The JEDI contract: We don’t see the force; do you?

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Considerable ink has been sacrificed parsing both the wisdom and the potential winners and losers of the Joint Enterprise Defense Infrastructure (JEDI) contract award, which is estimated to be worth up to $10 billion over 10 years. TBR wrote two commentaries around the topic in June that handicapped the potential bidders and outlined the fundamental consumption model shifts triggered by continued technological innovations changing public sector procurement factors from affordability to governance compliance — or from “wallet to will.”

The impetus for revisiting the contract flows from the Pentagon again pushing back the timeline on submitting proposals by three weeks. That the Department of Defense once again pumped the brakes despite a desire to accelerate modern technology procurement, while simultaneously ending the Q&A portion of the solicitation period, highlights the tensions and challenges created by the shift from wallet to will.

At TBR, we continue to question the efficacy of a single-source contract for cloud infrastructure services. This concept of working with one cloud vendor for compute was leading edge in the commercial space about a decade ago as enterprises wrestled with how to automate the seamless movement of applications and data between on-premises and cloud compute instances. With this technological problem largely addressed in the hybrid cloud era, the new technological challenge facing leading enterprises is automating that seamless deployment across multiple cloud environments.

In this adoption of new, consumerized technologies, we see the disruptive forces aiming at the public sector IT market opportunity. The Pentagon seeks a single-source captive solution, betting on one firm’s ability to stay ahead of the market on innovation for a decade. Such a bet makes little sense to TBR or to the industry executives with whom TBR has discussed the JEDI contract structure. Furthermore, much has been written lately about the concept of asymmetric competition, which postulates that open platforms actually shorten the competitive advantage windows technological innovations provide to technology vendors. In short, being able to exploit leading edge technology requires that companies lessen their reliance on single-source vendors rather than doubling down on them.

It has been argued that military strategists plan how to fight battles without fully appreciating the changes in warfare they will face going forward. Awarding a single-source, 10-year contract for technology innovation sounds like a continuation of that misaligned planning process. In the private sector, such deals trigger business exits from improper planning. In the public sector, the exposure to lagging strategic planning manifests in threats to national security.

SaaS sweetens the cloud pot but requires vendors to up their ante to participate

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Despite the simple graph in Figure 1 depicting SaaS market size, the space remains difficult to sum up. In the eyes of customers, SaaS options are proliferating and spanning a wide swath of business functions and stakeholders. Yes, SaaS is the largest segment of the “as a Service” cloud market—and yes, it will continue to expand. Beyond that, however, SaaS will remain a collection of separate markets, with most vendors specializing in one or two core and adjacent areas, instead of one unified opportunity. Some examples of this fragmented and overlapping landscape include Microsoft leveraging collaboration dominance to reinvigorate its CRM strategy with cloud delivers, SAP returning its focus to SaaS CRM after ceding the market to Salesforce, and Workday investing to build out a financials-focused SaaS business from its HR roots.

The market behaves in contrast to the IaaS market, which is highly consolidated around a standard set of often interconnected services and a small collection of vendors. In the SaaS market, growth will be achieved by new vendors addressing new workloads and features. From a vendor standpoint, there will be greater presence from legacy application providers such as SAP, Oracle and Microsoft, but also plenty of room for more niche providers as functional and regional niches develop.

While SaaS will grow the overall cloud opportunity, the challenge for vendors is that the SaaS opportunity will be more difficult to capture. That is not to say the historical model for SaaS adoption will cease to exist; there will still be SaaS purchases that are driven by lines of business (LOBs), transacted with a credit card in some cases, and deployed separately from legacy systems. At least some of the growth will continue to occur in that shadow IT model. However, much of the growth will be from SaaS solutions that deliver more critical services, are procured by joint IT and LOB teams, and are tightly integrated with legacy systems. These scenarios will require vendors both large and small to up their ante, bringing more sales, integration and support services to the table to win these more complex deals.

‘Best of breed’ spawns diversity in the SaaS provider landscape

The vendor landscape may be consolidating on the IaaS side of the cloud market, but that is not the case for SaaS. As seen in Figure 2, customers are most likely to increase the number of SaaS vendors utilized over the next two years, supported by a number of market trends, including new workload and feature adoption, platform ecosystems, and integrated multicloud deployments.

For workload adoption, there is a leveling of the playing field for which services customers are considering cloud as a deployment method. ERP, for example, used to lag in public cloud adoption but is now much closer to par with often adopted services like CRM and HR. Much of this increased consideration comes from enhanced comfort on behalf of customers for delivering sensitive workloads from cloud providers versus their on-premises data centers.

The other factor is the proliferation of complementary services available via PaaS ecosystems. The most tenured and largest example of this comes from the Salesforce Platform, which supports thousands of ISVs developing and selling solutions that complement and extend core CRM. Salesforce may have been the first, but other SaaS vendors, including SAP, Workday, Microsoft and ServiceNow, are taking the same approach, exponentially growing available SaaS services. The last driver is the continued rise of best-of-breed customer purchasing. For contracting and performance reasons, customers have long yearned for multivendor application environments, and now vendors are actually moving to accommodate that desire. Salesforce’s acquisition of MuleSoft and SAP’s introduction of the Intelligent Enterprise vision are the latest examples of how vendors are supporting customers in choosing and integrating solutions from numerous providers.

Expectation inflation raises the bar for SaaS providers

There may be a growing pool of revenue and room for more providers, but meeting customer expectations for SaaS solutions is anything but easy. Expectations have been on the rise, stoked by the greater control buyers have with cloud solutions versus on-premises software. The days of long-term software contract risk falling entirely on the customer are quickly coming to an end. Not only has the power dynamic shifted, but, as shown in the graph below, customers are successfully using more of their IT dollars to fund innovation over maintenance of existing systems. As a result, different evaluation criteria are being used for IT investments. Up front, there is a much more collaborative process between IT and LOB teams as they decide which offerings meet their underlying business need, not just what fits into their existing footprint. Calculating the benefits and return from SaaS investments is also a challenging task, as deployments use business outcomes as the ultimate goal. Although hard calculations seem challenging for most customers, it’s clear that enhanced levels of support and “customer success” roles are increasingly valued. Having these post-sale resources available and putting a greater focus on outcomes and other intangible benefits than on technology benefits seems to be the best way for SaaS vendors to meet inflated customer expectations for what the solutions can and should do for their business.

 

 

The 4 P’s of marketing – people, process, partners and platforms – emerge behind AI and compel vendors to adopt S-centric frameworks

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digital marketing services infographic, 4 P's marketing

Market dynamics will evolve in the next 5 years, with voice and video the core conduits for trusted and tangible AI-based marketing campaigns

The digital marketing services (DMS) market will grow at a CAGR of 16.2% from 2017 to 2022, reaching $125 billion, as organizations across geographies adopt artificial intelligence (AI)-enabled, customer experience-based voice and video solutions to run outcome-based campaigns addressing business pain points beyond brand awareness. Marketing in the moment frameworks will continue to dictate the shift toward hyper-personalization as consumers’ attention becomes the new currency and creates opportunities in areas such as omnichannel delivery and intelligent operations.

The shift from brand awareness to activation and support results in four new P’s of marketing — people, process, partners and platforms — leading to data management issues and opportunities. Winning vendors can adopt “S”-centric frameworks that emphasize closing skills gaps, delivering at scale and being in sync with partners’ visions, and addressing customer data silos through the development of interoperable and secure solutions.

Portfolio and go-to-market transformation and AI solution integration will be among the levers vendors can use to capitalize on a growing DMS market. Feeding the hype of AI could be a double-edged sword if technology and services vendors cannot deliver on the promise to shift the perception of marketing from a cost center to a business value driver.

AI-based voice and video platforms will increasingly take center stage as enablers for delivering campaigns in hybrid marketing environments, helping brands better connect consumers’ offline and online professional, purchasing and social behavior data. Technology partnerships and expertise in integrating platforms such as IBM Watson, Google and Adobe Sensei in the business-to-business segment and Amazon Echo and Google Home in the business-to-consumer segment will be key to services vendors’ success. The inability of vendors to recruit and retain talent with skills in these technologies might hinder market share as vendors are unable to address tasks at speed. Lastly, within the next two years, the broad-based adoption of AI across omnichannel platforms will reduce the need for multiple vendors to support engagements, and will also result in new opportunities in intelligent marketing operations.

For more information, contact Senior Analyst Bozhidar Hristov ([email protected]).

Robots laundering IT budgets?

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Automate a bad process or fix the process first?

As consultancies start expanding their robotics process automation offerings (RPA) and the software and related services begin permeating through enterprises’ procurement, human resources, IT, and even internal audit, a curious debate has surfaced between the merits of opting for careful and meticulous process assessment, documentation and improvement or just deciding to throw some robots at the process to get the cost savings benefits as quickly as possible.

I’m not surprised this discussion surfaced, given the rapid adoption of RPA solutions by companies in a wide variety of industries and the sustained investment by IT services vendors and consultancies in the people and assets needed to implement RPA (see any of our reporting in the last year on EY, Accenture, PwC or Capgemini). What surprises me is where the vendors and clients come down on this debate. At a recent three-day event, I listened to fairly passionate discussions on this topic, with clients taking the position that a company needs to do the standard evaluate-improve-refine process for their processes before applying automation. In contrast, the consultants — the ones best positioned to provide advisory services around that standard approach and charge for those services — argued for the fast fix-and-go approach. One consultant noted, “Throw robots at a bad process if it saves time and money now. … Then reinvest those savings into whatever else you need completed.” One client, who changed her mind by the third day after absorbing the consultants’ lessons, described some processes as tasks that employees “deplore, but must be done accurately, timely and repeatedly to help run the business.” She said RPA could be applied to these, with the savings poured into new artificial intelligence or other desired-but-not-a-priority initiatives.

Of course, it’s not that easy, or robots would be doing every deplorable task and automating every aggravating process

And plenty of consultancies will continue to offer process optimization and change management as core elements to most engagements. I’ll be watching the consultancies that have invested heavily in RPA and how they describe their engagements, which clients they highlight, and how their talent models shift over the next year. I’ll also be looking for examples of companies embracing rapid RPA deployments, knowing not every process was improved, but they threw the robots at them. Most importantly, we will be asking about the redeployment of those costs savings.

My colleague Jen Hamel’s Digital Transformation Customer Research, published in March, noted that clients haven’t been investing as much in data management, “despite the struggle organizations face with underlying data integrity and standardization issues that hamstring generation of actionable insight and limit analytics solution value.” She went on to note that TBR expects “this trend will be exacerbated by the proliferation of connected devices, ingestion of new data from the incorporation of additional sensor technology and breakdown of silos accelerating data inputs as processes are transformed.” So, if I had to bet, I’d say the smarter enterprises will be plowing RPA savings into the less-exciting, more-impactful data management tools or enhanced capabilities around risk and compliance. As Jen also pointed out, “[As] 66% of DT [digital transformation] services buyers used a vendor from a prior IT services engagement, existing relationships in clients’ IT organizations are a good starting place for ascertaining and accessing DT budgets.” We’ll be watching this closely, all the while wishing I had a robot to do the watching while I do the thinking.

 

Digital transformation advances analytics and insights

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Realizing the dream of AI-embedded business processes must start with people and data management

Realizing the dream of AI-embedded business processes must start with people and data management

Every enterprise looks to use emerging technologies to cut costs, grow revenue or create new business models. The combination of changes in how people work and what new technologies can best be applied creates massive opportunities for services vendors. This new market — broadly defined as “digital transformation” (DT) — will evolve through the current hype peak into a long, steady stream of fundamentally traditional services engagements involving a mixture of process knowledge and technical expertise. Though no longer “emerging” technologies, data management and analytics software remain at the core of DT initiatives and adoption of truly emerging technologies such as artificial intelligence (AI). As the analytics and insights (A&I) professional services market matures, competencies around AI, human-centric user experience design and DT-related change management will be key to vendors’ future growth.

To sustain A&I professional services opportunities over the long term, vendors must stay on top of AI technology developments while maintaining a broader perspective on the impact of AI on clients’ business processes and human resource (HR) strategies. As AI adoption grows, so does the technology’s complexity, particularly at the intersection points between humans and machines and between regulatory policy and technological innovation. We expect rising concerns around security and governance, regulatory compliance, and HR implications of AI systems will continue to drive consulting and solution design engagements tied to broader DT initiatives. To capture these expected opportunities, A&I services vendors invest in service and technology offerings to assist clients with AI adoption — from upfront advisory to data integration, application development and managed services. However, despite vendors’ massive investments in AI capabilities and a growing number of high-profile use cases for the technology, TBR’s research around enterprise DT initiatives indicates clients have not fully bought into the value services vendors can provide in creating AI solutions, suggesting vendors have a marketing challenge to overcome.

The model for a successful vendor is indeed a tall order. Our research indicates enterprises undergoing DT want vendors to understand their business problems in both industry and functional contexts, create solutions that mesh with their existing IT environments and maintain security, and cultivate robust ecosystems of best-of-breed technology partners. While building out strategies around each of these pillars, vendors should message how they can address technical challenges such as data preparation and training to help clients start and continue experimenting with AI, as well as provide process transformation and change management advice to enable clients to bring those experiments to scale. Vendors must walk a fine line between establishing a long-term vision for the future of business and directing clients where to take the first step toward achieving their goals. Framing AI adoption in the context of methodical modernization of individual business functions, rather than as an excuse to play with cool new technology, will keep vendors on the right side of that line.

TBR will continue to monitor the impact of AI on vendors’ go-to-market strategies and enterprise customers’ IT and professional services buying behavior through its Analytics & Insights Professional Services Vendor Benchmark, Digital Transformation Services Market Landscape and Digital Transformation Customer Research. For deeper insight on this topic, see our event perspective on the 2018 O’Reilly Artificial Intelligence Conference, held this past April in NYC.

For more information, contact Senior Analyst Jennifer Hamel ([email protected]).

IoT Customer Spotlight: Colfax survived the stormy seas of IoT after righting its ship, and its story can serve as a navigational aid for peers still caught in the squall

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Colfax is an industrial conglomerate with two operating companies under it, ESAB and Howden. ESAB produces equipment and filler metals for most welding and cutting applications, and Howden delivers precision air and gas handling equipment for numerous industrial applications. Both are worldwide industrial suppliers with multiple manufacturing plants and globally distributed support apparatus.

I learned about the conglomerate during a PTC customer panel at PTC’s LiveWorx 2018, where Colfax was represented by Ryan Cahalane, the company’s vice president of digital growth. I found his story, among others, to be an intriguing view into the development and deployment of Internet of Things (IoT) applications by an actual customer of vendor IoT solutions. Often, the real stories get lost in the marketing morass of the larger IT and operational technology (OT) companies pushing solutions. Cahalane and I connected over our thoughts on the importance of solving “the business problem” (and our intriguingly similar last names), and I took the opportunity to learn about Colfax as a customer (one could argue it could increasingly be placed as an ISV) and its experience implementing IoT.

Colfax began its journey like many of its peers: IoT was the buzz, and the company tried to react as fast as it could. Like many manufacturers or those in heavy industry, Colfax’s leadership kicked around the idea of harnessing IoT to drive new growth and differentiate from peers in a competitive marketplace, primarily via new IoT-enhanced products or digitally enabled service offerings. However, Colfax ran into challenges.

Internally, Colfax experienced the same roadblocks that plague most companies investigating IoT, especially federated ones like itself:

  • Colfax had a sizeable number of people working on IoT, but the company lacked communication and alignment across the various business units and initiatives.
  • Plenty of good ideas were being developed via shadow IT, but the company lacked cohesion and developments were technology-focused — not guided by business problems. This failed to differentiate the company, and Colfax’s messaging got lost in a crowded market.
  • Colfax initially tried to go it alone with a do-all solution, but that led to generic offerings that were not best-in-class, and handling all of the components, including design and management, was difficult for a diverse, distributed organization.

Externally, the company faced the usual challenges of the market. Its customers were interested in IoT, but Colfax found itself in proof-of-concept limbo as customers continually kicked the tires on IoT but never walked away with a key in hand. Cahalane explained that Colfax had trouble navigating customer cultures, such as garnering agreement from line-of-business, OT and IT managers from a technology viewpoint, and ultimately proving ROI for its digital solutions, from a business viewpoint, to C-level executives.

Many companies have shared the same struggles, and are now washing out, including behemoths such as General Electric, indicating no company is safe from the volatile and hypercompetitive IoT market. Colfax has persevered, however, because the company was quick to perceive the changing market dynamics. Here are my takeaways from my conversation with Cahalane around the company’s pivot:

  • I’ll begin with something that Cahalane, being humble, didn’t share with me but that I believe was an important step for Colfax: The company established Cahalane’s position of digital growth VP to coordinate IoT initiatives across the company and foster knowledge sharing, ultimately helping Colfax organize for IoT. Instead of offering a number of distributed, unfocused and perhaps competing IoT initiatives, Colfax, with Cahalane’s help, is focusing and acting on key opportunities.
  • What are those key opportunities? Colfax’s competitors would certainly like to know! Cahalane did share, however, the company’s new thought process for developing them: focus on the business challenges of its customers and narrow them down to what Colfax can best service with its technology and expertise. It’s no longer about developing fancy new technology and telling customers why they need it. It’s about listening to customers and solving their problems.
  • Colfax is going to market with the technology discussion on the back burner. Instead, the company is approaching customers with a business-problem-solving outlook, fishing for the all-important CEO buy-in and leaving the technology details to be sorted out later. As Cahalane stated, “We are staying very focused on the business message, the real value that you get from the solution. The tech is just a vehicle. A business message allows us to really spend time on bringing our knowledge to more customers. The customers finally see how it all fits together. It’s in their language.”
  • Cahalane noted that companies, such as Colfax in its early days, are often afraid of working with vendors or partners. Cooperation and coopetition among partners or working with a new vendor can be intimidating when a company knows it’s on the verge of a vertical breakthrough or solving the next use case, causing companies to keep their cards close to their vest. Laying the cards on the table and sharing technology, techniques, and customer relationships or entry points is a daunting step. Cahalane emphasized how Colfax had to shift its thinking from “How do we compete?” or “How do we keep this in-house to avoid paying for technology?” to “How could [a partner or new vendor] help?” or “How can they accelerate our goals?” Using the technology, expertise and capacity of Microsoft, OSIsoft and PTC now allows Colfax to focus on the solution components it knows best and to layer them on best-in-class platforms and tool kits provided by its vendors. This approach not only provides customer validation — for example, attaching to a well-known brand such as Microsoft for IaaS makes customers more comfortable — but also spreads out development and management. Instead of trying to support the entire load, which would be a challenge for an organization of Colfax’s size and structure, the company relies on its partners and vendors to take responsibility for their own components.
  • Finally, Cahalane emphasized the need for companies such as Colfax to remain agile in the quickly moving and erratic IoT-enhanced products market. The company constantly looks for acquisition candidates that can not only increase its expertise in its core digital initiatives and target verticals but also deliver new business models.

What is next for Colfax? Cahalane noted that there is still a lot of work for Colfax and its partners to do to develop, and educate customers about the power of data. This means not only tying data together inside one organization but also sharing data across organizations. For example, Colfax’s welding solutions could be used by customers to apply predictive and prescriptive analytics to real-time operational data to have alerts sent to supplies manufacturers for automatic resupply. Cahalane also hinted that Colfax sees the importance of shifting toward prepackaged solutions, which reduce customization costs and complexity and are built around proven ROI, to induce more customers to buy Colfax IoT solutions.

That’s the Colfax story. Why is it important? Not only does it validate concepts we have been sharing since we began our IoT coverage, but more importantly, it serves as an example to companies similar to Colfax across all verticals that may still be spinning their wheels with IoT. As Cahalane explained, true IoT success stories can be few and far between, with numerous IoT projects stuck in the mud due to vagueness, overambition, immature IoT, or lack of organization or maturity among vendors and customers to apply IoT.

However, TBR’s survey work and the insight gained from my discussion with Cahalane, among others, suggest that many projects that start with a specific business challenge, are smaller in scale or divided into digestible parts, and are led and received by companies mature in IoT, are working and delivering actual IoT revenue. TBR believes vendors and customers should take lessons from companies such as Colfax: focus on the business message, organize your business’s digital and IoT efforts around key opportunities, and use vendor partners to fill gaps while focusing initiatives around core strengths. While Colfax, as Cahalane noted, isn’t gaining explosive IoT revenue, TBR believes it’s certainly on the right path.

Samsung heads in the right direction

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Samsung introduced its new Galaxy Note 9 smartphone and two other products at a big event, Samsung Unpacked 2018, at the Barclays Center in Brooklyn on Aug. 9. The Galaxy Note 9 is a beautiful thing. It is better than last year’s model in many ways, and it has new features, including a remote control built into its integral S-Pen. As with most new models of highly evolved technology products, the enhancements are only exciting if you care about well-conceived and well-executed, though incremental, product improvements. This isn’t Samsung’s fault; it is very hard to pack new and exciting functionality into a highly evolved but constrained form factor.

The newly introduced Galaxy Home Speaker is also impressive; just 160 units of the smart speaker filled a basketball arena with impressive sound, complete with thumping bass. It also has a promising integration of the Spotify music service. Additionally, the new Galaxy Watch looks like a high-end watch, not like Apple Watch’s cough lozenge look, and the rotating bezel is a much more satisfying user interface (UI) than the Apple stem-winder. Bixby, Samsung’s smart assistant, included in the smartphone, watch, and speaker, is much improved over past versions, and it will put you through to Google Assistant on the phone.

Taken individually, these products are superb examples of the best of modern consumer electronics products. Plus, there are synergies among them. The best example shown was continuous music playing from smartphone to speaker and from one speaker to another in different rooms. This cohesiveness, Samsung believes, is the future of consumer electronics — open integration to provide seamless intelligent experiences. We agree. Samsung has identified the direction in which these devices must evolve and makes that direction clear both to the outside world and to the company’s thousands of designers and engineers.

Samsung’s proclamation of this direction was unusually loud, but the company is not alone in pursuing this quest. The company’s vision is not very different from one that Apple first expressed when it introduced the iPod to accompany its line of Macintosh PCs, and that which Apple continues to pursue. Google is moving in this direction with both its hardware products and software platforms. Microsoft retreated from its efforts in this direction with its withdrawal from the smartphone market, but TBR believes the company will, at some point, re-enter that space. Finally, Amazon is a major contender, with its smart speakers, tablets and streaming devices.

There remains much to be done to deliver this effortless, seamless experience. Currently, bringing together different products to provide a seamless experience requires effort on the part of the customer. This is essentially systems integration at home, and in many cases the benefit does not outweigh the cost. To be successful, these systems must interoperate, but at the same time vendors want to demonstrate that they work “better together.” Services and devices from vendors other than Samsung, Apple, Microsoft, Google and Amazon must be easily integrated and provide a seamless experience.

The spoken UI is critical to the success of these integrated consumer platforms. Controlling the home environment with a smartphone provides great power and flexibility, but is not worth the hassle; wall switches are a better UI than an app. A smart speaker, however, one that knows your history and preferences, is both powerful and easy to access and use. The problem with spoken UIs is that there are too many of them, and each keeps a separate store of information about the user. Until this problem is solved, Samsung’s goal of a seamless intelligent experience will not be achieved, and while the market for intelligent home devices will continue to grow, it will not grow explosively until all of the integration problems are solved.

Is ‘cloud repatriation’ real?

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Cloud repatriation is real, but not real enough to change the prevailing cloud trajectory. Think of it as the exception, and not the rule.

It’s a question I’ve heard multiple times: “We heard that [insert giant company name] is taking their apps/data off [insert giant public cloud vendor name] and moving it back into their own data center. Is this the beginning of a big shift?” If your job is in any way related to selling products or services for enterprise data centers, “cloud repatriation” sounds like a promising concept. Amazon Web Services (AWS) and Microsoft have been eating the lunch of a whole bunch of IT companies, and those IT companies would like that lunch back, thank you very much. But is the exodus of customers from public cloud really happening? Well, I have some good news and some bad news.

Bad news first: Cloud repatriation is not a market-changer

Cloud repatriation is not real in the sense of being a major, market-shifting trend worthy of its own buzzword. I will not deny the existence of one-off customers making a monumental shift away from public cloud. TBR sees anecdotal evidence of companies leaving public cloud environments, but we don’t see a wholesale move to strictly on-premises environments. The numbers tell it all: TBR estimates the PaaS and IaaS market grew 16% overall in the second quarter, with the big three juggernauts (AWS, Microsoft, Google) growing 58% on average within the segment, accounting for about $10 billion of the quarterly segment revenue. If anything, the public cloud market is moving toward an oligopoly as it consolidates. But it’s not shrinking. The market growth is far outpacing the loss of any customers that may be defecting.

The good news: Companies continue to use on-premises data centers, negating the need for repatriation

Very few companies see a future without owning some kind of data center. Apps that never leave the data center do not need to be repatriated in the first place (although they will likely need to evolve to a more agile and scalable delivery method). As you can see in Figure 1, the bulk of companies expect to maintain a roughly even mix of on-premises apps and those in hosted cloud environments. Smaller companies are most aggressive in their desire to reduce their on-premises footprint while the largest companies make it clear they don’t see a future in hosting everything. These projections make sense to me, especially based on my conversations with IT execs in small and large enterprises. Smaller companies tend to be concerned about the proficiency of their own data center while larger companies are full of complexities that make moving to a new environment a challenge.

 

The reality: Most companies seek a balance

By and large, companies are evaluating the best fit for workloads, acknowledging that there is no one-size-fits-all solution. Regardless of the type of cloud(s) being used, more than 80% of users will either maintain or expand their environments over the next three years. The proportion of buyers planning for public cloud expansion exceeds that of those engaging in on-premises private cloud expansion. But the fact remains that there is not a mass exodus from any specific environment. Regardless of environment, changes and evolutions will occur, even within self-built private clouds.

 

Given that business-to-business buyers are all over the map when it comes to cloud adoption, where can IT vendors succeed? There’s no easy answer, however, when discussing this topic with my colleague Senior Analyst Cassandra Mooshian, she had this to say:

“Recognizing there will be both exceptions and changes for most customers over the next three years is important for vendors, regardless of their cloud point of view. Yes, there will be workloads that have migrated to cloud that will move back to a traditional or on-premises delivery method. However, there will also be services deployed on premises that could eventually be moved to a cloud environment as customer needs and costs change. Something simple, yet critical, for vendors is to understand that no two IT environments are the same, especially across market tiers. Vendors may want their customers to go all-in on cloud, but that just is not feasible for larger organizations or even smaller companies in regulated industries or regions.

“The key to vendor success is to understand that there will be workloads best suited for cloud, while others may work just fine in legacy environments. The kicker will be in helping customers embrace hybrid, understand what works best where, and ultimately integrate and orchestrate it across each customer’s unique blend of legacy and cloud workloads. Once trust is established and there’s a mutual understanding around the idea that all options can and should be considered, that’s when long-term relationships start, and each company has a ‘favorite’ vendor or two.”

To discuss this topic further or learn about TBR’s cloud customer research, contact me at [email protected].

 

It’s time to stop calling IoT a technology

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Yes, we all do it. Every analyst, vendor and customer has referred to Internet of Things (IoT) as a technology. I have done it countless times, and so have my extremely talented and informed peers. However, it’s a misnomer, a shortcut, and a cop out, and if we actually think of IoT as a technology, it’s ultimately harmful to the adoption of IoT. IoT is actually a technique for solving business problems using a combination of technology components and services, rather than a technology in and of itself.

No one vendor does IoT alone ― it’s not a deliverable, self-contained technology solution. Rather, it often involves a “leader” company, generally a consulting company or an ISV, assembling a solution sourced from software, services and hardware components from partner companies. My colleague Ezra Gottheil likes to use a construction analogy. A general contractor will shop at Home Depot (the wide and increasingly saturated IoT marketplace) for all the components he or she needs to build a structure. The general contractor will also hire subcontractors (partners and specialized vertical ISVs) who have certain expertise. Even as we move closer to prepackaged IoT or shrink-wrapped solutions, multiple vendors will continue to be involved in delivery.

Some of these components can be grouped into the “new technology” bucket. As TBR closely monitors use cases and fills our use-case database, which currently has more than 360 entries, IoT projects are increasingly linked with augmented reality/virtual reality, blockchain and analytics. All of these new components, including IoT, are enhanced when used in cohesion.

But many of the components, such as servers, routers, mobile devices, sensors, connectivity, IT services and business consulting, have existed for decades. IoT is a new shiny label slapped on a technique IT companies have been using for decades: pulling together IT components to build solutions and help customers achieve their goals.

TBR believes when a vendor tells a customer “you should adopt this new transformational technology,” it is usually met with eye-rolling. IoT is no different. As soon as the “new technology” discussion comes to the table, customers instinctively rock back on their heels. It sounds like a large and long-lasting commitment, which leads to rip-and-replace cost fears, technology lock-in consternation due to a rapidly evolving market, and a general lack of understanding about the benefits.

TBR believes vendors should change the message. Begin with discovering what a customer’s business problems are, then suggest using the technique of IoT to begin strategically solving them in a stepwise manner. It’s not a rip-and-replace approach; it’s seeing where improvements can be gradually made to increase connectivity throughout an organization and ultimately deliver improved insight. It might mean adding sensors to legacy equipment, using IoT components and new analytic tools to tie together legacy data and create new insight, or implementing tangential technologies such as blockchain to better inform customers on their supply chain. Eventually, it could mean all of these combined.

At a recent vendor event, the CEO of a Boston-based IoT solution vendor asserted that IoT is now passe. True customer evolution, including problem solving comes from the bigger picture ― using the technique of IoT, tangential technologies, and internal and external data sources to supercharge efficiency and gain insight.

IoT as a technology is a lazy oversimplification. Let’s start messaging how the technique of IoT ―a new way of thinking about and applying technology ― can help solve current business challenges in an agile and cost-effective manner.

 

Predix is looking for a new owner

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Reports surfaced on July 30 that General Electric (GE) has contracted an investment bank to auction off the company’s GE Digital unit.

When former CEO Jeff Immelt aimed to diversify GE into the software space to take advantage of the synergies between Internet of Things (IoT) and the company’s industrial machinery footprint, GE Digital was created. The unit got some things right. It was one of the first IoT vendors to message the importance of operational technology (OT) inside the IoT technique, emphasizing that IT vendors couldn’t do it alone. It was also one of the first companies to highlight the digital twin, allowing engineers to run simulations or see the effects of an asset via its digital doppelganger, a technique now utilized by most IoT solution companies. It also promoted the idea that almost everywhere across a customer’s organization, from light fixtures to robots on the manufacturing floor, the addition of IoT could deliver insight. The unit carved the path forward for its OT peers, most of which were fast followers that gained an advantage by first witnessing GE’s successes and challenges.

TBR believes there were a few missteps. GE Digital made one of the more fatal mistakes among early IoT companies caught in the hype wave: It advertised that it was able to provide solutions for everything from manufacturing to healthcare and from utilities to transportation. It is understandable that GE Digital wanted to mirror GE’s wide industrial reach, but it led to a jack-of-all-trades, master-of-none messaging. In actuality, GE Digital likely focused on its Oil and Gas, Manufacturing, and Energy and Utilities segments, however, TBR believes the pivot to specialization in specific industries was too late.

This phenomenon of overextending can also be seen in the mechanics of Predix, which was marketed as a broad, do-all, edge-to-cloud platform with analytics. In reality, Predix was a do-all generic platform that needed a lot of expensive customization and developer time to build tailored solutions for customers. Because of this complexity and platform breadth, GE Digital had problems messaging what it was best at and how it could help customers. We believe the company overemphasized the platform’s  wide set of capabilities and underemphasized packaged IoT applications that solved real business problems. Ultimately, messaging of the platform got mired in discussions of technical features and functions, rather than the outcomes and differentiation of the company’s analytics and platform versus those of competitors such as IBM.

However, what tripped GE Digital up the most was that it wasn’t a great partner in a market that thrives on partnerships. Large IoT deployments will often have a multitude of vendors involved, all with expertise in a specific component of the holistic solution. Instead of focusing on enhancing areas where IT companies are weak, such as OT knowledge, GE Digital tried to do IT and OT. Because GE Digital wanted to do it all, it didn’t play as well as it could have with IT companies boasting deeply established roots in customer companies.

GE’s initial go-it-alone stance also had the company building from scratch, with its tools, such as analytics or cloud platforms, and feature sets always playing catch-up with IT companies that have been building these technologies for decades. For example, GE Digital initially tried building out its own cloud services mirroring Amazon Web Services (AWS) and IBM Bluemix. It ultimately ended up partnering, but we think the company’s initial focus on creating a PaaS cloud kept the company bogged down in services that didn’t add a lot of value. Ultimately, GE Digital proved to be an unattractive partner to bring into an IoT solution, and its platform failed to differentiate it enough to remedy partner apprehension. The platform was also much more expensive to build from scratch than just partnering with peers, making running-at-a-loss GE Digital look like a huge drag to GE leadership, which ultimately sealed its fate.

Where are GE’s Predix assets going? It’s hard to say for sure. As my colleague Ezra Gottheil noted, GE Digital announced it was standardizing on Microsoft less than two weeks ago. Microsoft has been looking for ways for Azure to outpace AWS in IoT and other emerging technology, and being a long-standing IT company, improving its OT expertise would make it more attractive in the industrial space. Perhaps Microsoft, or a Microsoft partner, such as Rockwell Automation or ABB, may be a purchaser.

TBR is seeing other large OT companies, such as Siemens, thrive as they focus on their strengths as OT-whisperers and enhance, not compete with, IT brethren. We are also seeing vertically specialized small ISVs pop up, in the OT and IT domains, that are focusing their expertise on a narrow set of business problems and are being brought in as essential partners. GE Digital blazed the trail for these peers, but also became a cautionary tale for those following in its wake: Enhance partners, don’t compete; be interoperable, not closed; message and provide expertise in your strengths, don’t provide a broad generic solution.