New Solutions Drive New Revenue Streams for Atos’ Manufacturing Clients

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Atos showcases strength in manufacturing industry specialization

Although it is an understatement to say Atos has struggled with its financial performance in recent years, the new year gives TBR analysts a chance to look for signs of change or markers indicating that Atos’ strategic decisions, investments and leadership adjustments have put the company on the path to sustained and profitable revenue growth in the coming years. We are paying close attention to Atos’ enhanced and deepened partnerships with technology companies, its major multiyear deal signings, and the use cases Atos’ two business lines — Eviden and Tech Foundations — tout as indications of what is working well and where they are gaining additional traction (and traction equals growth).
 
Along with the usual digital security solutions, cloud migrations, platforms and advanced computing implementations, one recent use case stood out, surprisingly not only for what Eviden did but also for what the organization positioned its client to do in the future. As part of a five-year engagement, Eviden helped Spanish train manufacturer Talgo develop what Eviden called a “state-of-the-art fleet monitoring system” that can ingest and process massive volumes of data, bring information and insights to train maintenance engineers, and “achieve architectural flexibility and scalability to incorporate modern train series without additional development efforts.” While the first few elements should be considered core capabilities of any modern, AI-enabled, and purpose-built system, the last one addresses a customer sentiment we have been hearing relentlessly for the last 18 months: Make my current technology work better without additional investment in even more new technology.
 
But that is not what jumped out at TBR as something special and a marker of potentially good things to come.

Reselling the TSMART solution creates new revenue streams for Talgo

Eviden’s work with Talgo produced the fleet monitoring system Talgo SMART Maintenance (TSMART). In recent years TSMART has been improved with capabilities such as predictive maintenance and visualizations. So far, so good, and so much like most others.
 
There is a significant difference, though, as Eviden noted in the press release: “Long an aspiration of smart manufacturing, the ability to create value-adding services from products is now Talgo’s reality. TSMART can be enhanced with product packaging/branding to be offered as a service to third parties. Talgo can easily extend the TSMART system to new train series or offer it to customers as a service. Its customizable interfaces include options for company branding and user personalization as well as new train configurations.”
 
Eviden helped create more than just an asset for Talgo to use internally and benefit from increased productivity, operational safety and fleet reliability. Now Talgo can expand its offerings with its own clients, develop a new business model, create new revenue streams, and, likely, greatly enhance its stickiness and position across its ecosystem. Not every IT services engagement leads to a client creating a new business opportunity, but this one did.

Now, can Eviden recreate the success of TSMART with other clients? Can this become a calling card for Eviden, an example of what can separate the organization from peers?

Certainly not with every client and every engagement — routine designing and building of systems are just that, routine — but if Eviden brings the mindset behind TSMART into opportunities, particularly with long-standing clients in the manufacturing and energy industries, TBR anticipates a quicker return to revenue growth for Eviden, which will support Atos’ overall financial performance.
 
Atos has established expertise around delivering predictive maintenance solutions and is applying its skills across industries. The company is working with multiple clients in the theme park and attractions industry, utilizing data and AI as well as edge server technologies to reduce the downtime of rides and improve customer satisfaction. For example, in 2020 Atos won a deal with the Triple Five Group’s American Dream entertainment complex to provide predictive maintenance utilizing data analytics and AI solutions as well as BullSequana Edge servers to collect and store data from ride sensors and detect issues through real-time analytics at the edge.
 
In covering Atos and its two business lines, Eviden and Tech Foundations, TBR publishes a quarterly Atos report and a semiannual Atos Cloud report. TBR also includes the company in our quarterly IT Services Vendor Benchmark, AI and GenAI Market Landscape, and various ecosystem intelligence and digital transformation reports, as warranted by Atos’ investments and activities in those areas. Access all of this research and more with your Insight Center™ free trial. Sign up today!

As the Carlyle Group Continues to Fine-tune ManTech, Will We See It Go Public in 2025?

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Embracing emerging technologies in core markets

When the Carlyle Group acquired ManTech for $4.2 billion in September 2022, TBR questioned how the federal IT vendor would be restructured. One month later, when Matt Tait succeeded Kevin Phillips as president and CEO of ManTech, he quickly signaled that the needs of the defense and intelligence markets would remain central to the company’s vision.
 
Since then, Tait has been steadily funneling resources into five technology focus areas: Analytics, Automation and AI (A3); Cognitive Cyber for Physical and Digital Platforms (Cognitive Cyber); Data at the Edge (D@tE); Intelligent Systems Engineering (ISE); and Mission & Enterprise IT (M/EIT). Rather than focusing on harnessing a single emerging technology, ManTech has explored how these technologies played off one another and how to leverage their synergies. In doing so, ManTech’s efforts aligned with the Biden administration’s spending priorities and the company captured lucrative awards like the U.S. Army’s $622 million Technology Insertion Transformation Unified Services (TITUS) task order.
 
While ManTech’s ongoing strategy appears to align with the Trump administration’s interests, the company will need to increasingly leverage its partner network to close the capabilities gap between it and Tier 1 peers like Leidos and Booz Allen Hamilton (BAH).

ManTech is increasingly collaborating with partners …

ManTech had been largely inactive on the alliance front since strengthening its ties with Amazon Web Services (AWS), Google and Red Hat in 2021, but the Carlyle Group’s takeover in 2022 has prompted ManTech to recently take steps in that direction.
 
For example, ManTech partnered with Marque Ventures in 2Q24 to find companies in the national security space making inroads with emerging technologies and incorporate them into ManTech’s offering ecosystem. ManTech also announced that Trust Stamp’s AI-powered Irreversibly Transformed Identity Token would be integrated with ManTech’s offerings as part of a teaming agreement the two reached during the first half of 2024.

… but so are its Tier 1 peers

Although ManTech has been accelerating its alliance formation and expansion activity, the company continues to lag its biggest federal systems integrator peers. Accenture Federal Service, BAH, CACI, SAIC and Leidos maintain extensive and well-run alliance ecosystems in the federal IT market, and each has been very active in forging new alliances or expanding existing collaborations (particularly in cloud computing and AI). Several of these vendors, such as BAH through its venture capital arm Booz Allen Ventures, have also made substantial venture capital investments in smaller, AI- and cloud-focused peers or partners with key adjacent technologies.
 
Leidos, the largest federal systems integrator by revenue, with over $14.2 billion in technology and technology-related sales in 2024, has a broad network of solutions and strategic partners. Leidos pursues partnerships across a wide swath of players, from Microsoft to NetApp. In most engagements, Leidos acts as the principal systems integrator thanks to its market-leading scale and ability to design and deliver open-architecture-based data management, security and communications solutions across federal agencies’ IT infrastructures. Leidos and Microsoft expanded the scope of their partnership in cloud computing in 2023 and formed a strategic collaboration agreement with AWS in 1Q24,  deepening the long-standing relationship between the partners. Historically, Leidos and AWS have been active in the defense and intelligence sectors, and the enhanced collaboration will focus on advancing multidomain operations for the Department of Defense (DOD) and Intelligence Community (IC).

Entering the consulting sphere

When Tait initially took charge of ManTech in fall 2022, he gave no indications as to whether he would seek financial backing from the Carlyle Group to bolster ManTech’s sputtering civilian business. Less than a year later, ManTech acquired Definitive Logic for an undisclosed amount.
 
While the acquisition has certainly expanded ManTech’s presence in the defense and intelligence markets, it has also created new opportunities for ManTech in the civilian market. By purchasing the 330-person firm, ManTech was able to significantly speed up its efforts to incorporate consulting into its go-to-market strategy.
 
Since 2023, ManTech has launched multiple consulting practices, such as the Google Workspace Practice, that are dedicated to helping agencies adopt emerging technologies. Through the Google Workspace Practice, ManTech and Google Public Sector have expanded their partnership and are hosting immersive workshops tailored to agencies and other prospects’ needs to demonstrate how generative AI and Google Workspace can enhance operational efficiency.
 
ManTech’s pivot into the consulting space may come as a surprise given the company’s history, but it aligns with the Carlyle Group’s priorities since purchasing ManTech. The private equity specialist has been fine-tuning ManTech to expand its addressable market size, build out a more diverse array of capabilities, and bring its margin performance more in line with that of its peers. Having ManTech expand beyond its traditional plug-and-play role and support all stages of a client’s journey addresses all of those goals and is why more vendors like General Dynamics Information Technology (GDIT) have also recently thrown their hats into the consulting ring.
 
ManTech has an advantage over GDIT in the consulting space because it is currently a private company and can take its time fine-tuning operations without facing the scrutiny of Wall Street. Consulting fundamentally comes down to people and permission, which can be difficult to build and/or acquire. Consulting also requires money and patience to be successful — things that are rarely rewarded when facing the never-ending 90-day clock of earnings.

What is next?

While private equity always has an exit strategy, it is unlikely that the Carlyle Group will take ManTech public or sell it to another company in the near future.
 
When the Carlyle Group first took over ManTech, the company was a margin laggard with organic revenue growth that paled in comparison to its peers in TBR’s Federal IT Services Benchmark. The Carlyle Group has had a positive impact on ManTech’s profitability by optimizing its headcount, making necessary divestitures and pivoting into the margin-friendly consulting business, but it will still take time to bring ManTech’s operating margin in line with vendors like CGI Federal.
 
Graph: ManTech Operating Margin 3Q24
 
Additionally, while ManTech is making inroads with its consulting business and earning seats on high-profile contract vehicles like the FBI’s Information Technology Supplies and Support Services 2nd Generation initiative (ITSSS-2) program, TBR believes that the company’s revenue growth continues to lag far behind that of Tier 1 peers like BAH and CACI. ManTech recently stood up civilian and defense-oriented advisory boards to better understand how it can gain traction across these markets, but it will be a while before these efforts yield results.
 
Similarly, bringing ManTech’s AI, analytics, automation, systems engineering and solutions to the scale that its competitors offer is also a longer-term goal. Given that the M&A market is becoming increasingly buyer-friendly, TBR anticipates that ManTech will leverage financial backing from the Carlyle Group to quickly strengthen these capabilities.
 
The Carlyle Group spent roughly two and a half years restructuring an already high-functioning BAH before cashing out. TBR believes the Carlyle Group will be patient with ManTech and ensure that the company is better positioned across the defense market as well as the civilian market by leveraging its technology focus areas and fostering margin growth to ensure long-term success. Once ManTech can generate predictable revenue and profit streams, TBR believes the Carlyle Group will cash out, but we do not expect this to occur until 2027 at the earliest.

Federal IT Spending Poised for Another Strong Year in Fiscal 2025

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Federal IT spending remained robust throughout FFY24, and the market appears poised for another strong year in FFY25, even as CY25 begins with yet another continuing resolution

TBR projects weighted average year-to-year federal IT services revenue growth for the 11 companies featured in our Federal IT Services Benchmark will decelerate to between 8% and 8.5% in 4Q24, down from 9.3% in 3Q24. Additionally, we anticipate weighted average year-to-year revenue growth in the defense sector will fall to between 6.8% and 7.3% in 4Q24, while civilian revenue growth will remain between 10% and 10.5% in 4Q24.
 
Four leading federal systems integrators — Booz Allen Hamilton (BAH), CACI, Leidos and SAIC — as well as smaller federal IT peer KBRWyle elevated their respective revenue growth forecasts for their current fiscal year when tendering 3Q24 fiscal results; these results indicate the federal IT macro environment will remain mostly growth-friendly through FFY25.
 
The new federal fiscal year began with a continuing resolution (CR) that extended government funding until Dec. 20, when a subsequent CR was enacted to fund federal operations until March 14, 2025. Further CR extensions in federal fiscal year 2025 (FFY2025) would cause budget delays that could impede the ability of federal IT contractors to convert backlog into revenue, but most vendors expect revenue growth to remain on a solidly upward growth trajectory in FFY25.
 
The Fiscal Responsibility Act of 2023 (FRA) remains in effect, and the Biden administration’s FFY25 budget request aligns with the FRA’s spending caps. Federal IT spending priorities will remain largely unchanged in FFY25, with IT investment focused on enhancing national security (especially in the APAC region and to deter future Russian aggression in Ukraine), promoting the adoption of AI and generative AI (GenAI) technologies, modernizing and enhancing the security of federal technology infrastructures, and IT-enabling public health systems.
 
The Department of Defense (DOD) will be integrating six new naval vessels into its global IT networks while spending nearly $34 billion to enhance space-based capabilities and another $10 billion to enhance the security and interoperability of IT and weapons systems operating in the Indo-Pacific theater. The Pentagon will spend another $14.5 billion for overall cybersecurity activities in FFY25 while expanding outlays on analytics and AI and increasing investment in the ongoing Replicator initiative to deploy thousands of autonomous systems across multiple domains by FFY26 to counter the ever-growing threat from China.
 
Civilian agencies will continue increasing their cybersecurity spending in FFY25, with an additional $13 billion requested in FFY25 to fund new zero-trust and access management programs as well as initiatives to secure critical infrastructure and federal civilian supply chains. The budget of the Cybersecurity and Infrastructure Security Agency (CISA), the division of the Department of Homeland Security (DHS) charged with leading cybersecurity efforts across the federal market, will expand by over $100 million from FFY24 to FFY25 to reach $3 billion. Civilian agencies are also increasing AI-related investments to fund the development, testing, purchase and deployment of new AI and GenAI technologies, as well as to expand their AI workforces.
 

Federal agencies must master AI from both a technological and a responsible use standpoint, prior to the inevitable adoption of GenAI. The most basic, fundamental distinction between AI and GenAI is that AI is good at analyzing existing content while GenAI generates new content. Much foundational modernization work is still needed across the federal IT environment to accommodate digital technologies like cloud, AI and GenAI, ensuring continued (albeit slower) federal IT growth in FFY25 and beyond.

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Expansion accelerated in the federal IT market in 3Q24 as renewed M&A activity by several federal IT vendors augmented strong, stable demand for digitally based IT modernization

Statutory year-to-year revenue growth for the 11 TBR-benchmarked vendors in the U.S. federal market on a weighted average basis rose 100 basis points sequentially, increasing from 8.3% in 2Q24 to 9.3% in 3Q24. Acquisitions by Accenture Federal Services (Cognosante), BAH (PAR Government Systems Corporation [PGSC]), CACI (Quadrint in 1Q24 and Azure Summit Technologies [AST] in 3Q24), CGI Federal (Aeyon), General Dynamics Technologies (Iron EagleX) and KBRWyle (LinQuest) generated an inorganic tailwind to overall market growth of roughly 180 basis points in 3Q24.
 
Federal IT executives (e.g., CACI CEO John Mengucci) have indicated that the M&A market became more buyer-friendly during 2024, prompting several benchmarked vendors to leverage acquisitions to address portfolio gaps in multiple areas, including digital transformation (DT) and emerging technologies for classified defense and intelligence operations.
 
Vendors have been acquiring, and will continue to hunt for, smaller peers with scalable cloud and digital modernization capabilities as well as deep existing (and likely cloud-related) relationships with federal agencies. Underpinning inorganic market growth is enduring robust demand for digitally transformative technologies in AI, cloud, analytics and data science, as well as the continued need to upgrade baseline IT infrastructures across the federal sector to accommodate digital modernization.

Graph: 3Q24 Federal Revenue, Profitability and Year-to-year Revenue Growth

KBRWyle’s federal revenue rose 10.2% year-to-year in 3Q24 as LinQuest was acquired and demand mounted for all the offerings within Government Solutions business units. KBR’s leadership team increased its guidance for the company’s revenue, adjusted EBITDA and adjusted earnings per share (EPS) during the 3Q24 earnings call due in part to Government Solutions’ strong performance and the purchase of LinQuest creating more opportunities with DOD agencies.
 
Inorganic growth is again boosting CACI’s top-line growth after the company made three acquisitions between 2Q24 and early 4Q24. CACI’s acquisition of AST in 3Q24 contributed between 70 and 80 basis points of inorganic growth during the quarter and is expected to add between $440 million and $450 million to the company’s sales in its FY25.
 
BAH’s revenue rose 18% year-to-year in 3Q24, driving the firm’s total sales past $3 billion for the first time. BAH’s June acquisition of PGSC began to contribute inorganic revenue in 3Q24, and we estimate BAH’s organic year-to-year growth was 17.7% in 3Q24, with PGSC contributing between 20 and 30 basis points of inorganic growth.

Civil and defense agencies drive double-digit IT growth through cybersecurity, health IT and AI investments

Civil agencies continue to aggressively invest in cybersecurity, health IT and Agile-based software systems, leading to sustained double-digit civil sector IT spending growth

Weighted average growth in the civilian sector accelerated 80 basis points sequentially, rising from 9.6% in 2Q24 to 10.4% in 3Q24. Vendors including BAH and Leidos have posted multiple quarters of double-digit growth in their respective civil units as of 3Q24, with robust rates of growth expected to persist well into 2025. Sector growth was sustained at or near 10% throughout FFY24 as demand among civil agencies remains robust for comprehensive zero-trust and cyber incident support solutions, particularly by DHS, the Department of Health and Human Services (HHS), the IRS and NASA.
 
Attracting and retaining cybersecurity talent also remain top priorities for nearly all civilian agencies, which are tapping vendors like Accenture Federal Services (AFS), BAH and Deloitte Federal for human resource advisory services. NASA launched an eight-year, $2 billion program, NASA Consolidated Applications and Platform Services (NCAPS), during 3Q24 to develop and deploy Agile-based software for over 200 IT systems, with vendors including CACI among the primary awardees. Health IT is generating new revenue and profit streams for the benchmarked vendors, and agencies including the HHS (and its subagencies, the Centers for Medicare & Medicaid Services, the Center for Disease Control and Prevention, and the National Institutes of Health) are seeking agencywide AI and analytics adoption services. The top five benchmarked vendors in year-to-year civilian sector revenue growth in 3Q24 were AFS (25%), BAH (16.1%), SAIC (10.8%), Maximus (9.3%) and CACI (7.9%).

Defense and intelligence agencies expanded spending on IT modernization, global integration of defense networks, and AI-enabling intelligence collection and analysis solutions in 3Q24

Weighted average expansion in the defense sector rose 110 basis points sequentially, from 7.5% in 2Q24 to 8.6% in 3Q24. BAH and CACI maintained double-digit expansion in their respective defense sales in 3Q24, while Leidos and GDT posted midsingle-digit top-line defense growth in the quarter. The DOD awarded billions of dollars in net-new programs while several benchmarked competitors also secured key recompetes with defense agencies. The DOD’s European Command has aggressively expanded its activities (particularly with BAH) as the war in Ukraine grinds on, while globally, the Pentagon continues prioritizing the adoption of AI, analytics, big data and cloud technologies to facilitate and accelerate real-time decision making for military commands.
 
The DOD is also expanding activities in APAC, investing in advanced intelligence and combat-related technologies to deter Chinese aggression. The U.S. Air Force is accelerating spend on the Collaborative Combat Aircraft program while the DOD’s Combined Joint All Domain Command and Control (CJADC2) initiative to achieve IT infrastructure interoperability across all military branches and with defense agencies of U.S. allies continues to spool up. Project volumes also expanded on several marquee defense IT programs, including Sentinel (modernizing C5ISR [Command, Control, Communications, Computers, Cyber, Intelligence, Surveillance and Reconnaissance] systems across the DOD) and the $11 billion Defense Enclave Services program.
 
IT investment patterns in the intelligence community continue slowly stabilizing as intelligence agencies invest in intelligence analysis services and solutions and AI-based technologies to collate and ingest intelligence data. The top five benchmarked vendors in year-to-year defense sector revenue growth in 3Q24 were BAH (19.1%), CACI (13.5%), KBRWyle (12.4%), Leidos (4.4%) and AFS (3.9%).

 

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Robots Protecting Themselves From Robots: The Future of AI Security and Vendor Differentiation

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Demand for analytics services has reached an inflection point, with new opportunities around the development and implementation of secure, industry-aligned agentic AI solutions refueling growth

From shadow AI to the advent of AI agents, generative AI (GenAI) has increased IT complexities and the need for greater enterprise resiliency, compelling vendors to enhance their cybersecurity portfolios. This is not surprising, given that according to TBR’s November 2024 Digital Transformation: Voice of the Customer Research, buyers ranked cybersecurity as the No. 1 technology supporting their digital transformation (DT) programs. Using AI to automate cyber threat detection will create opportunities to establish guardrails around AI identity in the world of multiagent ecosystems. Vendors’ ability to manage liability and accountability around AI cybersecurity will remain a key question as reports of bad AI continue to surface.

Analytics and insights services revenue expanded 5.9% year-to-year, on average, in 4Q24 for the 20 vendors included in TBR’s 1Q25 Digital Transformation: Analytics Professional Services Benchmark

While revenue growth remains lower than two years ago, when analytics and insights (A&I) services revenue expanded 14.3% year-to-year in 4Q22, there was a slight improvement in 4Q24 compared to six months ago when sales grew 5.6% on an annual basis. We believe the A&I services market has bottomed out and will start to improve as vendors capitalize on the dual opportunity to embed analytics tools within their IT modernization frameworks and develop and implement agentic AI solutions that address specific industry and functional pain points. We believe these two trends will also expand the addressable market opportunities for vendors as the need for greater AI security and a right-skilled bench will allow them to demonstrate value while they pivot their commercial models toward outcomes.

Security-related risks is among the top GenAI adoption barriers, presenting vendors with an opportunity to position cyber and AI as complementary solutions to help scale adoption

As TBR wrote in our 1H24 Cloud Infrastructure & Platforms Customer Research: “Most respondents cited security as the biggest GenAI adoption barrier, which makes sense as customers also referenced security as the biggest pain point associated with cloud technology.
 
That said, data-related challenges, such as governance and control of the data, are moving up the ranks and only reinforce the role that data architecture and data strategy play in GenAI adoption. It is a strong indication of where the hyperscalers and their partners, including the data ISV platforms they integrate with as well as the GSIs [global systems integrators], should be focused to help customers overcome these barriers. When asked about the role GSI partners play in data strategy, one-third of respondents said that the GSIs were instrumental in putting the right policies, tools and best practices in place around areas like data governance, quality and access.”
 
These findings are closely aligned with data from TBR’s November 2024 Digital Transformation: Voice of the Customer Research report where enterprise buyers ranked cybersecurity as the No. 1 technology supporting their DT programs. While investing in cyber-related capabilities is not a new trend, we believe the technology is experiencing a boom in terms of investment especially as chief information security officers try to balance the management of shadow AI with the increased use of GenAI tools for software development, content production and sales automation, among other functions.
 
While in the past cyber and cloud have gone hand in hand in terms of the buyer purchasing cycle, we see an opportunity for vendors to position AI and analytics and the attached cyber services as a more appealing value proposition especially as all parties face a new reality where robots (GenAI) are protecting themselves from other robots (cyberattacks).
 
Graph: GenAI Adoption Barriers, TBR 1H24

The rise of robots guarding robots presents an opportunity for vendors to demonstrate value through accountability and cyber liability management, backed by domain and partner knowledge

Balancing the development of AI security models with enabling workforce productivity through the use of AI will help vendors create strong use cases for how to navigate the complexities that have arisen from the advent of the greater need for AI security. Vendors can then bring these experiences into client discussions as they often face similar struggles as shadow AI becomes mainstream.

Examples of vendors’ recent activities

  • Accenture launched a suite of GenAI-enabled cyber resilience services and capabilities addressing issues such as deepfakes and helping prevent customer disruptions from across IT operations through supply chain management. Some of the services include Secure AI Solutions, which address enterprises’ AI program life cycle; Deepfake Protection; and Business Cyber Crisis Recovery.
  • In October Eviden inaugurated an AI supercomputer in Denmark called Gefion as part of a deal from March with the Danish Centre for AI Innovation, which is owned by the Novo Nordisk Foundation and the Export and Investment Fund of Denmark. The supercomputer will enable large-scale AI projects and high levels of security for Danish data sovereignty, and support research and innovation in healthcare, life sciences and green transition.
  • Cognizant expanded its Neuro suite to include cybersecurity offerings. The additional capabilities support a variety of devices across IoT networks and provide an AI-derived interface that showcases internal insights.
  • The alliance with Clearspeed will leverage Deloitte’s IndustryAdvantage framework and Clearspeed’s AI-enabled risk identification platform to provide risk data and management capabilities supporting U.S. federal clients.
  • DXC Technology has partnered with Checkmarx, a cloud-native application security specialist, to deliver comprehensive application security solutions globally. By offering Checkmarx One to its customers, DXC Technology aims to accelerate vulnerability detection and remediation throughout the software development life cycle.
  • In August IBM announced it is adding GenAI capabilities to its managed Threat Detection and Response Services. The company launched IBM Consulting Cybersecurity Assistant to help clients better identify, investigate and respond to security threats. The Cybersecurity Assistant will be part of IBM Consulting’s threat detection and response practice and IBM Consulting Advantage.
  • In September Tata Consultancy Services (TCS) announced an expansion of its partnership with Google Cloud with the release of two solutions: TCS Managed Detection and Response and TCS Secure Cloud Foundation.

 

B2B Strategic Advantage: Ecosystem Intelligence

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Can your alliance partners tell your clients what makes you special? Do your alliance partners’ sales teams know what value you bring to the ecosystem? Are you sure you placed your strategic ecosystem bets on alliance partners that are well positioned for the next growth wave? Are your competitors gaining ground with your common alliance partners through sales programs, go-to-market motions and training that you are not doing?
 
Vendor consolidation and enterprise optimization of existing digital stacks have compelled IT services companies and consultancies as well as their ecosystem partners to think strategically about who to partner with and how to secure and expand their position within the ecosystem. As a result, aligning business priorities with alliance partners will allow IT services companies and consultancies to develop a more empathetic approach to technology-fatigued buyers. Additionally, understanding pricing and commercial structures backed by common knowledge management programs will elevate the value of joint services and appeal to enterprise buyers’ appreciation of a separation of labor, supported by greater transparency and accountability.

What is ecosystem intelligence for the B2B industry?

Ecosystem intelligence provides the framework and insights necessary for all parties involved to deliver value to the end customer. Establishing common governance models backed by self-accountability metrics helps guide vendors in executing against universally agreed-upon business objectives, thus maintaining ecosystem trust.
 
Ecosystem go-to-market strategies, which involve multiple vendors collaborating to deliver complex and comprehensive solutions, now drive more than half of total IT investment, and, critically, this revenue generated through ecosystem partnerships has been growing faster than the overall market, turning ecosystem intelligence-enabled insights into invaluable pillars supporting the next wave of vendors’ business model evolutions.
 
As IT budgets grow, a greater percentage of new funding will flow to companies collaborating to deliver value, in part because the complexity of solutions required by end customers necessitates a multifaceted approach involving various layers of infrastructure, software, services and networking.

Ecosystem intelligence will become a strategic advantage for B2B

In the last few years, ecosystem intelligence has eclipsed competitive intelligence as the use case most frequently leveraging TBR’s IT services, professional services, and digital transformation data and analysis, often in an effort to answer the questions above. That shift reflects three broader trends.

  • First, enterprise buyers want to deal with fewer technology vendors, increase transparency around their IT spend and realize faster returns on technology investments.
  • Second, portfolio and capability expansion — PwC has expanded into managed services, HCLTech into software, Amazon Web Services into professional services and Lenovo into consulting — has created a more fluid ecosystem, where partnering with competitors and competing against alliance partners has become the norm.
  • Third, and perhaps seeming to run as a crosscurrent to the other two trends, the best performing companies have chosen to play primarily to their strengths, staying in their lane and partnering better, rather than building out capabilities and scale.

In 2025, IT services companies and consultancies will refine their alliances, winnowing lists of 100-plus technology partners to the handful that drive more than 90% of their business, articulate a clear joint value proposition, and align at both the leadership and sales force levels. Technology-agnostic was always a bit of a fiction and in the coming years will become a description of the past and not a strategy going forward. To make all that happen, IT services companies and consultancies will invest in ecosystem intelligence and elevate alliance management within their organizations.

Learn more

Download 2025 Predictions special report: Ecosystem Intelligence: Key Strategic Changes for 2025
 
Watch TBR Insights Live session: Digital Transformation Outlook: Strategy Rebound, GenAI Impact and Ecosystems Importance in 2025

KPMG Shifts Focus to Legal Services and AI-driven Strategy Consulting 

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KPMG is leaning toward legal services and AI-infused strategy consulting offerings to bolster sales as the firm navigates choppy market conditions within core deal advisory

Earlier in January news reports surfaced that a subsidiary of KPMG, KPMG Law US, had applied to operate in Arizona under a state program allowing nonlawyers to operate law firms and provide legal services in the state. This aligns with our Fall 2024 Management Consulting Benchmark Vendor Profile: KPMG, in which we discussed this topic.
 
KPMG’s revenue growth decelerated from 0.7% year-to-year in 1H23 to -0.6% year-to-year in 1H24 as the firm continued to face pressure in core markets such as deal advisory despite the uptick in signings — a trend we expect to continue into 2025 as we estimate management consulting sales to stay flat on an annual basis. Over the last six months, KPMG signed M&A advisory and restructuring deals, including those with Germany-based air-taxi manufacturer Lilium; Spain-based Santander Consumer Finance; and Romania-based retailer La Cocos. As KPMG seeks to diversify its portfolio and revenue opportunities, recent investments across its portfolio related to legal services suggest that demand across regions is choppy and that KPMG will be reviewing its positioning, one member firm at a time.
 
For example, in Australia, KPMG restructured its stand-alone legal services practice, folding KPMG Law’s Tax Controversy & Disputes practice under KPMG’s tax business. At the same time, in the U.S. KPMG is looking to invest heavily in AI to bolster its legal services offerings, creating a conduit for consulting business. Meanwhile, KPMG partnered with ContractPodAI to bolster its legal AI and contract lifecycle management capabilities as the firm seeks to expand its legal managed services opportunities targeting clients in the U.S., U.K. and Germany. We believe KPMG’s push in the legal services space can also help the firm gain access to the talent needed to enhance its governance, risk and compliance (GRC) value proposition, especially as more general counsels are getting involved in GenAI solution development.
 
Outside legal services and M&A advisory, we expect KPMG’s efforts to bolster its management consulting revenues will come from its investments in technology-centric capabilities, with AI and GenAI among the predominant topics impacting the firm’s strategy consulting sales. We believe the KPMG Lighthouse team will continue to provide a critical link enabling the firm to elevate conversations beyond the typical art-of-the-possible discussions and tying them to business outcomes with tangible solutions. While embedding AI and data science is not unique to KPMG, the firm has an opportunity to elevate the value of such offerings as the single most important technology the firm stands behind, especially as many of its competitors stretch their portfolios and messaging across multiple domains. While we understand this can be a tricky message to execute against, demonstrating depth and specialization will likely trump generalization moving forward as GenAI levels the knowledge field, helping KPMG stand out.
 
Legal services would only be part of KPMG’s story going forward, as we also discussed in the Fall 2024 Management Consulting Benchmark Vendor Profile: KPMG.
 

GenAI can help KPMG enhance its industry consulting expertise, provided the firm leans on partners to do the tech part and focuses on its business pain points

Healthcare was KPMG’s fastest-growing industry vertical at 6.4% year-to-year in 1H24, according to TBR estimates. As an outlier for KPMG’s growth, the vertical benefited from industry clients seeking to digitize health systems and improve the patient experience. KPMG is not alone in capturing high-growth opportunities in the healthcare sector as rivals Deloitte and Accenture have also captured robust sales expansions in the industry with both competitors enhancing value propositions through acquisitions including Gryphonic Scientific (biosafety and biosecurity) and Cognosante (federal health).
 
To counter competitive threats, KPMG leaned on organic means, announcing the opening of a Global Center of Excellence for healthcare based in Bermuda. While the center will bring in professionals from the Caribbean, Bermuda, the Crown Dependencies, and Mediterranean islands, it will also have access to KPMG’s broader network of 5,000 professionals across the firm’s service lines within the healthcare vertical, including 200 clinicians.
 
Outside healthcare, KPMG continued to rely on its industry consulting know-how to enhance portfolio capabilities around partner-enabled industry accelerators such as with Workday for Retail and Hospitality; with Meta using Meta’s open-source large language model (LLM) Llama to build solutions for internal audit and commercial loan processing, paving the way for opportunities within the financial services vertical; and with Salesforce around the use of Customer 360 solutions for healthcare, among other verticals.
 
TBR views these as important steps that are enabling KPMG to better compete with Big Four rival Deloitte, which has set its Industry Advantage program to drive long-term managed services and feed the Operate part of Deloitte’s business. In a recent conversation with KPMG’s Managed Services leadership, TBR got a chance to hear how KPMG is able to use the KPMG Powered part of its four-part framework — Connected, Powered, Trusted and Elevate — to drive conversations around industry pain points in verticals such as insurance and financial services that have helped generate managed services engagements. Additionally, leaning on strategic growth and delivery partners has helped KPMG demonstrate depth rather deviate from its core capabilities.
 
We expect KPMG’s next growth frontier to come from the firm’s ability to codevelop industry-specific small language models as clients look to take advantage of the power of GenAI without compromising security and privacy by using LLMs based on public data.
 
Graph: 2H24 Est. KPMG Management Consulting Revenue and Growth

The Stargate Project: A Manhattan Project for the AI era

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President Trump Announces Joint Venture with OpenAI, SoftBank and Oracle to Build $500B Worth of AI-dedicated Data Centers

On his second day in office, President Trump approved funding for the Stargate Project, a joint venture with OpenAI, SoftBank and Oracle to initially build a $100 billion data center in Texas. Over the next four years, the project aims to expand into additional large-scale data centers, with a total of $500 billion in funding, making it the largest centralized data center investment in history. The funding includes significant financial backing from the U.S. government  with contributions from SoftBank, a firm known for its long-term investment strategies. OpenAI, SoftBank, Oracle and MGX will be the initial equity investors, while Arm, Microsoft, NVIDIA and OpenAI have been named as technology partners and will have some involvement in Stargate.
 
The $500 billion expenditure is unprecedented. Most Tier 1 hyperscaler data center projects are valued in the single-digit billions, making Stargate’s Phase 1 cost more than 50 times higher than its closest comparable. This venture will rely heavily on U.S. government funding, as SoftBank’s Vision Fund, which manages assets worth less than $200 billion, cannot shoulder the full burden. This positions Stargate as a “Manhattan Project” for the AI era, as it represents one of the largest technological undertakings in modern times. The project is poised to reshape global dynamics if it can navigate the significant hurdles that lay ahead. Regardless, OpenAI, equipped with the world’s largest AI cluster, will pursue its goal of artificial general intelligence (AGI) while enjoying unparalleled access to the compute infrastructure needed to push parameter counts higher.

 

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What Does This Mean for Cloud Vendors and Model Developers?

OpenAI Gains a Powerful Competitive Advantage Over Other Model Developers

Being the largest single technology endeavor in recent history, the Stargate Project will have a notable influence on the budding AI market. In TBR’s opinion, no company stands to benefit more than OpenAI. The company’s access to dedicated compute resources will be unmatched in the model developer industry, enabling OpenAI to push parameter counts further and faster compared to peers and supporting the company’s objective of differentiating based on large language model (LLM) performance. OpenAI’s ultimate goal is to reach AGI, which the company defines as “highly autonomous systems that outperform humans at most economically valuable work.” While estimates about when OpenAI will reach this goal vary widely, the Stargate Project fulfills a critical requirement in the pursuit of AGI, making OpenAI a top contender to reach AGI before other firms.

Another Win for OCI

Oracle’s reentry into the already highly saturated IaaS market with Gen2 OCI (Oracle Cloud Infrastructure) has been widely successful. Though initially designed to drive stickiness with enterprises already rooted in the Oracle ecosystem, OCI appears to be gaining traction among digital natives and ISVs for AI use cases. In many ways, this is a testament to Oracle’s decision to cozy up to NVIDIA for GPUs early on in the emergence of generative AI (GenAI) by hosting the company’s DGX software in its data centers, helping NVIDIA position as a software company and avoid becoming another piece of commoditized hardware locked into the hyperscalers’ stacks. Now, riding a wave of over $70 billion in cloud backlog, OCI is Oracle’s fastest-growing business and will soon become its largest.
 
Aside from the GPUs, the other factor fueling OCI growth and granting Oracle its status as one of the largest data center operators in the world is the company’s ability to bring new data centers online extremely quickly. This is because Oracle has generally adopted a strategy of building more but smaller-scale (approximately 145-kW) data centers, with a focus on ensuring that, outside of scale, all Oracle data centers are identical.
 
This scale can vary significantly, though, and with the current AI wave, we have seen Oracle prioritize larger data centers, some spanning 800MWs for AI customers, including OpenAI. There was perhaps no greater testimonial for OCI as a cloud credible enough for AI applications than OpenAI’s mid-2024 decision to leverage OCI for AI training via Azure.
 
To be fair, the existing Azure-Oracle relationship influenced that decision, but OpenAI has made it clear that the company not only needs IaaS services to push the boundaries of its models but also needs them quickly, regardless of who provides them. The Stargate Project would only advance the OCI-OpenAI connection, bringing new workloads to OCI and sending a message to the market that OCI is also in the game with Amazon Web Services (AWS), Microsoft Azure and Google Cloud when it comes to AI workloads.

Oracle Sets Its Sights on Healthcare as the Company Pursues AI Opportunities for Cerner

Oracle CTO Larry Ellison’s remarks at the White House on Jan. 21 were brief but telling of where Stargate could go, with the Oracle co-founder highlighting AI’s role in modern electronic health record (EHR) management and healthcare transformation at large. Of course, Oracle entered the healthcare market over two years ago with its acquisition of Cerner and has since modernized Cerner Millenium on OCI in hopes of delivering a new cloud-based system that will challenge decades-old EHR systems. This includes an EHR system that can support disease-specific AI models that, importantly, are developed not by Oracle but by medical professionals with expertise in said diseases. The details and timeline around Stargate are still vague but stand to advance Oracle’s push in AI, including within the healthcare vertical, which perhaps has among the most to gain from AI’s potential.
 
When the Cerner deal closed, Ellison was very clear about plans to have a standardized database that unifies fragmented data so medical professionals can instantly access EHR data, regardless of what type of EHR system it is, within a single database. At the time, we wrote about the obvious roadblocks to overcome, including the security & compliance concerns and need to obtain legislative backing. Since Ellison’s initial remarks, we have not heard much of an update on this vision, but Stargate and what seems to be Oracle’s rising role in the new administration (stay tuned as we track any potential Oracle-TikTok developments) could help move this vision along.

While Microsoft Has Been a Close Ally of OpenAI, the Bond That Was Forged in the First Year of GenAI’s Time in the Spotlight Has Weakened

So, how did we get here? Rumors of the Stargate Project date back to March 2024, when OpenAI CEO Sam Altman outlined ambitions for a $100 billion data center in partnership with Microsoft. At the time, the partnership seemed logical, given the companies’ long-standing relationship and Microsoft’s significant equity stake in OpenAI. However, the dynamics have shifted. In October 2024 Altman publicly criticized Microsoft for its slow progress in building AI-dedicated infrastructure, an issue corroborated by reports of persistent infrastructure shortages from Microsoft management. OpenAI’s latest announcement reflects the outcome of this strained relationship, as Azure’s exclusivity agreement with OpenAI has been officially amended, granting OpenAI the right to seek alternative delivery agreements if Microsoft fails to meet its compute demands. Oracle is the first cloud provider OpenAI has turned to, leveraging Oracle’s substantial capacity for AI workloads and an increasingly strategic relationship with Microsoft.
 
OpenAI’s shift toward Oracle is a setback for Microsoft but does not entirely diminish the hyperscaler’s leadership in AI. OpenAI remains a close partner, and Microsoft is well positioned to grow its AI-related IaaS revenue as the company continues expanding its infrastructure. Furthermore, Microsoft’s SaaS portfolio serves as a key delivery mechanism for OpenAI’s models, and the company retains a significant equity stake in OpenAI.
 
These factors are likely to sustain the strategic partnership between the two entities for the foreseeable future. Although Microsoft is not a member of the Stargate joint venture, it is listed as a strategic technology partner, and TBR expects its platforms and software to play a role in the project.
 
Additionally, while Microsoft may have less influence over OpenAI’s hosting decisions, Oracle and Azure remain deeply interconnected. For instance, Oracle now uses Azure data centers to house its database hardware through the Oracle Database@Azure Service. This setup could theoretically integrate Azure OpenAI into AI development as customers bring enterprise data from Oracle into the Azure cloud.

Stargate’s First Phase Includes the Construction of a Massive $100B Data Center, the Largest GPU Cluster in the World

Why Build an AI Megacluster?

OpenAI’s primary motivation for increasing computational resources is to meet the exponential demands of training models with higher parameter counts. Scaling up these parameters allows models to process larger quantities of data, often referred to as context windows. As a context window expands, model outputs improve in quality and accuracy. The prevailing belief is that pushing parameter counts far enough will enable models to exhibit the capabilities defined in OpenAI’s vision of AGI. With full financial backing from the U.S. government, OpenAI’s pursuit of AGI appears more achievable. The result would likely be a versatile GenAI back-end architecture capable of transforming process automation in SaaS workflows. However, in the short term, OpenAI’s focus on parameter scaling keeps its AI strategy centered on general-purpose LLMs, rather than more specialized small language models (SLMs). This approach makes OpenAI’s models particularly suited for productivity tools and customer service applications, while specialized models may dominate in niche workflow tasks.

Possible Stargate Constraints

While unparalleled access to GPUs and compute infrastructure is a major advantage for OpenAI’s model training strategy, there are still several factors that need to be addressed alongside the data center construction. First, the Stargate Project initially intends to absorb Oracle’s privately funded, in-progress data center in Abilene, Texas, yet TBR believes this could heighten power supply challenges. While power transmission constraints are widespread, Texas’ power grid has had issues in the past, such as in the winter of 2021, due to the fact that Texas’ power grid, unlike the other 47 states in the continental U.S., does not connect to the two major national grids. This prevents access to backup power generated outside the state and poses a risk of a significant outage. To mitigate these power concerns, TBR believes developing alternative power sources, namely nuclear power, will be a priority early in the Stargate Project.
 
Second, having access to effective training data remains a persistent need within the model developer market. While OpenAI has been forthcoming in striking deals with internet platforms and media sources, some speculate that the corpus of data available to train LLMs and large multimodal models (LMMs) could soon be completely used up. The use of synthetic data has often been proposed to overcome this hurdle, yet this path brings separate issues like greater AI hallucinations and model drift. Altogether, while securing project financing is the first step, working around these constraints will challenge OpenAI as it pursues AGI, and the innovations created in the Stargate Project will need to reach beyond simply building the largest AI-dedicated data centers in the world.
 
Financing could also prove to be a risk. In response to Trump’s executive action, Elon Musk, a Trump insider and co-head of the new Department of Government Efficiency, publicly shared his belief that the U.S. government does not have enough money to fund the project. Of course, Musk has a bias as the founder of startup xAI, but nevertheless, the Stargate Project does have a staggering price tag. Still, with the Republican Party’s control of the legislative and executive branches, there will be fewer political barriers to financing the Stargate Project based on the assumption that AI supremacy is of greater strategic importance.

Conclusion

The Stargate Project marks a significant development in AI infrastructure, with OpenAI, SoftBank, Oracle and the U.S. government collaborating to create a network of AI-dedicated data centers. With a planned $500 billion investment, this initiative seeks to address the increasing computational demands of AI model development, positioning OpenAI to advance toward its goal of achieving AGI.
 
Oracle’s involvement, bolstered by partnerships with NVIDIA and its advancements in cloud infrastructure, highlights its growing role in the AI ecosystem and could advance Oracle’s Cerner ambitions. However, the project faces notable challenges, including substantial energy requirements and concerns over the availability of high-quality training data, which will require innovative solutions to address.
 
As one of the largest technology projects in recent history, Stargate reflects the evolving priorities in AI development and the broader strategic implications for technological leadership.

Infosys’ Future: Scaling GenAI and SLM Innovation to Drive Growth and Stakeholder Trust

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Infosys’ proven engagement and delivery strategies continue to pay off, evidenced by accelerated sales during 4Q24 and an increase in FY25 revenue guidance for the third consecutive quarter. The company’s approach of underpromising and overdelivering, rooted in the company’s humble culture, allows it maintain trust with ecosystem stakeholders while it continues to expand and enhance its portfolio in emerging areas such as agentic AI and industry-aligned small language models (SLMs).
 
Infosys remains well positioned to surpass India-centric peer Cognizant for the No. 2 spot in revenue size, despite the inorganic boost of over $800 million that Cognizant will receive over the next year from its purchase of Belcan. Its’ relentless execution, backed by investments in talent development and partner-enabled solutions, will continue to be the company’s key to success as it gradually increases its share of value-based selling efforts, which are also bolstering its profitability, making otherwise impatient shareholders happy.

Scaling GenAI use cases through the development of prebuilt, industry-specific SLMs, and relying on highly skilled talent and resource management

As noted in TBR’s 4Q24 Infosys Earnings Response report, developing a client-ready AI-first portfolio is not a strategy unique to Infosys, but keeping pace with the rapidly evolving generative AI (GenAI) market highlights the company’s appetite for innovation and helps it strengthen stakeholder trust. Over the past 24 months, a large portion of vendor-client discussions focused on experimenting with developing and running large language models (LLMs), often fed with either public or nonessential data. Growing adoption of the technology has introduced the need for developing SLMs that are either function or industry specific.
 
While cloud-deployed models have far fewer resource constraints, there are still significant drawbacks with an LLM approach. Additionally, LLMs’ massive size leads to downsides in efficiency, cost and customizability, presenting serious hurdles over the long term, especially as contextualization improves. Moreover, when looking at specific use cases, SLMs built to perform particular tasks can outperform broader LLMs. These SLMs can be pretrained on smaller datasets, enabling developers to be more selective with training data and opt only for high-quality data sources pertinent to the desired use case.
 

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Ecosystem partners remain a critical component of Infosys’ GenAI strategy

Infosys and NVIDIA co-launched three NVIDIA-enabled GenAI solutions, which, according to Infosys’ press release, use “NVIDIA NIM inference microservices, NVIDIA NeMo Retriever embedding models, and NeMo Guardrails to customize and deploy generative AI telco domain-specific LLM models.” Infosys also launched NVIDIA-enabled SLMs for Infosys Topaz BankingSLM and Infosys Topaz ITOpsSLM, targeting clients through core industry and horizontal offerings and allowing them to use their own data on top of the prebuilt SLMs.
 
Further, Infosys launched the Finacle Data and AI Suite of solutions to support banking clients seeking to enhance IT systems and customer experience using AI. The solutions include Finacle Data Platform, Finacle AI Platform and Finacle Generative AI Offerings. We see these capabilities as a prerequisite to enhance the core Infosys Finacle platform and enable Infosys to remain a formidable competitor in the banking space.
 
Despite the modularity of these offerings, we do not expect the company to change its commercial model and continue to use the suite of offerings to drive services opportunities. Infosys’ SLM portfolio expansion strategy closely mimics the company’s build-out of industry cloud offerings that address client pain points with prebuilt models for specific functions. The difference is the added complexity around building and managing the prebuilt SLM models with their massive number of parameters.
 
Developing and supporting these prebuilt models will require the right-skilled bench and, more importantly, retention programs enabled by unique career paths for programmers who are involved in such tasks. Infosys’ Power Programmers group of engineers consists of highly skilled professionals who are responsible for developing products and ensuring that the intellectual property they create and use meets the cost-saving requirements Infosys pitches to clients. The Power Programmers group is much leaner than the traditional software developers pyramid and resembles the business models that many vendors, including Infosys, may aspire to implement in the future.

Enhancing its chip-to-cloud strategy via acquisitions can bolster cloud performance, but only if Infosys accounts for and aligns with OEM and cloud vendor priorities, including edge and 5G

With its cloud business reaching 30% of Infosys’ total sales and growing 25.1% year-to-year in 4Q24, Infosys continues to invest across its portfolio to expand its addressable market opportunities. For example, Infosys Engineering Services remains among the fastest-growing units within Infosys as the company strives to get closer to product development and minimize GenAI’s disruption of its content distribution and support position.
 
Since the 2020 purchase of Kaleidoscope, which provided a much-needed boost for Infosys to infuse new skills and the IP needed to appeal to the OT buyer, Infosys has enhanced its value proposition to also meet GenAI-infused demand. Infosys’ investments in recent acquisitions including in-tech and InSemi have expanded the company’s addressable market opportunities around product engineering and silicon design services, further strengthening its chip-to-cloud strategy.
 
We do not expect growth of Infosys’ cloud business, Infosys Cobalt, to slow down anytime soon, given the company’s market position for infrastructure migration and managed services as well as its well-run partner strategy with hyperscalers. Adding semiconductor design services bolsters that value proposition as buyers consider whether to use price-attractive CPUs or premium-priced GPU data centers. The latter currently dominates the marketplace, and we expect that trend will not change for at least the next 18 to 24 months. But having semiconductor engineers on its bench can help Infosys start supporting CPU-run models, appealing to more price-sensitive clients.
 
Additionally, expanding its product engineering services also enhances Infosys’ edge and 5G value proposition, which we believe are two of the next frontiers for AI-enabled growth.

 

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PwC India Harnesses Microsoft Copilot to Better Serve Clients in Cybersecurity

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In October 2024 TBR met with Sangram Gayal, PwC India’s Incident Response lead and Managed Services Strategy global lead, and Terence Gomes, PwC India’s Microsoft Alliance lead, for a discussion about PwC’s cybersecurity business in India and the firm’s alliance with Microsoft. The following reflects that discussion and TBR’s ongoing interactions with and research on PwC.

Building on solid base, PwC India and Microsoft expand cybersecurity alliance

Setting the stage for an India-centric discussion, TBR met with PwC India leaders for a discussion about the post-pandemic shift in perspectives on opportunities within the India market, based on India’s economic growth and the growth of international companies’ global captive centers. Increasingly, according to Gayal and Gomes, decision makers for global companies reside in India, which is influencing talent management, supply operations and growth opportunities.
 

In this emerging environment, PwC’s decade-old decision to shift its cybersecurity practice from purely consulting to a mix of advisory and managed services has positioned the firm well for transformation, implementation and operations engagements. While PwC India earns 35% to 40% of its cybersecurity revenues from multinational clients, the remaining 65% to 60% comes from India enterprises, primarily in banking and other highly regulated industries.
 

Additionally, PwC has gained ground providing cybersecurity managed services in the manufacturing and pharmaceuticals spaces. Gayal and Gomes confirmed that consulting accounts for roughly 70% of the firm’s cybersecurity revenues while managed services makes up the rest.
 

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Turning to PwC India’s summertime announcement regarding collaboration with Microsoft, Gayal and Gomes noted that PwC’s strategy led the firm to partner more closely on cybersecurity because of Microsoft’s scale, established PwC India-Microsoft relationships, and Microsoft’s focus on large enterprise clients (not SMBs), which aligns with PwC India’s target market.
 

Further, PwC India’s Microsoft practice is, according to Gomes, “holistic,” covering everything in cybersecurity and much of the full Microsoft stack, making PwC an attractive partner for Microsoft — attractive enough, according to Gayal and Gomes, that Microsoft is bringing PwC clients and co-conducting workshops around transformation, security operations center (SOC) modernization, and cloud migration. Not surprisingly, clients then award PwC the cyber managed services deals that flow from these workshops and consulting engagements.
 

One issue the PwC leaders raised centered on talent growth paths. While PwC mostly hires university graduates and puts them through a cybersecurity academy, the firm expects the smartest freshers to move beyond cyber managed services and onto a partner track. TBR notes that PwC has dealt with this talent management issue, particularly in cyber managed services, for decades, constantly refining the professional development paths and selection processes. Gayal and Gomes said the Microsoft incident response in India is “very lean” and supported by teams in Australia and Singapore with “good local and good global connectivity with PwC.” As a result, PwC is enhancing incident response overall in India, helping Microsoft leverage the capacity and helping extend capabilities within India. In TBR’s view, PwC’s recognition of Microsoft’s long-term cybersecurity talent and capabilities needs in India — beyond just Microsoft salespeople — reflects the strategic nature of PwC’s partnership with Microsoft and bodes well for sustained growth.

“You need to be good. AI helps. We’re replacing mindless work with intelligent work.”

Regarding Microsoft Copilot — ostensibly a catalyst to the July 2024 announcement mentioned above — Gayal said generative AI is “all about the promise of being able to do better queries and get better recommendations, not about the promise of cost cutting and not about reducing headcount.” Working with Microsoft Copilot enables PwC cybersecurity staff to make “better queries without exceptional coding and software skills,” leading to faster threat hunting and faster incident response.
 

Further, according to Gayal, Microsoft Copilot “enables recommendations not previously easy to formulate … [so PwC professionals] can be more creative and expansive in the how-to of running a SOC and … doing investigations.” When TBR asked about demonstrating these Microsoft Copilot-enabled capabilities to Indian clients, Gayal and Gomes noted that PwC conducts workshops at PwC SOCs, PwC Experience Centers, Microsoft offices or — most often — the client site.

A strategic growth hub for cybersecurity services

On multiple occasions over the last year, PwC leaders globally have asserted to TBR that India will become one of the most important markets for PwC services — clients based in India and served by PwC India. Gayal noted that India companies struggle to “hire the right skills right now,” even as these companies are “growing very fast and have growing cybersecurity needs.”
 

PwC’s global leadership attention and investment, combined with a market ready for PwC’s services and — critically — a strategic partnership with Microsoft, have created a level of enthusiasm for the opportunities in India.
 

Arguably, PwC brings another key element to bear: the firm is not new in India — it is not jumping onto the Indian economic bandwagon — but is, instead, a long-established brand with an intimate understanding of the Indian business climate and culture. Other IT services companies can emulate PwC’s cybersecurity offerings and capabilities but lack the firm’s deep knowledge of how Indian companies actually run their businesses beyond the IT shop.
 

As companies increasingly view cybersecurity as critical to running the business, cyber managed services players need to have a full understanding of their clients’ operations, financials and risks. Being part of the broader PwC firm gives PwC India’s cybersecurity team a clear advantage. TBR will be watching in 2025 to see what the team does with it.

What Spectrum Will 6G Use?

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The wireless technology ecosystem is rallying around FR3 bands for 6G

The wireless technology ecosystem has settled on the upper midbands, specifically the 7GHz-24GHz range (aka Frequency Range 3 [FR3]). Within FR3, 7GHz-15GHz is considered the golden range for 6G, as it has the best balance between coverage and capacity and 1600MHz of total bandwidth could be made available in the U.S.
 
However, one of the biggest issues with these “golden bands” is the need for communication service providers (CSPs) to coexist with incumbent users, such as government entities and satellite operators, which utilize some of these channels for various purposes and would need to either clear, refarm or share those channels with CSPs for use in cellular communications. The telecom industry already has some experience with shared spectrum through CBRS, which operates in the 3.5GHz band, so there is a pre-existing framework and mechanism in place (i.e., Spectrum Access System) from which to begin establishing a spectrum sharing system for these new bands.
 
Ultimately, TBR believes that 6G will end up leveraging a mix of spectrum tranches, with midband, upper midband and mmWave frequencies all in play. Carrier aggregation and other frequency-combining technologies, as well as advancements in beamforming and endpoint devices, make these spectrum bands perform better when working together. Additionally, FR3 spectrum is not good at penetrating walls. Given that around 80% of wireless traffic is generated indoors — a statistic that is unlikely to change materially in the 6G era — FR3 bands would need to be complemented with lower bands to penetrate walls and provide optimal coverage and capacity.
 

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Limited CSP investment and increased government role expected to shape the next cellular era

The telecom industry continues to struggle with realizing new revenue and deriving ROI from 5G, even after five years of market development. TBR continues to see no solution to this persistent challenge, and with no catalyst on the horizon to change the situation, CSPs’ appetite for and scope of investment in 6G will likely be limited.
 
TBR expects CSP capex investment for 6G will be subdued compared with previous cellular network generations, and deployment of the technology will be more tactical in nature, which is a marked deviation from the multihundred-billion-dollar investments in spectrum and infrastructure associated with the nationwide deployments during each of the prior cellular eras.
 
In a longer-term effort to address this situation, TBR expects the level of government involvement in the cellular networks domain (via stimulus, R&D support, purchases of 6G solutions and other market-influencing mechanisms) to significantly increase and broaden, as 6G has been short-listed as a technology of national strategic importance.
 

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With that said, 6G will ultimately happen, and commercial deployment of 6G-branded networks will likely begin in the late 2020s (following the ratification of 3rd Generation Partnership Project [3GPP] Release 21 standards, which is tentatively slated to be complete in 2028). However, it remains to be seen whether 6G will be a brand only or a legitimate set of truly differentiated features and capabilities that bring broad and significant value to CSPs and the global economy.
 
Regardless, the scope of CSPs’ challenges is growing, and governments will need to get involved in a much bigger way to ensure their countries continue to innovate and adopt technologies that are deemed strategically important.
 
 

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