After TBR published a special report on SoftwareONE’s place in the software, cloud and IT services ecosystem, we spoke with Pierre-Francis Grillet, SoftwareONE’s global director of SAP Business Development, to learn more about how his firm’s SAP practice competes in an exceptionally crowded market.

 

Three key points stood out to TBR:

• SoftwareONE’s focus on its core strengths including expertise in SAP, cloud and licensing, which are all crucial in the move to cloud and Everything as a Service, fits well with current trends in the IT services, cloud and software landscape.
• Emphasizing pragmatic, incremental transformation over broad digital transformations helps SoftwareONE more easily define its value to clients.
• Grillet and his team understand which cloud platform works best in a client’s environment, and they’re willing to make recommendations, differentiating SoftwareONE from vendors seeking to be multicloud agnostic.

 

Given SAP’s massive on-premises ERP install-base — which totaled 25,000 customers as recently as 1Q22 — the market opportunity surrounding migrations from offerings like SAP ERP Central Component (ECC) to SAP Business Suite 4 HANA (S/4HANA) is vast. As such, my colleague Evan Woollacott notes that S/4HANA is critical to SAP’s ability to achieve its midterm ambition of more than €22 billion in non-IFRS cloud revenue out of more than €36 billion in non-IFRS total revenue by 2025.

 

This goal would bring SAP’s mix of cloud revenue as a percentage of total revenue to over 60% in 2025, compared to a mix of approximately 41% based off SAP’s 2Q22 earnings. Given SAP’s 2Q22 S/4HANA Cloud revenue was just $503 million across 14,500 live clients, the company has a long way to go to achieve its goal. From a services partner perspective, such as SoftwareONE, SAP’s need to accelerate migrations to S/4HANA represents a substantial revenue opportunity, particularly given the inherent complexity associated with these transformations.

 

While it’s true that SoftwareONE will constantly be competing against larger players with scale and smaller players with lower prices, if it persists with a smart, well-refined and well-executed strategy that stays true to the company’s core strengths, it should continue to grow ahead of peers.

 

 

GSI fatigue opens opportunity lanes for SoftwareONE

According to Grillet, clients have grown tired of global systems integrators (GSIs) with massive teams based in low-cost countries doing things cheaply because they can. Instead, clients looking for SAP implementations welcome the chance to work with smaller vendors bringing expertise-led approaches and IP-rich capabilities.

 

While the giant GSIs adequately serve the largest enterprise-scale clients, SoftwareONE has found a sweet spot with the high end of the SMB market and low end of enterprise-scale customers, particularly those overlooked by the global GSIs. With a go-to-market focus and capabilities tool kit aligned around lifting and shifting SAP applications to the cloud and technical upgrades to S/4HANA, SoftwareONE stays industry agnostic while leveraging well-honed software asset management skills and an acquisition strategy that brings in boutique and highly specialized firms.

 

In short, if customers don’t want the hassle of working with a giant IT services vendor but do want SAP experts with experience, SoftwareONE looks like a pretty good choice.

Don’t overthink baby steps

From high-level strategy consultancies to thin-margin VARs, vendors constantly hype their abilities to help enterprises unlock the value of digital transformation. Grillet and SoftwareONE have a refreshingly modest and believable counterproposal: pragmatic, incremental IT and business transformation, with the sober recognition that a change as significant as migrating to S/4HANA and to the cloud needs to be executed in a series of manageable — and financially feasible — steps.

 

In Grillet’s opinion, “S/4 touches everything,” so overcoming hurdles like resilience, security, and interoperability and connectedness should be approached with caution, expertise and realistic expectations. Pragmatic, incremental transformation may not sound as exciting as design thinking-led agile disruptive innovation, but software that doesn’t work is useless, no matter how transformative it could be.

 

“Whenever we are selecting the service provider partner, it has to be the long-term journey, not just to go by project-based or portfolio-based services. But if you want to do innovation gently and new value with more outcome results, we really want to see and we have to make [the service provider] a longtime partner.”

— Executive Director, Banking

 

“I think it’s really based on whether they [vendors] take on responsibility. When I’m looking for something, I look for people I trust to work with, and I don’t like it to be sold.It doesn’t matter whether they’re technology vendors or whether they are consultant vendors. So usually, the technology vendors have a better grasp of what our real problem is when we were looking for a solution. I think consultants in the real sense of consultants are usually hired when the board wants to make sure there’s something that they sort of have a grip on it or more control.”

— Chief Digital Officer, Insurance

Multicloud agnosticism means not knowing what works best

When advising clients on which cloud environment to choose for migrating applications or even a full-on instance of S/4HANA, Grillet said SoftwareONE does not shy away from making specific recommendations, eschewing the industry habit of staying multicloud agnostic. Grillet believes his team has the expertise and experience to evaluate a client’s technology needs and long-term strategy, then recommend the cloud environment that fits best, without regard to SoftwareONE’s alliance relationships with or revenue targets aligned to the three hyperscalers.

 

SoftwareONE cannot claim uniqueness in its aversion to multicloud agnosticism, but the company is definitely among the trendsetters in the broader consulting, IT services, software and cloud space moving toward a greater willingness to partner deeply to better serve specific clients rather than broadly try to please all clients.

Small and smart

SoftwareONE’s SAP practice includes 440 professionals working in 34 countries, performing cloud migrations, S/4HANA conversions and S/4HANA implementations. While not at the scale of the SAP giants, such as Accenture, Atos and EY, that TBR covers quarterly, TBR sees SoftwareONE as smartly leveraging its strengths, including 14-plus years of delivering pragmatic, incremental migrations that help clients with successful transformations.

 

Further, SoftwareONE stays within its lane, expanding its footprint at existing clients and slowly expanding its scope of services without pretending to be industry or functional specialists, a strategy TBR believes will generate steady revenue growth, loyal clients and consistent permission to compete.

 

As noted in TBR’s latest Cloud Ecosystem Market Landscape, vendors across the entire digital transformation spectrum “often like to position themselves as end-to-end providers. Many do indeed offer a comprehensive stack of offerings, but the ‘ends’ largely vary and revolve around each vendor’s core value proposition. While enabling and/or developing components of the IT stack provides a strong use case, vendors’ true value lies in their ability to manage partner ecosystems.” Staying in one’s swim lane and partnering smartly lie at the core of SoftwareONE’s strategy, boding well for sustained growth.

 

“I would probably be sacrificing some technical expertise on the problem solving in order to get internal alignment or buy-in from others who have relationships with that firm. At the same time, those firms [consultancies] are outrageously expensive. So, you have to balance fewer but more important pieces of work versus, you know, the ability to afford help on more projects.”

— SVP, Retail

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

 

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

Prediction No. 1: Hybrid remains the new norm

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

 

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

 

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

 

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

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

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

 

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

 

 

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

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

 

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

 

 

 

 

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

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

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

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

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

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

Prediction No. 2: Hyperscalers scale out edge cloud

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

 

 

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

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

 

 

 

 

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

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

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

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

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

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

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

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

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

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

 

 

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

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

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

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

 

 

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

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

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

This month Patrick chats with Principal Analyst Bozhidar Hristov about our latest cloud ecosystems research, including why Deloitte’s, Accenture’s and TCS’ revenues per hyperscaler practice are much higher than the benchmarked average.

 

Patrick: Why are Deloitte’s, Accenture’s and TCS’ revenues per hyperscaler practice much higher than the benchmarked average?

Boz: Deloitte’s, Accenture’s and Tata Consultancy Services’ (TCS) investments in cloud and overall IT services capabilities enabled each of them to drive conversations aligned to and/or enhanced by core value offerings. For example, Accenture has managed a close relationship with Microsoft since the launch of joint venture Avanade in 2000; Avanade evolved into Accenture Microsoft Business Group in 2019.

 

Acquisitions also bolstered Accenture’s scale, particularly around Amazon Web Services (AWS) and Google Cloud capabilities supporting the Accenture Cloud First agenda. Additionally, acquisitions help the company maintain a strong foothold in the market and trust with stakeholders as well as capitalize on its household name. In sum, Accenture has done everything it could, relentlessly.

 

In contrast, TCS has pursued a strictly organic strategy to build scale, relying on its low-cost execution offerings and investments in developing certified and skilled talent. Through distinct business units, TCS has also demonstrated commitment to all three hyperscalers — AWS, Microsoft Azure and Google Cloud Platform — enabling trust between TCS and hyperscaler partners.

 

Deloitte is a bit of an outlier, with the firm’s success largely rooted in its business compliance relationship and access to C-Suite decision makers, supported by ongoing investments in talent and portfolio offerings. Deloitte has built scale through both organic and inorganic means as the firm tries to balance investment priorities of individual member firms with globally run cloud initiatives.

 

Deloitte’s relationship with Microsoft is rather unorthodox as the firm audits the tech giant. However, Deloitte is able to circumvent these requirements while staying compliant by providing customer support rather than joint go-to-market efforts. We estimate Deloitte generated over $500 million in Microsoft Azure-related revenue in 2021. Deloitte also provides a use case for the remaining Big Four firms, which must also balance audit relationships with tech advisory and implementation positions.

 

 

Patrick: I keep hearing about industry clouds; do you have a breakdown of each vendor’s performance by industry?

Boz: With enterprise buyers viewing industry specialization as table stakes, the need to apply cross-industry use cases will elevate the role of SIs as orchestrators. Building out solutions for today’s problems with an eye toward future opportunities will help vendors capitalize on their investments, but only if they are able to maintain service delivery quality, trust and transparency.

 

The resurgence of industry clouds is testing services vendors’ mantra around vendor agnosticism as they try to balance commitments to their technology partners with addressing industry-specific client pain points. Industry cloud is far from a new phenomenon, with vendors employing industry-based cloud strategies since 2014, when SAP cited plans to target 25 industries.

 

Though industry-based clouds found early success, TBR believes uptake was limited as clients were largely focused on horizontal needs as they deployed productivity-based suites. Given the maturity of cloud today, the need for industry-based configurations has increased as adopters pursue custom solutions set against an industry backdrop.

 

Further, the nuanced nature of industry-based requirements and compliance standards faced by industries, such as financial services, healthcare and government, necessitate vertically tailored offerings. As a result, technology vendor investments around industry-based cloud have accelerated in the last couple of years.

 

TBR will continue to monitor and analyze vendor performance and ecosystem evolution around industry clouds. We hope to include industry revenue breakouts for IT services vendors by hyperscaler practice area in the next 18 months. But before we can publish our analysis, we need to have confidence in the data and complete all steps in the insights intelligence cycle, from collection through vetting, validating and publishing.

 

Patrick: I’m not seeing all of the IT services vendors TBR covers. Are there plans to add more vendors to this report?

Boz: Cloud Ecosystems Market Landscape started with 10 vendors across IT services and consulting spectrums, with the goal of providing a fair comparison across portfolio offerings, go-to-market strategies and performance and to set the stage of the market. We will continue to expand the vendor roster, provided there is enough activity and implications across the three hyperscaler practices.

 

In this month’s blog we’ve highlighted three different strategies well-suited to these IT services vendors’ strengths and positions in the market as well as trends pressuring everyone to change how they partner, particularly in a volatile, yet lucrative market.

 

Not everyone can or should try to emulate Accenture, TCS and/or Deloitte, but lessons learned around how and why they partner with hyperscalers could be valuable in any IT ecosystem.