Telecom Infrastructure Services Operating Margin Climbs as Shift to Maintenance Services Offsets U.S. Market Decline

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Shift to Maintenance Services Bolsters Telecom Infrastructure Services Margins Amid 5G Deployment Declines and U.S. Market Contraction

Despite India growing within the telecom infrastructure service revenue mix and the U.S. declining, TBR-benchmarked vendors’ average telecom infrastructure services operating margin increased 20 basis points year-to-year to 14.2% in 2023. TBR attributes the increase in large part to a shift in the telecom infrastructure services revenue mix from deployment services, which typically carry the lowest margins, to maintenance services, which tend to carry the highest margins among telecom infrastructure services segments.

 

The shift in business mix comes as communication service providers (CSPs) wind down their 5G coverage rollouts in the key countries of China, the U.S. and India and focus on densification. In late 2023 and 1H24, declining deployment activity in India is also helping to improve profitability as margins in the country can be relatively low. The 5G gear that vendors have built out in these and other countries in the past few years is leading to follow-on support revenue, which will enable maintenance services to be a relatively strong-performing segment among TBR-benchmarked vendors despite global decommissioning of legacy infrastructure.

Graph: Telecom Infrastructure Services Revenue and Margins for 2023

Telecom Infrastructure Services Operating Margin Insights

Leading Vendors Remain Those with Large Bases of Hardware or Software Support Subscriptions and Those that Rely Heavily on India-based Labor

Operating margin leaders derive a smaller percentage of telecom infrastructure services revenue from deployment services, which are often provided at or below break-even margins and/or delivered by third parties. Leaders provide a high degree of support, including repeatable and remote services as well as consulting & systems integration services.

 

Automation, analytics, AI and machine learning will prove critical to helping vendors improve margins. Examples include portions of Nokia’s AVA (Analytics, Virtualization and Automation) portfolio and Ericsson’s Operations Engine. However, with a significant portion of revenue coming from deployment services, RAN-centric vendors will be unable to expand overall telecom infrastructure services margins significantly.

 

India-based IT firms such as Tata Consultancy Services and Infosys obtain high telecom infrastructure services margins due to favorable labor rate differentials between India and developed markets as well as the high degree of application development and maintenance services they provide to CSPs in developed markets. With over 40% of its workforce based in India, Accenture also benefits from this market dynamic.

 

Other IT services firms, such as Atos, have a smaller offshore workforce (about 32% based in India) and obtain lower margins as a result.

 

To access TBR’s historical and current telecom infrastructure gross margin data, start your free Insight Center™ trial today.

TBR Makes Recent Insights Live Sessions, Including Key Discussions on GenAI Adoption, Partnering and Purchasing Trends, Publicly Available

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Technology Business Research, Inc. (TBR) is pleased to announce on-demand availability of all of our 3Q24 webinars. Topics discussed this quarter include AI’s impact on IT infrastructure purchasing trends, next-generation AI PCs, generative AI (GenAI) adoption in the telecom industry, the current state of the federal IT market, and partnering best practices in the era of GenAI.
 

Click the TBR Insights Live title to download the full presentation deck. On-demand video of each webinar can be viewed by clicking the image below each listing.

3Q 2024 TBR Insights Live Sessions

How AI Is Shaping IT Infrastructure Purchasing Trends in 2024

Learn: The ways marketwide AI enthusiasm has shifted mindsets in the midmarket and enterprise space; IT infrastructure buyers’ expectations for AI investment, including on-premises versus cloud versus hybrid; and which other top trends are influencing IT infrastructure purchasers’ spending plans

 

Next-generation AI PCs: What It May Mean for the Next Refresh Cycle

Learn: AI PC impact on demand; TBR’s perspective on the next major PC refresh cycle; AI PC impact on future Windows PC OEM profitability; and expectations for Intel, ADM and Qualcomm’s fight for share in the emerging Copilot+ PC category

 

GenAI Shift from Hype to Reality Begins: How the Telecom Industry Will be Impacted

Learn: Current state of GenAI adoption; how AI models will likely be leveraged; and the kind of use cases and business outcomes the industry can expect from AI and GenAI

 

State of the Federal IT Market: Continued Opportunities Amid Slowing Growth

Learn: Drivers behind overall federal IT market growth; top trends in civilian, defense and intelligence sectors; and how TBR-tracked federal systems integrators are positioning for federal FY2025

 

How to Think as a Partner in the Era of GenAI

Learn: What OEMs, cloud providers and service providers believe is missing in their partnerships with one another; preferred commercial, staffing and go-to-market models among the partner groups; and GenAI’s impact on partner groups’ business models and future joint opportunities

TBR Insights Live sessions are held typically on Thursdays at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. A recording of the session is sent to all registrants the day after the live airing.

 

To find out what we are discussing in the upcoming months, visit the TBR Insights Live page of our website.

How IT Services Companies Are Preparing to Capture Surge of Local Opportunities in India

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In this blog, we explore how global companies in ICT are shifting focus from outsourcing to tapping into India’s domestic market due to its rapid growth. To learn more about the next era of India’s economic growth, join TBR for a live discussion and Q&A Thursday, Oct. 31. Join TBR’s Professional Services team as they highlight whether local IT services vendors can capture opportunities from the Big Four, which vendors will lead the market overall and more. Save your seat today!

Global Companies Across ICT Industry Are Positioning for an Increase in Local Opportunities in India’s IT Services Market

As India’s growth has outpaced that of all other major countries for the better part of the last decade, global companies are shifting their focus in India from only outsourcing to realizing the country’s domestic market potential. India-based IT services vendors have seen a significant increase in domestic projects, particularly in 2Q24. For example, Tata Consultancy Services’ (TCS) domestic revenue increased 59% year-to-year and 14.1% sequentially, while Infosys’ increased 17.1% year-to-year and 45.5% sequentially.

 

According to TBR’s Spring 2024 Global Delivery Benchmark, “We expect India to gradually expand its global economic profile, attracting vendors from across the ICT industry to invest and position themselves for locally sourced opportunities.” As always, our analysis starts with the strategies, investments and performances of leading IT services companies and consultancies.

 

This year, Capgemini and Cisco have increased their reach with India-based clients. Capgemini has accelerated its hiring pace in India to support domestic IT services demand growth. HCLTech partnered with KPMG to combine its technology services with the consulting firm’s business expertise to meet India-based client demand for digital transformation projects. Additionally, Kyndryl has signed a deal with Canara Bank in India, while Wipro also has recent domestic deals with Anna University and Rajalakshmi Institutes.

 

In addition to the rising need for IT services in India to serve the local economy, a key driver of the trade interest in India is the desire to reduce dependence on China while geopolitical hostilities are on the rise. Although both demand and interest in trade in India are growing, India’s infrastructure and income disparity consistently remain limiting factors to India’s growth.

Infrastructure Challenges and Investment

Amid growing trade, India’s current transportation networks are often too small and in poor condition. India’s roadways lack the amount of space needed to keep traffic consistently flowing, resulting in gridlock and high transit time and restricting operational efficiency in the economy.

 

Additionally, road damage due to flooding and washout is frequent during the monsoon season, as is damage to other infrastructure. Simply put, India is growing faster than its infrastructure can reasonably withstand, even with extensive infrastructure spending. India’s digital infrastructure also has some challenges, as evidenced by internet shutdowns, including one in Manipur following anti-government protests that blocked internet access for 212 days, affecting 3.2 million people.

 

Since 2015 the government of India has worked to build more robust digital infrastructure to benefit all populations with the Digital India initiative. In 2016, the government launched the Unified Payments Interface (UPI), a digital payments solution for interbank and person-to-person payments, providing security for transactions in the informal economy. The International Monetary Fund (IMF) reports over 8 billion transactions occurred each month in 2022, transforming an economy that had primarily relied on cash. JM Financial, an investment bank in India, estimated before the release of UPI that over 95% of transactions were completed in cash.

 

Perhaps equally transformative is the digital ID system, Aadhaar. Upon Aadhaar’s release in 2009, one in eight citizens had verifiable identification. Verifiable identification improved access to financial institutions, with the percentage of India citizens with a bank account growing from 25% to over 80% currently. The IMF states that, “India’s digital public infrastructure, built within the regulatory system, has enabled its citizens to achieve access to the formal economy through a verifiable digital identity; participation in the nationwide marketplace through a fast payment system; and secure welfare gains in finance, health, and commerce through data empowerment and data sharing.”

IT Services Vendors’ Investment

IT services vendors have also seen the value in professional training and development. Vendors have increased investment in talent and innovation in the local Indian market, especially through centers of excellence (CoEs) in 2Q24.

 

Capgemini has established a CoE in Uttar Pradesh with the Noida Special Economic Zone to develop skills in AI, machine learning, financial technology and robotics for unemployed adults and youths in need. Likewise, IBM launched a CoE with LTIMindtree in India to foster innovation between IBM’s watsonx and LTIMindtree’s engineering skills. At the same time, IBM is working with India’s Ministry of Electronics and Information Technology around innovation in AI, semiconductors and quantum technologies. Infosys partnered with the Financial Times to provide training to India’s youth by utilizing the newspaper’s content and the Infosys Springboard platform.

 

Based on TBR’s ongoing analysis of the IT services and consulting market, we anticipate the companies that will outperform peers in the local Indian market will share three characteristics: working closely with government initiatives, investing in talent and innovation in India, and bringing new technologies to India’s market quickly. Over the next year, TBR will publish special reports about the leading IT services companies and consultancies as they take advantage of — or miss the opportunities in — a changing India market.

Monetizing GenAI: Cloud Vendors’ Investment Strategies and 2025 Outlook

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Watch Now: Cloud Vendors’ Investment Strategies and 2025 Outlook

 

How Will Cloud Vendors Navigate GenAI Investment and Monetization Challenges?

Cloud vendors are on the front lines of the generative AI (GenAI) business opportunity. These vendors have been rushed to invest ahead of competitors, and as a result, they are forced to figure out the right model(s) to monetize the new capabilities.

 

After more than a year of GenAI hype, TBR is beginning to see clear investment trajectories and various formulas among vendors on how best to price GenAI solutions across infrastructure and applications spaces.

 

In this TBR Insights Live session, TBR’s Cloud team — Principal Analyst & Practice Manager Allan Krans, Senior Analyst Catie Merrill, Analyst Alex Demeule and Research Analyst Gunnar Tache — gives a deep dive on AI’s impact on the cloud industry. The team also highlights key findings from TBR’s newest cloud research report, AI & GenAI Model Provider Market Landscape, including examples of technology companies’ activities in 2024 as well as what to expect across the GenAI landscape in 2025.
 

In The Above TBR Insights Live Session on AI’s Impact on Cloud You’ll Learn:

  • The investments cloud vendors are making in their infrastructure, partnerships and portfolios
  • The business models that enable vendors to best monetize GenAI technologies
  • TBR’s early projections for industry changes in 2025

Watch Now

 

Customers are prioritizing data strategy, and cloud providers see big opportunities for partners to engage

Cloud vendors believe data strategy & management present the biggest growth opportunities from partners.
 
“The biggest [transformation] underway is our, basically, data services. And so we have been looking at traditional data services where we have a large amount of data, which is in a data warehouse on prem, and then processing of the data. Now a large amount of this transformation is going to go to data lakes, which again, we are working with Amazon and Azure. So, these are both Amazon as well as Azure, and basically creating, using Kafka, Spark and Hadoop, creating data services, which will be then [be] consumed throughout the company.” — Global Technology Director, Financial Services

Example of TBR's cloud partnerships research and data
 
TBR Insights Live sessions are 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.

GenAI Use Cases: Where Enterprises Are Investing Now and What’s Next for Multimodal AI

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Generative AI (GenAI) clients are looking for offerings that complement existing technologies and use cases built around customer zero and that deliver fast ROI. In this blog, we highlight some of the GenAI use cases currently seen in the professional and IT services, cloud, IT infrastructure, and telecom industries. To learn more about TBR’s AI and GenAI analysis and data, start your TBR Insight Center™ free trial today!

 

Perhaps no two questions have bedeviled the business side of the GenAI space more than which use cases are resonating with clients and where TBR and others expect to see near-term adoption and growth.

 

According to TBR’s research, use cases that provide a quick ROI with minimal enterprisewide disruption and no significant increase in risk profile get funded now; use cases with demands on data, dependencies on external data and/or long horizons to ROI remain the subjects of innovation sessions, proofs of concepts and road maps.

As Multimodal AI Extends GenAI’s Promise, Buyers Still Seek Immediately Effective Use Cases

Different from traditional large language models (LLMs), multimodal AI can process and interpret several types of data inputs, including text, images and sounds, at the same time. This versatility makes multimodal models critical for expanding the viable use cases for GenAI, specifically to support the creation of marketing content.

 

According to TBR’s latest research, multimodal AI is currently a top five use case for GenAI. Cloud service providers and foundation model vendors alike have made efforts to internally develop multimodal models or form collaborations to harness GenAI’s data interpretation capabilities. TBR believes cloud service providers and foundation model vendors will drive innovation of multimodal models to improve data interpretation and insights across all business segments.
 
Graph: Use Cases GenAI Is Currently Best Suited For (2H23)

GenAI Use Cases Across Industries

Professional and IT Services GenAI Use Cases

  • In February 2024 Cisco launched Motific, a SaaS solution that enables adoption and application of GenAI in support of clients’ needs around data, security, AI and overall cost reduction. Through Motific, Cisco speeds up GenAI deployment while using automated controls to reduce the risks associated with the technologies. Leaning on its security prowess, Cisco applies its risk management tools, sensitive data capabilities and monitoring services to protect clients’ environments.
  • Hewlett Packard Enterprise (HPE) introduced HPE GreenLake for LLMs, a cloud service that provisions AI-optimized high-performance computing resources designed for dedicated single-workload utilization, setting itself apart from public cloud resources that share infrastructure and run multiple workloads.
  • Through its partnership with ServiceNow, EY looks to apply GenAI to risk management and governance. In June 2024 EY adopted ServiceNow’s Assist GenAI capabilities to facilitate its internal operations as well as drive innovation in AI risk and regulatory compliance needs.
  • Some ongoing Leidos AI initiatives include helping the Department of Defense make training and other materials more easily accessible and improving the efficiency of new software testing using digital twinning solutions. GenAI also increasingly features in Leidos’ digital transformation work, as the company utilizes the technology to expedite the mapping of legacy IT infrastructures, which in turn accelerates downstream systems modernization. Leidos has also developed AI-based natural language solutions enabling military operators to interact more easily with autonomous drones deployed in contested environments.
  • Infosys launched the Responsible AI suite, which includes accelerators across three main areas: Scan (identifying AI risk), Shield (building technical guardrails) and Steer (providing AI governance consulting). These capabilities will help Infosys strengthen ecosystem trust via the Responsible AI Coalition as well as foundation models and emerging startups. These models and startups are increasingly important among clients, many of which are reaching a point of fatigue and confusion amid a slew of GenAI-related announcements.

Cloud GenAI Use Cases

  • Staying true to its history of releasing nascent services to the market and building them up into more feature-rich offerings over time, Amazon Web Services (AWS) recently launched new capabilities for Bedrock. For example, Custom Model Import allows customers to automatically pull entire Bedrock models they have already customized, likely with SageMaker, into the Bedrock interface. This allows customers to access their own custom model through the Bedrock API interface like they would with any other model from third parties, such as Anthropic and Cohere. The feature, in addition to other built-in tools native to Bedrock, reaffirms AWS’ commitment to making the service the best place to not only access out-of-the-box models but also customize them and develop applications that will ultimately spin the IaaS meter on AWS infrastructure.​
  • Google Cloud is putting Gemini to work, embedding the LLM into core Google Cloud Platform (GCP) products, from BigQuery for analytics use cases like data preparation and query recommendation to Looker for conversational analytics and automated BI. With these features and capabilities, Gemini is now at the heart of Google Cloud’s portfolio and replaces the existing Duet AI tool, which Google Cloud touted as its “always-on AI collaborator” in both GCP and Workspace just a few months ago. Google Cloud’s rapid transition from Duet AI to Gemini speaks to how quickly the GenAI space is evolving, as new vendors enter the market with out-of-the-box LLMs and incumbents expand context windows to make models more powerful and capable of handling more complex tasks.

IT Infrastructure GenAI Use Cases

  • Dell Technologies and Supermicro have seen rapid growth with their 8-GPU servers certified on NVIDIA’s HGX platform and continue to add new liquid cooling options, networking choices and accelerator variants. In recognizing the opportunity in this market segment, Lenovo recently announced its first competing server.
  • HPE’s AI server strategy primarily revolves around its Cray supercomputers and delivering solutions through its flagship HPE GreenLake platform, although the company has also rolled out a smaller validated server stack with NVIDIA.
  • IBM is incorporating AI into its mainframe business through its Telum processor and close integrations with the watsonx platform.

Telecom GenAI Use Cases

The telecom industry is contemplating hundreds of use cases for GenAI, including those that are an evolution of traditional AI, such as chatbots.

Customer care:

  • Chatbots (intelligent versus static) to handle higher-level customer issues
  • Bill explainer
  • Dynamic, contextualized prompts for care agents
  • Foreign language support
  • Truck route optimization

Administrative functions:

  • Meeting transcription — notes/summarization
  • Legal document creation
  • Corporate document querying

IT:

  • Code development
  • Advanced threat detection and autonomous rectification

Sales:

  • First pass at creating proposals
  • Dynamic, contextualized prompts for salespeople
  • Offer customization and personalization

Marketing:

  • First pass at creating marketing materials

Network:

  • Code development
  • Performance monitoring
  • Advanced alarm management

 

$130+ Billion Emerging India Opportunity – India-centric vs. Global IT Services Firms: Who Wins and Why

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Watch Now: $130+ Billion Emerging India Opportunity: Who Wins and Why

 

IT Services and Consulting Aim to Succeed in the Next Era of India’s Economic Growth

While management consultancies and IT services companies have long provided their global clients with India-based resources, a surge of growth in the country’s economy over the last couple of years is causing them to shift their strategy to provide new consulting and IT services to their India-based clients.

 

The Big Four — Deloitte, EY, KPMG and PwC — are betting on India becoming the home of their fourth, or possibly even third, largest member firms. However, India-based IT services behemoths like Infosys and Tata Consultancy Services believe their entrenched market presence and strengths afford them an advantage among local clients for IT services.

 

In this TBR Insighs Live session, Principal Analyst Patrick M. Heffernan, Senior Analyst Kelly Lesiczka and Research Analyst Jill Cookingham discuss expectations for the next era of India’s economic growth. The team looks at whether local IT services vendors can really capture those opportunities from the Big Four and which vendors our research shows will lead the market overall.
 

 

In The Above TBR Insights Live Session on Consulting and IT Services in India You’ll Learn:

  • The strategies, investments and internal activities global management consultancies and global systems integrators have leveraged to address the local Indian market
  • The market minefields and systemic challenges that may slow growth in consulting and IT services
  • The consultancies and IT services companies TBR believes will lead and lag in the market

 

Watch Now

 

Excerpt from $130+ Billion Emerging India Opportunity – India-centric vs. Global IT Services Firms: Who Wins and Why

Vendors Are Pivoting from Offshore Outsourcing to Capturing Onshore Opportunity

  • Hiring and training patterns in the local market
  • Localized innovation in India
  • Partnerships guide portfolio expansion

Example of TBR's offshore consulting research
 
TBR Insights Live sessions are 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.

What to Expect: Cloud Provider Market Share Through 2027

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Hyperscalers, Traditional Software Players and Consulting Firms Drive Hybrid Multicloud Adoption Amid Shifting Market Priorities

Cloud Providers’ Market Share Projections

Over the next five years, TBR expects to see incremental strengthening of the professional services capabilities of hyperscalers, including Amazon Web Services (AWS), Microsoft and Google Cloud, as well as traditional software players, such as Oracle and SAP. However, professional services companies such as Deloitte and Accenture, along with India-centric players, have demonstrated their ability to scale vast talent benches to serve clients and act as go-to partners for the biggest cloud vendors.
 
Graph: Cloud Professional Services Leaders 2027

Cloud Segment Forecast

Modern IT environments are increasingly relying on hybrid multicloud technologies and cloud-native applications to manage data streams, expanding professional services vendors’ importance in the market. Automation continues to threaten aspects of some segments, such as infrastructure management, but new opportunities will arise with the continual development of emerging technologies.

Cloud Providers’ Geographic Focus

As the U.S. cloud market matures, price is becoming less of a determining factor in enterprise cloud migration decisions. In many cases, customers are willing to pay a premium to get the best business outcome. In line with Western European regulations and the increasing value governments are placing on data sovereignty, cloud vendors are adjusting their go-to-market strategies to lead with localized talent and providing managed services through dedicated cloud regions that offer additional security protocols.

Cloud Market Share Expectations Through 2027

Accenture Is Expected to Continue Its Cloud Dominance, Growing Its Leadership Position Over the Next 5 Years

Accenture’s acquisition strategy has been critical to bolstering the company’s headcount with skilled cloud talent and has helped enhance its cloud business groups and the Accenture Cloud First unit. Further, leveraging inorganic assets will allow Accenture to upsell and cross-sell its consulting and IT services offerings, stimulating revenue growth. For IBM, acquisition candidates primarily consist of companies that specialize in cloud and AI capabilities, as well as industry and niche consulting experts who can support the expansion of IBM Consulting with more software and technical services.

 

Professional service providers continually expand their cloud portfolios through solution development to target cloud opportunities. For example, Cisco invested in technologies to bolster Cisco Customer Experience’s ability to support the adoption of security, cloud, analytics and IoT solutions. India-centric vendors are investing in high-demand solutions and skill sets such as AI, security and engineering to innovate within their cloud portfolios, such as Wipro FullStride Cloud Services and Infosys Cobalt.

 

To access all available cloud data and analysis, start your free Insight Center™ trial today.

Oracle’s Path to $100B+: Unlocking Growth with Multicloud Strategy

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Oracle Is Charting a Path for Unprecedented Growth with Its ‘Infrastructure Anywhere’ Vision

Oracle has among the most complete, full-stack cloud portfolios, from infrastructure to database to applications. While Oracle Cloud World 2024 covered a sizable landscape, one theme stuck out during the four-day event: deployment flexibility. This theme reflects how much Oracle has changed compared to 2016, when Gen2 OCI (Oracle Cloud Infrastructure) launched.

 

With multitenant OCI, Dedicated Regions, Cloud@Customer and Oracle Alloy, a specialized service where customers white label OCI services inside their own data centers, Oracle has quickly emerged as one of the most flexible, delivery-agnostic IaaS vendors on the market. Of course, the other big component of Oracle’s “infrastructure anywhere” vision is multicloud, in which customers can run Oracle databases as native services hosted in the data centers of Oracle’s biggest hyperscaler competitors.

 

Not only does this move reflect a major maturity leap for Oracle, in which Oracle cozies up to its rivals to better address the needs of the customer, but it is also critical to the company’s financial strategy. In addition to giving Oracle the flexibility to allocate more capex dollars toward strategic compute and storage resources as opposed to land and buildings, this strategy will help Oracle get its on-premises database support base to the cloud faster. In doing so, Oracle may forfeit lucrative support and license contracts, but the company reports that for every $1 in lost license and support gross profit it could realize as much as $5 in gross profit in the cloud, which is a testament to how quickly the cloud business is growing.

 

The multicloud strategy is also one of the reasons Oracle awed financial analysts not only by raising its FY26 revenue targets by $1 billion, to $66 billion, but also by setting a FY29 goal of $104 billion. This target, backed by Oracle’s $99 billion RPO (remaining performance obligation) balance, implies an average corporate revenue growth rate of roughly 16% over the next five years. This kind of growth was once unheard of for Oracle, but with cloud now overtaking support as the biggest business, Oracle is a different company, and the OCI growth trajectory instills a degree of optimism in Oracle’s ability to disrupt a highly saturated market in the years to come.

Announcing Oracle Database@AWS

Based on interactions at Cloud World, it is clear the Oracle Database@AWS announcement was the most noteworthy. In our view, given Oracle already launched Oracle Database@Azure, and more recently Oracle Database@Google Cloud, which is now live in four regions, it was only a question of when, not if, Amazon Web Services (AWS) would partner with Oracle.

 

With this announcement, Oracle officially saved the biggest hyperscaler for last, onboarding all the critical partners it needs to migrate legacy database customers and accelerate cloud revenue growth. In terms of how this alliance will work, it is no different than the approach Oracle takes with Microsoft Azure and Google Cloud; Oracle will deliver the hardware and networking inside AWS data centers so customers can provision Oracle database services natively from the AWS console and have the system run in AWS, just as it would if it was hosted in OCI.

 

The approach of physically embedding OCI within other clouds as opposed to just bolting Oracle Database on to other infrastructure through a standard interconnection is important as it will not only give customers the native AWS, Azure and Google Cloud Platform (GCP) experiences they are used to, but also limit latency as the Oracle Exadata hardware is physically located with the appropriate hyperscaler.

 

One could argue Oracle is taking a lot of risk with this strategy, as it is essentially bringing customers and their data closer to AWS, Azure and GCP. But in the age of mounting competition, not to mention generative AI (GenAI), it is a risk worth taking. As one customer at a major financial services firm recently told us, “The GenAI decision makers will not be the old world relational database experts,” and these alliances could help ensure Oracle stays relevant in cloud GenAI discussions by making it easier for customers to use the data within Oracle Database for RAG (retrieval augmented generation), to fine-tune foundation models and build new applications using tools many customers are likely already using, like Amazon SageMaker.

 

We should also point out the concept of data gravity. Customers leveraging these multicloud services will still be established Oracle Database customers with some Oracle SaaS presence, and therefore the bulk of their business data gravity will naturally reside within OCI. Those customers may still be inclined to keep their databases within OCI and not extend to other clouds, but with this strategy, Oracle is at least giving them the option to do so. We expect that these multicloud offerings will gain a lot of traction among Oracle Database customers that have big application footprints on other clouds.

Oracle Analytics Is the Glue Between IaaS and SaaS

Analytics, and the ability to turn data into business insight, is the ultimate objective for nearly every organization. With popular tools like Power BI and Tableau as well as neutral data platforms like Snowflake on the market, customers have a lot of choices when crafting the analytics stack.

 

But customers have also made it clear they want to limit the integration burden, and one of the compelling things about Oracle’s approach to analytics is how it can store customers’ operational data from Fusion applications in the Autonomous Data Warehouse (ADW) for analytics as part of a single SKU. This approach, productized as Fusion Data Intelligence (FDI), reinforces the value of Oracle playing in both the SaaS and IaaS markets and its ability to deliver a unified solution.

Evolving the Data Lake Strategy and Competing as a Unified Solution

Access to operational data in the Fusion suite will remain the hallmark differentiator for FDI, but it is on the infrastructure side where Oracle took a big leap forward with the launch of Intelligent Data Lake. Oracle has been elevating its data lake strategy and positioning for some time, but this announcement puts Oracle more squarely into the space.

 

At its core, Intelligent Data Lake is a reworking of existing OCI capabilities, such as cataloging and integration, to create a single abstraction layer that in true data lake fashion, allows customers to query data on object storage, such as Amazon S3 or Microsoft OneLake, with support for the popular Apache Iceberg and Delta Lake frameworks.

 

To be fair, with Fabric and BigLake, Microsoft and Google Cloud, respectively, have been similarly making advancements with the data lake architecture to better address analytics workloads. However, Oracle is not only adding the simplicity and performance benefits of the data lake but also delivering the architecture in a way in which customers can run the entire data pipeline and still have all the analytics components in a single SKU.

 

With Oracle’s launch of a native Salesforce integration with FDI, which allows customers to combine their CRM and Fusion data within the lakehouse architecture, Oracle’s vision of embedded clouds at the database layer is extending to analytics.

 

Though FDI’s draw will still be primarily with existing Oracle customers, the company is clearly taking steps to help combine Fusion with non-Fusion data and make its platform more relevant within the cloud ecosystem. While FDI may not rip and replace the analytics footprint within any particular account, we could see scenarios where FDI displaces some components of the stack, such as Snowflake at the infrastructure layer, or on the analytics side, PowerBI in Microsoft Fabric.

New Applications Are Being Built on the Analytics Stack

In general, scaling the existing platform components of Oracle Analytics is a top priority for the company, but there is another emerging piece of the analytics vision: Intelligent Applications. Coming soon, Oracle will offer applications — People Leader Workbench for HCM and Supply Chain Command Center for SCM — that sit on top of the Fusion system of record, within the FDI platform.

 

This approach should allow Oracle to target a broader set of personas. For example, in People Leader Workbench, it is not necessarily about reaching only the C-Suite but rather anyone who manages people and can benefit from data-driven insights on their people, and most notably, take action on that insight by connecting back to the Fusion HCM system of record.

What About GenAI?

GenAI has officially exited the hype cycle and is being widely deployed within the enterprise, but when it comes to analytics, capabilities like dashboarding, semantic models and visualization are still taking precedence It is still early, but customer feedback suggests that if data is properly configured and there are guardrails in place, GenAI in analytics has a lot of potential.
 

Dive into the complexities of vendor partnerships in this recent TBR Insights Live session — Click the image below to watch on demand today!

On-demand Video - TBR Insights Live webinar: How to Think as a Partner in the Era of GenAI

One of the key announcements at the event was the general availability of Analytics Cloud AI Assistant in Oracle Analytics Cloud (OAC), which is based on a large language model (LLM) so customers can ask questions about their data. Staying in line with the rest of the Oracle strategy, where GenAI is fully embedded into the portfolio and available to customers at no added cost, the analytics assistant will be available to OAC customers for free as part of their existing instances.

Speaking of SaaS and IaaS

From database alliances to the data lake architecture, Oracle has made many calculated moves at the PaaS layer to better compete for strategic workloads. But there are other innovations and key developments in the upper and lower rungs of Oracle’s cloud portfolio.

Oracle Targets Complete End-to-end Process Automation with AI Agents in Fusion Suite

Since it first entered the GenAI game in late 2023, Oracle stood out in the SaaS market for not upcharging customers for GenAI in their SaaS applications. This speaks to Oracle’s play at the IaaS layer with the OCI GenAI Service, which is native to the same infrastructure where all Oracle’s SaaS applications live.

 

Logically, this approach means that as Oracle’s LLM partners, which host in OCI, push the boundaries of their models, Fusion customers stand to benefit in not just using GenAI for basic assisted authoring and summarization use cases (e.g., writing a job description in Fusion HCM or summarizing customer calls in CX), but actually contextualizing data. In the long term, this could mean providing reasoning on that data to manage more complex workflows and deliver business recommendations.

 

At this time last year, Oracle announced 50 GenAI use cases in the SaaS suite. This year, the applications team announced the number of use cases has grown to over 100, while there are now more than 50 AI agents within the Fusion suite. This announcement marks a progression in how Oracle is moving from more generic prompt-and-response use cases in Fusion to actual contextualization use cases, by applying LLM-based RAG agents to address specific goals and roles within a particular business function. In Fusion HCM, this could include a benefits analyst agent, offering users the ability to ask questions, such as which health plan features are available, based on the enrollment data contained in Fusion HCM and the health plan document specific to the company.

 

But the most commonly cited example throughout the event was the Document IO agent in Fusion ERP, which can convert a picture of a quote in a particular currency into U.S. dollars and automatically create and load a purchase order (PO) within the system. With these AI agents, we see Oracle taking the next big step in addressing more complete process automation and productivity enhancements within its SaaS portfolio, and ultimately a shift in mindset where it is less about delivering an ERP system or an HCM system but more about completing end-to-end business process and experience.

OCI Strategy Centers on Growing Within the Large Enterprise and Attracting Cloud-natives

Oracle’s ability to offer among the most flexible cloud delivery methods is the focus of the OCI strategy and strategic road map, led by high-profile partnerships with AWS and others. But Oracle’s strategy is about being agnostic to not only where customers run OCI but also how they run OCI.

 

For example, at Cloud World Oracle announced Dedicated Region 25, a longtime investment and feat of engineering that essentially consolidates a standard Oracle Cloud region into just three racks, which we physically saw on the keynote stage. This configuration extends the value proposition of Dedicated Region, where customers can get the scale and economics of the public cloud inside their own data centers.

 

Dedicated Region 25 could also play a big role in helping Oracle reach new customers. Oracle’s multicloud alliances will undoubtedly be appealing to the large enterprise customer base, but offerings like Dedicated Region 25 could help Oracle attract cloud-native and AI companies looking for a more compact footprint that can still scale to support critical workloads.

Conclusion

Led by its partnership with AWS, Oracle Cloud World 2024 told a story of a maturing business that is turning competitors into partners to better address the needs of the customer. By keeping the lifeblood of the cloud stack, the database, relevant in customers’ cloud transformations, Oracle also ensures it remains competitive in GenAI scenarios, which aligns with the GenAI investments the company is making in other areas of the stack, from analytics to Fusion applications.

 

As the company continues to navigate as a full-stack vendor catering to the existing Oracle base, while simultaneously gaining relevance in the broader cloud ecosystem, there is a lot of potential ahead, and Oracle is well on its way to becoming a $100-plus billion company.

Diversification Into Other Verticals Is Critical to Amdocs Sustaining Long-term Growth

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TBR Perspective: Amdocs Must Accelerate Push into Non-Telecom Verticals for Growth and Diversification

Amdocs has made substantial progress on its reinvention, diversifying its customer base, portfolio and business mix while shifting the market perception of the company from a traditional OSS/BSS provider to more of an ICT software transformation specialist. However, most of Amdocs’ transformation thus far pertains to the telecom industry; Amdocs still needs to transition from being a telecom-centric vendor to a multifaceted provider that supports a diversified mix of verticals. The pressure to move in this direction will intensify as the telecom industry’s challenges persist and Amdocs’ organic growth from the industry continues to slow.
 
Amdocs’ current situation is reminiscent of Tech Mahindra’s before it merged with Mahindra Satyam in 2013. Pre-merger, Tech Mahindra was largely viewed as a telecom-only shop and had minimal exposure to other verticals (the company’s revenue split was around 90% telecom and 10% other verticals pre-merger). This specialization helped Tech Mahindra differentiate and compete for business in the telecom vertical but kept it from benefiting from diversification and greater scale.
 
After the Mahindra Satyam merger was completed, Tech Mahindra became a multifaceted ICT services provider, with robust diversification across many verticals. Though TBR is not suggesting Amdocs should or will take a similar approach, Amdocs has already made several acquisitions that bring exposure to nontelecom verticals. However, these acquisitions are relatively small and have not brought transformational changes to the company’s business mix.
 
Amdocs has been involved in nontelecom verticals for at least a couple of decades, and TBR estimates Amdocs’ nontelecom revenue currently composes approximately 10% of the company’s total revenue. While Amdocs has yet to formalize its foray into nontelecom verticals, TBR notes that is beginning to change as the company seems to be making a stronger push into the financial services vertical, as evidenced by acquisitions (especially Astadia, Projekt202 and Sourced Group) and an increase in dedicated resources to support that vertical.
 
Amdocs is also supporting a variety of brand-forward customers from other verticals, primarily via its Stellar Elements business unit, and is focused on opportunities to help companies in the utilities and media & entertainment verticals with IT and digital transformation.

Impact and Opportunities

Astadia Exposes Amdocs to Mainframe Migration Opportunities

One of Amdocs’ newest acquisitions, Astadia, plays into the nontelecom vertical theme and could serve as a key beachhead to winning more deals with nontelecom customers. Astadia is focused on helping mainframe users migrate to the cloud and has carved out a strong niche in the financial services industry, which is one of the verticals outside of telecom that Amdocs is focusing on. Helping companies migrate off mainframes plays well into Amdocs’ mission-critical transformation value proposition. Amdocs estimates there are 40,000 mainframe computers still in use worldwide by a range of companies and government entities, representing a significant opportunity for net-new business.

Competitor List for Products and Services Broadens for Amdocs

Amdocs’ string of acquisitions and new strategic initiatives, such as the partnership with Microsoft, broadens the scope of companies Amdocs now competes with, from both a products and services standpoint. Historically, Netcracker was Amdocs’ most formidable competitor in terms of portfolio overlap, but that list now includes companies like Salesforce, ServiceNow and Oracle. Meanwhile, on the services side, Amdocs is increasingly crossing paths with traditional C&SI companies, such as Accenture, Tata Consultancy Services and Tech Mahindra.

Amdocs Can Compete (and Win) Against C&SIs like Accenture, Just at Smaller Scale

Amdocs possesses all the capabilities required to drive customer IT and digital transformation, both for and beyond the telecom industry. Though the vendor is less than a tenth of the size of Accenture (which is arguably the benchmark vendor to emulate in the C&SI domain) in metrics such as revenue and headcount, Amdocs can still compete against Accenture and other C&SI firms and win business.
 
Amdocs needs to focus on its specialization in delivering migration and transformation for mission-critical software environments, a skill that is broadly applicable across verticals, as well as its leading KPIs for project completion rates.

There Is More Juice to Squeeze Out of CSPs but Not Much

Amdocs boasts over 400 communication service provider (CSP) logos globally, including most of the top 50 CSPs, and in many of these accounts Amdocs is already the dominant provider in terms of the products it sells. Therefore, squeezing more revenue out of these customers (and/or taking more market share from competitors) will be increasingly challenging as telecom operators chronically struggle amid market maturity and anemic growth prospects, and resort to cost containment and M&A for additional economies of scale.
 
Amdocs is also proactively trying to move further down market, targeting smaller CSPs such as MVNOs and Tier 3 operators to sustain growth. However, this approach is unlikely to move the revenue needle significantly, given the largest CSPs globally account for well over 80% of the total telecom market opportunity.
 
GenAI remains exploratory; automated, scaled usage of GenAI in commercial environments is at least a year away
Amdocs is actively exploring how generative AI (GenAI) can be incorporated across domains, both within its own company and for its customers. Thus far, the company is primarily utilizing GenAI internally for code development, and focusing on contact center transformation for its customers. Amdocs’ strategic partnership with Microsoft broadly applies to AI coinnovation and go-to-market efforts and the current focus is offering a joint solution for marketing and sales process automation.
 
Amdocs is also embedding Microsoft Copilot across its broader product portfolio. TBR notes that the GenAI-enabled “virtual agent” and process automation technology Amdocs showcased at the event were compelling and demonstrate a clear path to business value for CSPs.

Learnings From Partnerships with Hyperscalers Provide a Strong Beachhead Into Other Verticals

Amdocs has been learning a lot from its partnerships with Microsoft, Amazon Web Services and Google Cloud, especially as it pertains to implementing cloud migrations of ICT workloads and digital transformation. Specifically, Amdocs has obtained certifications, status and organizational alignment with hyperscalers. The skills and capabilities Amdocs has developed from the telecom ecosystem can be leveraged across other verticals. Solution cocreation also opens new doors for Amdocs, both within telecom and in other verticals.

Amdocs Makes Waves in CRM for Telecom Leveraging Microsoft Partnership

Amdocs has integrated Microsoft Dynamics (CRM) with Amdocs’ Customer Engagement Platform to offer marketing and sales automation solutions to its customers (TBR notes the joint solution, including the GenAI large language model it uses, is customized specifically for the telecom industry by Amdocs’ TelcoGPT, amAIz).
 
Microsoft Dynamics is integrated with Microsoft’s other key business productivity applications, such as Outlook, O365 and Teams, and the company’s Copilot is embedded across the stack, bringing customers improved outcomes. The joint Amdocs-Microsoft solution will enable the two companies to compete with incumbent CRM providers, especially Salesforce, Oracle and ServiceNow. TBR notes that the joint CRM solution is differentiated by the power of its GenAI platform, an aspect where incumbent CRM providers are lagging, and could displace incumbent CRM providers from CSP accounts. Deals would draw in Amdocs’ systems integration capabilities as well as other services, yielding larger deal sizes.

Conclusion

Amdocs has been navigating the increasingly challenged telecom market well, but with organic growth slowing, the company will need to seek out and accelerate into other areas for more sustainable, long-term growth. Amdocs’ incremental steps into other verticals, mostly via acquisitions, are moving the company in the right direction, but a larger magnitude shift is required.
 
This aspect of Amdocs’ reinvention would encompass the institution of formalized strategic, organizational and portfolio changes gearing the company toward addressing multiple verticals. Doing so would enable Amdocs to expand its total addressable market, diversify its business mix and hedge against downturns in the telecom industry.
 
As a first step toward formalizing Amdocs’ strategy in other verticals, TBR encourages the company to start providing more information about its initiatives in verticals outside of telecom, which are known to be significant but are unquantified and minimally discussed, as it will become more important to Amdocs’ business results and growth profile over time.

Digital Transformation Examples: How Vendors Are Adapting to GenAI and Market Shifts

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Digital Transformation Market Status

As Digital Transformation Programs Mature, So Do Buyers’ Expectations, Testing Vendors’ Engagement and Partner Strategies

As the most mature digital transformation component, customer experience (CX) has compelled buyers to embark on omnichannel projects to unify insights and processes across the customer life cycle for years now. Vendors have plenty of use cases to rely on, but slower discretionary spend is pressure-testing vendors’ value propositions rooted in trusted algorithms.

 

The digital marketing services space, as tracked by TBR, will expand at a CAGR of 6.5% from 2023 to 2028, reaching $145 billion, which is lower than our forecast from six months ago of $152 billion. The marketing industry is on the cusp of transformation with the advent of generative AI (GenAI) chatbots, particularly in relation to content development and brand safety. Vendors have an opportunity to optimize personalization at scale, but only if they also address talent management and data protection, compelling them to carefully balance messaging across ecosystem stakeholders.
 

Watch Below: TBR Principal Analysts Discuss How the GenAI Disruption Is Similar to Prior Disruptions, as well as How It Is Different, and Which Technology Vendors Are Best Positioned to Win and Why

GenAI Remains the Single Most Disruptive Technology, Testing Vendors’ Ability to Deliver Transparent Campaigns Through Ecosystem Lenses

Since we began estimating the digital marketing services market seven years ago, we have projected annually that Strategy and Creative & Branding services would grow the fastest. Creative & Branding served as the DNA of digital marketing, and brands have constantly sought guidance on how to adapt to operating in digital environments.

 

GenAI will change that, as the technology has the potential to bring the cost of content development to $0. This will pressure Creative & Branding revenue growth but also test vendors’ analytics models as the spending shifts toward Advertising & Analytics services, provided vendors ensure that transparency, governance and clear data strategies are in place.

Examples of Vendors’ Recent Digital Transformation Activities

  • Ogilvy launched Influencer Shield, a risk management solution that helps target opportunities around brand safety.
  • Bain strengthened its footprint in APAC with the acquisition of the consulting and managed services division of Max Kelsen, an Australia-based AI and machine learning solution provider.
  • Accenture Song has been chosen as the global creative and content agency of record for the talent company Randstad. Accenture Song will also support the transformation of Randstad’s marketing department through the use of GenAI.
  • AKQA launched a new campaign for IBM, showcasing the transformative power of IBM Hybrid Cloud using visuals and a cinematic storytelling approach.
  • McKinsey & Co. launched its Salesforce-enabled Growth Tech capability. The service will pair McKinsey’s AI modules from QuantumBlack and help the firm pursue business transformation opportunities with clients seeking to optimize the Salesforce stack.
  • Capgemini and Salesforce partner to provide GenAI for CX Foundry to deliver personalized and data-driven customer experiences by automating customized content creation.
  • IBM Consulting launched a practice that helps clients create AI foundation models and large language models utilizing open-source approaches and proprietary data to train purpose-specific AI models through IBM’s InstructLab solution. IBM is also expanding the IBM Consulting Advantage portfolio by adding new assistants, assets and methods that will support specific consulting roles, and client engagements around application modernization and management as well as data and business process transformation.

 
TBR’s Digital Transformation: Digital Marketing Services Benchmark provides key service line, regional and operational data and analysis across 19 leading digital marketing services vendors. Vendor coverage includes Accenture, Capgemini, Deloitte, HCLTech, IBM Consulting, McKinsey & Co., Tata Consultancy Services, and more. Service lines covered are Strategy, Creative & Branding, Web, Mobile & Commerce, and Advertising and Analytics. To access all available Digital Transformation: Digital Marketing Services Benchmark data and analysis, start your free Insight Center™ trial today.