leaders from a VAR/IT services vendor talk about their “superpower”: the capabilities and offerings that they believed they delivered at a level far above their peers.


While these leaders could perform a wide range of IT services, they focused on strengthening their superpower to include ensuring clients and ecosystem partners knew what made them special. In contrast, many of the vendors TBR covers describe themselves as “end to end.” While that once may have brought clients some reassurance that the vendor could handle anything and everything, minimizing the need for many IT and services suppliers (cue the “one throat to choke” and “too many cooks” cliches), TBR’s research shows that buyers value specialization.


IT services vendors and consultancies that credibly say, “We’re exceptional at this particular thing,” stand a better chance of standing out in a crowded field of vendors shouting about being end-to-end. Looking at the vendors themselves, having too broad of a portfolio becomes too broad to manage.


Some vendors struggle to operate efficiently, particularly when multiple large and distinct sales groups within the same organization sell differently to different clients or, worse, sell differently to the same client.

  • Accenture Operations is separate from Accenture Technology, which is separate from Accenture Strategy, so that even within an organization it is hard to pass the baton. Of course, Accenture continues to grow in ways that many peers strive to emulate, but decades worth of smart management and corporate culture cannot be replicated easily, especially when organizations have been cobbled together from disparate parts.
  • Into this mix, throw GenAI, which may do to the people business (IT services fundamentally remains a people business) what an asset-light approach to managing and delivering IT did to the asset-heavy vendors. Does GenAI make people — the professionals employed by these IT services vendors — into heavy assets, eventually outpaced by asset-light organizations that can function more efficiently? With layoffs across commoditized technology, the talent pool for enterprises and specialized IT services vendors has expanded, further diminishing the need for large-scale managed services providers.


Of course, there is always an opening for better software tools around productivity, and TBR has seen a ramp-up of investments in training, particularly across organizations. People Advisory Services (see EY) and certifications across cloud platforms (see TBR’s ) should keep IT services and consulting talent ahead of any existential threat from GenAI, but TBR expects, at a minimum, GenAI will accelerate specialization and eliminate end to end. Good riddance.

Near-term, Expect GenAI Opportunities Around Consulting and Limited Case Uses Around Productivity

When looking at the IT services and professional services space, TBR considers two GenAI tracks: What opportunities will vendors seize for generating new revenues, and what changes will GenAI force on how vendors operate?


Currently, the first track is pretty straightforward: Fear, uncertainty and doubt around GenAI — fueled by massive hype — create consulting opportunities, particularly for vendors with established governance, risk and compliance offerings. Every vendor has core artificial intelligence, data orchestration, analytics and cloud capabilities, so no vendor can credibly separate itself from the pack with those tools alone.


For TBR, the Big Four firms have the most near-term potential, followed by IBM Consulting (NYSE: IBM), which can lean into its technology legacy (think: Watson).

  • On the second track, GenAI could be highly disruptive, especially around managed services, to include changes to the staffing pyramid, as less experienced employees either shift to higher-value tasks or leave. Of course, if you get rid of the bottom of the pyramid, how will you staff and grow at the top? Does GenAI change the number of new college graduates recruited every year into the always-growing headcounts of the largest IT services vendors? If demand for IT services accelerates, fueled in part by GenAI, how will vendors react in terms of hiring and staffing?
  • In addition to internal challenges, IT services vendors may begin facing competitive threats from “born-on-AI” companies that can disrupt enterprises and their business processes across the entire technology stack. Will the smartest IT services vendors and consultancies invest in incubating born-on-AI practices to cannibalize themselves before a competitor does?


As with all the discussion around GenAI, TBR has more questions than answers. One calming note with respect to GenAI and the threat to IT services professionals across the entire staffing pyramid: For years, Tata Consultancy Services has had software that writes code, but the vendor still hires tens of thousands of people and is the second largest vendor, in terms of headcount, in TBR’s IT Services Vendor Benchmark. If GenAI is going to massively displace IT services talent, it will not happen in 2023. Or 2024. Maybe.

Two Mini Trends: From Transformation to Optimization (aka, Digital Gets Boring), and Sustainability Slows but Is Not Going Away

Digital transformation was fun: big ideas, disruption, every company a technology company, agile, innovation, design thinking. But now buyers have more defined needs and therefore no longer need unlimited spurt-like-crazy digital transformations. Buyers want to iterate and optimize what they have, not get excited about the art of the possible or the next big disruption (aside from GenAI, of course, for the moment).


With more cautious IT services and consulting buyers, the vendors now have greater openings for FinOps, which happens to open the door wider for value-added resellers seeking to expand into broader IT services. In this changed market, vendors also need to be more strategic around bringing new technology to clients that are a little wary of being sold new toys (or sold more cloud, which they are already getting tired of paying for).


If new technologies need to be sold cautiously, vendors need to manage their skill sets and not become over-stuffed with data engineers, solution architects and design thinkers whom they cannot deploy. The COVID-19 pandemic supposedly compressed three years of digital transformation into three months. If that is true, businesses now want to just run their business and leverage their IT infrastructure and not transform again so soon.


On sustainability, TBR’s Digital Transformation: Voice of the Customer Research and the annual Decarbonization Market Landscape show that enterprises have already budgeted for sustainability in 2023 and will still spend on consulting and IT services, although likely at a reduced pace. At the same time, IT services vendors and consultancies that built sustainability practices will continue to run them, although likely with less funding and enthusiasm, at least in the near term.


What might emerge over the end of 2023 and into 2024 is significant disruption from smaller consultancies providing specialized sustainability engagements and delivering credible results at rates cheaper than the Big Four and other consulting-heavy IT services vendors. Sustainability may, for a time, devolve into pockets of niche offerings, profitable only to those consultancies focused entirely on specialized services.

IBM Consulting Works with Ecosystem Partners to Drive Transformation Through Hybrid Cloud and AI

IBM Consulting welcomed the analyst community to its Innovation Studio in London’s South Bank district to provide an update on its global strategy and business expansion in the Europe, Middle East and Africa (EMEA) region. Inviting clients and ecosystem partners to the event, such as the U.K.’s Ministry of Defence and Microsoft, to share experiences and success stories increased IBM Consulting’s credibility.

IBM Consulting Is on a Profitable Growth Trajectory, Utilizing Data and AI to Address Business Challenges and Building Hybrid and Multicloud Solutions

Neil McCormack, IBM Consulting managing partner, EMEA, opened the event by saying that the company, together with its strategic partners, helps clients transform at the intersection of business and technology. IBM Consulting utilizes its professional services and hybrid cloud and AI solutions, along with partner ecosystems, to deliver large-scale digital transformation projects that yield quick ROI and target cost takeout and productivity improvement. IBM Consulting has been on a positive trajectory, with revenue growing year-to-year since 1Q21 and reported operating margin improving year-to-year over the past three consecutive quarters. Moving security services from IBM Software into IBM Consulting reinforces IBM Consulting’s organizational structure and portfolio, enabling it to deliver services while securing clients’ hybrid cloud and AI models.


The buyer decision cycle is lengthening, especially for consulting services, which will challenge IBM Consulting’s revenue growth in 2023, despite the expansion of run-the-business managed services opportunities. However, TBR expects revenue growth year-to-year will remain positive — in the midsingle digits in U.S. dollars — driven by IBM Consulting’s ability to utilize data and AI to address complex business challenges and build hybrid and multicloud solutions and platforms. TBR expects IBM Consulting’s revenue growth will be driven by continued activities with clients around digital transformation, application modernization, workflow optimization and automation, and the creation of flexible and secure hybrid cloud environments.

The IT Services Industry Is Changing, Providing IBM Consulting With More Opportunities

According to McCormack, the IT services industry has been changing over the past 12 months and IBM Consulting is seeing a reemergence of large programs tied to the modernization of SAP (NYSE: SAP) solutions. IBM Consulting has a strong track record of working with SAP, including implementing more than 300 SAP S/4HANA projects in the past five years and working with more than 10,000 SAP customers over 50 years to deliver and run their SAP systems.
McCormack also shared that demand for hyperscaler skills is strong, which will create opportunities for IBM Consulting as the company has approximately 83,000 strategic partnership certifications across Amazon Web Services (AWS) (Nasdaq: AMZN), Microsoft, Google Cloud (Nasdaq: GOOGL), Adobe (Nasdaq: ADBE), Oracle (NYSE: ORCL), Salesforce (NYSE: CRM), SAP and Workday (Nasdaq: WDAY) (TBR includes IBM in the Digital Transformation: Cloud Ecosystems Market Landscape report). While digital transformation continues to drive clients’ investments, such as in the public sector, the return of big strategic outsourcing deals and business services is a notable shift in the industry.

IBM Consulting Is Augmenting Its Partner Ecosystem to Increase Solution Value

IBM continues to shift from being a historically closed company that largely relied on IBM technology products and solutions to being a company that is much more open to partnerships. IBM pursues strategic partnerships; furthers its engagement with existing partners, such as Microsoft and SAP; and proactively moves toward joint go-to-market models.
IBM Consulting invited Ralph Haupter, president, EMEA at Microsoft, to the analyst summit for a strategic partner fireside chat to provide insights into the two companies’ relationship. Microsoft and IBM Consulting work across multiple capability areas such as providing consulting services; building cloud-native, migration and modernization services for the Azure Kubernetes Service; collaborating with Microsoft and SAP to offer support and services to simplify clients’ move to S/4HANA; delivering Microsoft Dynamics 365 Industry Solutions across the banking, insurance, agriculture and public sectors; and supplying enterprise-grade cloud security services.
During the event Haupter highlighted notable traits of the partnership, including that IBM Consulting and Microsoft invest jointly in initiatives, show up together when working with clients, understand challenges, drive demand around value, and establish trust and commitment levels. Haupter also noted that IBM Consulting’s solid partnership skills and systems integration capabilities make a difference and that IBM Consulting’s user experience and industry knowledge benefit the partners’ symbiotic approach.
IBM Consulting has approximately 40,000 Microsoft Azure certifications, which enables it to address demand across areas such as security, data and AI, business applications, and infrastructure. In August IBM Consulting expanded its relationship with Microsoft to accelerate generative AI (GenAI) adoption. The new IBM Consulting Azure OpenAI Service is a managed AI service that is available on the Azure Marketplace and enables developers and data scientists to apply large language models, such as OpenAI’s GPT and Codex series, to their work.

Developing GenAI Capabilities and Utilizing a Client-first Approach Improve IBM Consulting’s Business Transformation Expertise

During the analyst summit, Chris Hay, an IBM distinguished engineer, showcased multiple GenAI use cases that highlight IBM Consulting’s activities and opportunities in the segment. For example, GenAI can be used to summarize large volumes of data, such as call center interactions, analyst articles and financial reports. It can also be used to provide conversational knowledge, such as by interacting with knowledge from data sets and gaining insights to drive market research and marketing activities; create content, such as in marketing and in collaboration with Adobe; and develop code for applications to improve speed and create efficiencies.


GenAI, which IBM sees as a solution that augments but does not replace human intelligence, provides IBM Consulting with opportunities such as helping clients transform business models, improve productivity, create new experiences and connect service delivery; however, these efforts must be aligned internally to drive change. With approximately 21,000 skilled data and AI practitioners, IBM Consulting can support clients by taking a client-first approach in consulting and driving collaborative transformations, utilizing the IBM Garage for GenAI methods that involve use case ideation as well as open, domain-specific and multimodal approaches to architecture selection and training.
In addition to utilizing the IBM watsonx solution, IBM partners with Adobe, AWS, Microsoft, Salesforce and SAP to transform businesses across industries through GenAI solutions. In May IBM Consulting opened a Center of Excellence (CoE) for generative AI that is part of IBM’s existing global AI and Automation practice. The CoE houses more than 1,000 consultants specialized in GenAI who will help clients adopt the technology along with IBM watsonx, IBM’s AI and data platform, as well as technology from Microsoft and other ecosystem partners.

Delivering Business Value Through Industry Expertise Strengthens IBM Consulting’s Competitive Position

During the event IBM Consulting shared that it is making its industry expertise central to its go-to-market approach. Approximately 50% of IBM Consulting’s employees are industry specialists and interact with skilled professionals such as in data and AI, enterprise strategy and business design, process change, cloud, and enterprise application, as well as with strategic partners to deliver business value through digital transformations.


IBM Consulting showcased its industry transformation capabilities through examples from multiple clients, including the U.K.’s Ministry of Defence (MoD). In 2018 IBM Consulting won an £80 million (or $103 million in U.S. dollars) deal with the ministry to develop and implement a scalable Air Command and Control System called Guardian. The system, which is now operational, securely integrates radar devices, radios and tactical data links from across the U.K. with NATO data to defend the U.K.’s and NATO’s airspace from air threats.
According to the MoD’s representative, Group Captain John “JB” Booth, Commander Battlespace Management Operations, IBM’s relationship with the Royal Air Force dates back 25 years, underscoring the company’s ability to develop strong ties with clients and offer technology solutions from multiple partners, avoiding vendor lock-in, which the MoD sees as a challenge when collaborating with defense prime contractors.
For example, Guardian’s core computer systems, voice computer systems and data tracker systems were provided by three vendors, including IBM. IBM utilized design thinking during the development of the system, taking into consideration requirements from public procurement and fine-tuning the system in consultation with the client to address specific needs.
Notably, the MoD representative commented on IBM’s openness to being challenged, saying the ministry and IBM have a “consensus-based relationship where we challenge them and they challenge us, and others [defense prime contractors] are less open to such relationships.” Showcasing capabilities, such as by inviting representatives from the militaries of NATO member countries Australia and Ireland to see the Guardian system in action and discuss pros and cons of the system, solidifies IBM’s industry and transformational expertise.


IT modernization in the public sector is prevalent across Europe and North America, and IBM can capture opportunities utilizing its technology and industry expertise and history of working with clients across the two continents. According to TBR’s 1Q23 Federal IT Services Benchmark, “Defense agencies are increasingly integrating open-architecture edge and cloud-based platforms, built using DevSecOps principles … into new mission-critical operations systems …. Scaling IT modernization and security (specifically using zero-trust data protection frameworks) agencywide remains the core of technology investment priorities at civilian, defense and intelligence agencies alike and the foundation for the eventual operationalization of analytics, AI and other emerging technologies that will digitally transform agency operations, citizen services, intelligence gathering and analysis, and warfighting operations.”


IBM Consulting’s high-value hybrid cloud and AI services resonate with price-sensitive clients, opening new opportunities and offsetting the negative effects of tightened discretionary spending in areas like the U.S. Continued investments in hybrid cloud, industry specialization and ecosystem expansion will enable IBM Consulting to achieve revenue growth in the midsingle digits in 2023, despite unfavorable macroeconomic trends.
IBM had a productive summer, announcing the acquisition of Agyla SAS, a France-based cloud professional services company. The acquisition expands IBM Consulting’s hybrid multicloud services and local expertise for clients in France around building, deploying and running mission-critical infrastructure and applications on hybrid cloud.
Also in June, IBM announced the acquisition of Apptio, a provider of financial and operational IT management and optimization software, for $4.6 billion. The acquisition, which is fully software-related, will drive synergies across IBM’s businesses, including IBM Consulting, and IBM’s partnerships with systems integrators such as Accenture (NYSE: ACN), Deloitte, KPMG and EY, which are also members of Apptio’s ecosystem.


TBR will continue to analyze IBM Consulting’s performance, and our next IBM earnings report, publishing in October, will review the company’s 3Q23 financials.

Ericsson Will Have to Make Strategy and Go-to-market Adjustments to Achieve Critical Mass in Enterprise Domain

Ericsson (Nasdaq: ERIC) hosted Ericsson Enterprise Industry Analyst Day in Boston to discuss strategy and portfolio updates in its Enterprise business unit (BU). The event kicked off with Ericsson’s Global CTO Erik Ekudden providing a strategy overview of Ericsson’s Enterprise BU, which includes the company’s Wireless WAN (Cradlepoint), Private Networks (which includes Ericsson Private 5G and Cradlepoint-provided NetCloud Private Networks), and Cloud Communications & Network APIs (Vonage) subunits. Following Ekudden’s overview, leaders from each of the subunits provided deeper dives into their respective business areas. Peter Linder, head of thought leadership in North America, also discussed key trends occurring in the U.S. and where the telecom industry is heading in the country.

TBR perspective

Ericsson’s Enterprise BU is exhibiting strong growth and serves as a bright spot amid the company’s broader challenge of operating in a post-peak RAN spend market environment. Ericsson has built a compelling 5G-related portfolio that builds solutions addressing the unique needs of enterprises ranging from small- and medium-sized businesses (SMBs) to large industrial entities. Ericsson also has a compelling story for Vonage and the global communications platform the company is building, though Vonage’s ability to achieve sustainable profitability remains uncertain.


Overall, TBR is confident that Ericsson will carve out and capitalize on a meaningful portion of the nascent private 5G opportunity but notes that the company needs to take disruptive peripheral trends more seriously. Specifically, TBR’s research indicates that hyperscalers are likely to move deeper into private networks and capitalize on the opportunity in network APIs as well as key growth areas such as Communications Platform as a Service (CPaaS). There is also a range of other disruptive players (e.g., Celona and Athonet, which is now owned by Hewlett Packard Enterprise [HPE] [NYSE: HPE]) that are vying to sell enterprises niche products and services pertaining to private networks. Additionally, the spectrum situation continues to evolve, and unlicensed and shared bands are likely to become a more disruptive force in the industry.

Impact and opportunities

Network application developer conundrum

Ericsson noted there is a worldwide dearth of application developers who understand the network enough to effectively leverage network APIs. This limitation needs to be addressed by vendors to unlock the value of the network. Ericsson aims to influence network-oriented app developers to address this issue via sponsorship programs in academia (e.g., hackathons, training programs) and by reskilling experienced workers.

Channel is critical for scaling adoption of private networks

Ericsson is almost exclusively leveraging partners to pursue enterprise opportunities, with communication service providers (CSPs) being one type of channel partner. Ericsson is focused on a multichannel approach, which includes consulting & system integrators (C&SIs), value-added resellers (VARs), and managed service providers (MSPs), in addition to CSPs. The channel partner route to market has become a necessity for vendors to profit from the private network opportunity. Though some vendors, like private cellular networks (PCN) market leader Nokia (NYSE: NOK), have achieved strong traction by selling directly to enterprises, this approach is unsustainable. Even Nokia is now trying to rely almost exclusively on the channel so that it can profitably scale.


With all of that said, TBR notes that Ericsson made little mention of C&SIs in its messaging about partners, with much more emphasis given to CSPs and other types of VARs. Given C&SI (aka global systems integrator [GSI]) firms are deeply entrenched with enterprises, this underemphasis or lack of strong focus is a limitation for Ericsson. Conversely, Nokia has established deep partnerships with a range of C&SI firms, such as Accenture (NYSE: ACN), Deloitte, EY and Kyndryl (NYSE: KD), for PCN opportunities, and these relationships are driving significant deal flow.


C&SI firms have been slowly moving away from vendor-agnostic strategies and more fully embracing joint go-to-market and sales efforts with their technology partners, in part because hyperscalers have demanded the change. Ericsson could ride that change wave and partner more closely with specific consultancies and SIs, using them as a gateway to enterprise buyers.

FWA in the U.S. remains underestimated and has huge potential

Though the U.S. government’s preference is to connect every premise across the nation with fiber, the financial reality is that the current round of stimulus programs (e.g., Broadband Equity, Access, and Deployment [BEAD]; Rural Digital Opportunity Fund [RDOF]; U.S. Department of Agriculture ReConnect; Tribal Broadband Connectivity Program) are not able to fully achieve this goal. TBR believes that 5G fixed wireless access (FWA) will ultimately be widely embraced as a viable alternative to fiber-to-the-premises (FTTP) as the technology can achieve the minimum speed requirements set forth by the U.S. government of 100Mbps download and 20Mbps upload.
5G FWA will be prioritized in more locations as a means to reduce lead time-to-market and cost-per-connected premise. When including unserved and underserved premises that would be excellent candidates for 5G FWA, TBR’s research suggests FWA has significant runway left in the U.S. market, greatly exceeding the modest subscriber targets put forth by incumbent CSPs like T-Mobile (Nasdaq: TMUS) and Verizon (NYSE: VZ). The spectrum problem will be mitigated over time by a mix of new technologies (e.g., carrier aggregation, massive MIMO, NR-U, extended range mmWave) and new or underutilized spectrum bands (especially unlicensed bands like 6GHz as well as mmWave, CBRS and the K-Band.

Telecom Industry Navigated Weakening Macro Backdrop Well in 1H23, but 2H23 and 2024 Will Likely be a More Challenging Situation

Despite holding up relatively well thus far in 2023, CSPs face significant challenges in managing their debt — the pressure is on to grow revenue and monetize their 5G investments

Cellular convergence with Wi-Fi needs to be taken more seriously in the industry

Most enterprises already use Wi-Fi and are unlikely to replace those systems with cellular technologies like 5G. Instead, swim lanes are forming whereby certain use cases and situations are best addressed by either Wi-Fi or cellular, but these access mediums must still coexist in an enterprise’s environment to bring the full benefit of IT-OT convergence and digital transformation. This convergence piece remains under-addressed by the ecosystem but represents a potentially massive opportunity. Ericsson, which has significant experience with Wi-Fi from past acquisitions (e.g., BelAir Networks) and R&D (e.g., Wi-Fi calling), can and should play a key role in convergence between cellular and Wi-Fi.


One of the biggest challenges to IT-OT convergence is not the technology but the people. At enterprises, IT and OT buyers are separate, with potentially divergent business priorities that sometimes compete for budget. Ericsson appears to understand that they need different selling motions for these buyers, even at the same enterprise — e.g., Wi-Fi-like experience and solutions for IT buyers; hardened network experience, and solutions for OT buyers. That understanding could be a successful way for Ericson to partner across the IT-OT ecosystem.

Vonage has interesting technology, strategy and vision but faces major threat from hyperscalers

TBR’s research indicates hyperscalers continue to encroach on the communication applications domain, the evolution of which will leverage network APIs. Examples of this are evident with the integration of Microsoft Teams (Nasdaq: MSFT) with Azure Communication Services, and hyperscaler development of super apps that blend social with commerce and other features into an integrated platform, similar to Tencent’s WeChat in China. Hyperscalers already have several billion users on their communication applications globally (e.g., WhatsApp, Instagram, Messenger [Nasdaq: META]; Teams; Google Meet and Google RCS [Nasdaq: GOOGL); iMessage [Nasdaq: AAPL]), which are all conduits to bring network API innovation to their install bases. Though Vonage currently has a compelling market position in the communication applications domain, the company could quickly be blindsided by hyperscaler moves, similar to what has occurred with Microsoft Teams taking significant market share from prior leader Cisco Webex (Nasdaq: CSCO) in the unified communications & collaboration (UC&C) domain.


Ericsson has compelling ideas and portfolio to address nascent opportunities in the private networks and network API domains, but TBR is skeptical the company will be able to build critical mass in these areas due to hyperscalers’ role, road maps and ambitions in the ecosystem. Ericsson’s primary customers, CSPs, also face this disruption, which has historical precedent in voice, text, linear TV, and other business areas that have been fundamentally disrupted by hyperscalers over the past two decades.


TBR believes further integration of the telecom industry into hyperscaler ecosystems is inevitable. Ericsson and its partners are encouraged to think more about focusing on niche areas where hyperscalers cannot or will not play and/or integrating deeper with hyperscalers to achieve joint critical mass in a cooperative framework. If it chose to take both approaches, Ericsson could make itself indispensable, which typically comes from being trusted, dependable and easy to work with. Any company can bring the technology; Ericsson needs to become the best possible ecosystem partner, so every player in the ecosystem wants to partner with it.


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