Not your mother’s CDW: Putting services at the heart of digital transformation

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Evolving from a traditional VAR to a full-on IT services vendor

While generally known among consumers as a technology company, CDW (Nasdaq: CDW) has always been known within the IT arena as a value-added reseller (VAR) giant, one of the prime movers within that space. Without losing its market position in reselling, CDW now aims to be more: a full-on global digital transformation and IT services provider, supporting customers as they evolve their IT environments, including helping them modernize and manage their own IT or managing it for them.

 

According to Andy Eccles, CDW’s SVP for Integrated Technology Solutions, technology does not work on its own: “You need CDW. We make technology work.” In TBR’s view, the evolution from VAR to enabling “digital velocity” through professional services certainly will advance the company beyond “your mother’s CDW.”

 

But that evolution depends on getting three things right: 1) educating the CDW sales force on how the company can deliver on five business outcome areas — innovation, cost, agility, risk, experience; 2) shifting how CDW shows up in the market by refreshing and expanding the company’s brand; and 3) finding the right partnerships to allow CDW to focus on its strengths and leverage the broader IT ecosystem to CDW’s full advantage.

 

In December 2022 TBR spoke with Eccles and VP and General Manager of Orchestration Tara Barbieri, and the following reflects both that discussion and TBR’s ongoing research in the IT services, professional services and digital transformation space.

CDW Amplified Services: ‘Enabling IT and business transformation’

To set the stage, Eccles and Barbieri provided some details about CDW’s services capabilities at present, including the full services portfolio: Infrastructure, including Multicloud Services, Workspace, Security, Development, Data and Support Services.

 

Across each of those service lines, according to Eccles and Barbieri, CDW helps clients who know what they need from their IT environments and where they want to make changes and improvements, but who, critically, do not know how to get there quickly, efficiently and cost-effectively. CDW Amplified Services’ strength in addressing those challenges comes from the broader company’s vast IT experience and capabilities, including 100,000-plus products and services from 1,000-plus technology brands.

 

In short, there is nothing in the IT space CDW does not understand or deliver, allowing the company to address any and every IT challenge. Complementing the massive reseller store of products and services, CDW Amplified Services, according to Eccles and Barbieri, contracts for services engagements “around the outcome. What exactly are we trying to do? What is the customer’s goal?”

 

In TBR’s view, outcome-based or value-based contracting has challenged many IT services vendors and consultancies as clients remain leery of overpaying for hard-to-measure services and the vendors themselves must convince their own leadership to take financial risks with outcome-based engagements.

Shifting sales, branding and partnering toward services

Of the three challenges CDW faces in growing a competitive IT services practice with scale and quality, educating its own sales force on CDW Amplified Services’ capabilities may be the easiest to tackle. Salespeople across CDW currently understand at least one technology offering in depth, and the company expects sales teams will quickly adapt to bringing in additional CDW expertise to meet client demands.

 

In TBR’s view, the sales motions for products and services differ, in some ways significantly, requiring different approaches, knowledge bases and even compensation packages. But this is neither a complex problem nor a new one, and CDW’s approach to building its services practice — which is methodical, bolstered by acquisitions, several of which CDW made in the last three years, and centered on technologies CDW already resells — should facilitate expanding the company’s sales capabilities into services.

 

Evolving CDW’s brand — or, as Barbieri said, understanding how CDW “shows up in the market” — will require, in TBR’s view, two substantial changes. First, clients need to become aware of everything CDW does, including the full range of offerings CDW Amplified Services can deliver. Barbieri acknowledged that most CDW customers do not know the company offers multiple services, including consulting. Eccles said CDW will be looking for “aha” moments, in which customers appreciate CDW’s capabilities, but he acknowledged those moments currently happen “one customer at a time” and will be hardest to achieve with existing clients where perceptions of CDW’s capabilities are “entrenched.”

 

These hurdles lead to the second necessary change and tie back to CDW’s challenge around its sales staff: CDW must, in Barbieri’s words, “enable sellers to emphasize everything CDW does.” Changing the brand will require changing the way CDW’s own professionals describe the company, its capabilities and its place in the market. In TBR’s research around IT services vendors and consultancies, innovation and transformation centers have been useful in changing clients’ perception of a vendor’s breadth of capabilities and services, but these centers have also been critical in helping to spread the word internally about new offerings and shifting corporate culture to reflect a different role in the technology and services ecosystem.

 

While an ”experience center” or dedicated center of excellence around CDW’s services may not be a planned investment (currently), CDW’s ability to evolve its brand and get clients to think about the company as innovative and a leader in IT services depends, in part, in TBR’s view, on internal education and advocacy for what CDW Amplified Services will mean to the company’s next decade.

 

Unsurprisingly, the first two challenges feed into the third: finding the right partnerships across a complex and crowded IT services ecosystem. In their discussion with TBR, Eccles and Barbieri acknowledged while CDW can address clients’ issues around innovation, cost, agility, risk and experience, different personas within their client base drive those issues, bringing a variety of business needs, technology capabilities and, of course, budget considerations.

 

In thinking about partnering to address clients’ technology issues, CDW considers which client personas partners currently work with and where CDW can contribute its own strengths. In TBR’s view, most players in the IT services space evaluate potential alliance partners based on mapping each partner’s capabilities, strengths, clients and investments, looking to minimize overlap and maximize complementary offerings.

 

CDW’s approach starts with addressing specific client business outcome needs and how technology can deliver value, then moving to partners’ capabilities, reflecting, perhaps, CDW’s legacy of providing technology and understanding the full breadth of a client’s technology environment. As with brand and sales, CDW’s ability to drive change and benefit from smarter partnering across the technology ecosystem will depend, to a significant degree, on internal efforts to ensure everyone at CDW understands how the company is evolving from a traditional VAR into a full-on global professional and IT services partner.

 

TBR has written extensively about IT services vendors and consultancies testing out new solutions and platforms internally before rolling them out to their clients or the broader market — the “customer zero” approach. To tackle these three challenges, CDW may need to maintain a similar mindset, working through the corporate culture, brand permission, evaluation and compensation changes needed to make that pivot beyond a traditional VAR.

Understanding and delivering the technology central to digital transformation

Reflecting on the discussion with Eccles and Barbieri and reviewing CDW’s recent performance and corporate history, TBR believes CDW has honed a few characteristics likely critical to completing its evolution into an IT services provider, supported by a legacy VAR business.

 

First, CDW clearly understands the “digital” part of “digital transformation” actually is all about enabling transformation through technology. Eccles noted that “customers often see digital transformation as a technology project, not a change or business project,” which accurately reflects, in TBR’s view, the perspective of the majority of CDW’s customers, who are not in the C-Suite or looking to disrupt their business, create new business models or transform.

 

CDW’s customers want to achieve certain business outcomes with technology that works and know they need CDW to advise, orchestrate, deliver, manage and optimize it. Building on that approach, since CDW has been providing technology and IT staff for so long to so many clients, the company understands what works, what emerging trends matter to which customers, which customers manage their technology well and which ones need help, and — through all of that — where the opportunities are. CDW often begins engagements with a discussion of its customers’ larger business challenges.

 

The company also understands the current technology environment and what could improve it, making the company an ideal partner for the customer and for other providers involved in these engagements, including management consultancies that benefit from CDW consulting on and providing services around the technology stack. Wanting to be “not your mother’s CDW” while leveraging legacy VAR strengths that customers have come to rely on, the company knows what it does well and is willing to partner in areas that have not been traditional strengths. This self-awareness may be CDW’s key strength.

 

TBR has spoken with a number of vendors in various stages of evolution, from VARs to consultancies to security vendors to hardware companies, and many have not approached their challenges with as firm of an understanding of their current place in the market as has been demonstrated by CDW.

 

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EY delivers data-driven transformation through business frameworks and ecosystem partners

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Trusted data drives confidence in the process, and EY helps to contextualize it all at scale

With cloud becoming part of the IT utility bill the opportunities for monetizing enterprise data are increasing as the technology provides the bridge between everyday operations and future process optimization with the end goal of improving the customer experience. For all this to happen stakeholders must trust the data they use, which is often a challenge as data quality remains poor. During EY Global Data and AI Summit in November 2022, client stories were centered on the opportunity for organizational data to serve stakeholders — from employees to end customers — but the complexities from a technology and change management perspective continue to slow the pace of adoption.

Overcoming these hurdles requires all parties to work together, but agreeing and then executing on jointly developed frameworks are easier said than done, particularly as technology complexities and various data sources have turned the promise of a data lake to capture insights into a data swamp. This has triggered the need to develop tools and business process flows that extract the noisy data and capitalize on the insights first- and third-party data offer. EY’s background in business process optimization and investments in tech-ready solutions turn the firm into an invaluable partner especially as EY sees data and AI as a strategic growth initiative.

According to TBR’s November 2022 Digital Transformation: Voice of the Customer Research, “While we do not anticipate AI and/or automation tools to take over the top spot for technologies that support buyers’ DT [digital transformation] programs, these technologies will be further put to the test in 2023 as enterprise buyers seek to drive efficiencies by using automation and generating targeted insights through AI algorithms to withstand macroeconomic headwinds.” Smart IT services vendors and consultancies will come forward and offer this exact value proposition, forcing EY to ensure it can deliver measurable ROI. Technology alliance partners see the opportunity to develop an open tech stack, such as Databricks, which presented at the conference about its tiered warehousing solution Lakehouse.

This would allow consultancies like EY to scale adoption and integration, thus alleviating buyers’ concerns about vendor lock-in. EY brings capacity and capability to enable the use of enterprise data through the value chain, leading with process and content knowledge, which helps it strengthen trust with stakeholders seeking a vendor to contextualize their business data. TBR recognizes that standardizing data is an ongoing endeavor and the need to develop interoperable data standards is not a new concept. EY’s openness to lead the discussion and the efforts around the issue provide a starting point, a necessary first step for all parties to benefit from the value of data.

It is all about the ecosystem and EY is taking steps to address the opportunity

Vendors often recognize a trend or a need to address opportunities and/or threats through a particular adjustment of their go-to-market strategy and/or portfolio offerings, but they rarely make bold moves that could disrupt operations. This time it is different. At the summit EY demonstrated its willingness and readiness to partner better and differently. During one of the panel discussions, EY brought six of its data and AI partner companies ranging in size and portfolio offerings to present on stage: Databricks, IBM, Microsoft, RelationalAI, Snowflake and UiPath.

The companies presented in alphabetical order so EY could avoid being accused of favoritism, a smart move further confirming EY’s willingness to partner better and bring parties together not just in a press release but also to clients. EY’s approach to partners is different from many of its peers’ as the firm does not go to market with a particular vendor unless EY uses that vendor internally. Adopting a customer zero approach to its alliance partners elevates EY’s trustworthiness, a key element in the firm’s efforts to act as an ecosystem enabler.

According to TBR’s November 2022 Digital Transformation: Voice of the Customer Research: “With trust comes responsibilities, and vendors that align their portfolios, partners and people with client expectations, rather than trying to constantly upsell and cross-sell new technology, are better positioned to maintain that trust. Managing partner ecosystems is becoming increasingly important as they help vendors develop capabilities that add depth around industry knowledge and/or technology expertise — something buyers appreciate. Overcoming competitive pressures by pivoting toward coopetive frameworks takes time, alignment with leadership’s vison, and the establishment of new commercial and incentive models. Accounting for technology complexity, along with operational silos and data exchange, is also key to these efforts.”

With EY writing many of the rules in the alliance partner management playbook, the firm has set the bar high, not just as a showcase at a conference but also as a go-to-market approach as the firm continues to execute on a vision rooted in adopting collaborative business models enabled by standardizing data.

EY and its technology partners deliver data-driven transformations for clients

EY invited numerous client representatives from EMEA, North America and APAC to share their stories about working with EY and its partner companies. For example, EY, in partnership with UiPath, worked with a Fortune 500 automotive retailer in North America to enable its automation journey, build a foundation for an analytics model, and establish an internal Center of Process Excellence to address the client’s top strategic priorities. EY helped the client develop a proof of value and a business case for the automation of specific processes, build an operating model enabled by data analytics and robotic process automation, and implement UiPath’s low-code and no-code drag-and-drop solutions. EY leveraged its technology expertise to educate the client around technology solutions and supported process improvement initiatives.

The key takeaway from this client case is that EY stood out for its ability to build trust in relationships and to drive process improvement and transformation, especially when automation involves changes in people’s job structures. EY helped the client understand the next-generation technology and how to establish a lean corporate structure and have a streamlined IT organization, and gave client teams the ability to do things themselves with low-code and no-code solutions while providing structure and guidance along the journey.

 

EY also showcased its decision intelligence engagement with HSBC and in partnership with Quantexa, a provider of decision intelligence software. As the banking industry undergoes digital transformation, having a data analytics capability is essential. During the discussion, EY and the client shared that when starting a digital transformation initiative, it is very important to understand the scale of the organization and noted that it is hard to have a digital model without data and data connectivity. Obtaining the right level of information during the decision-making process, all based on models and data, is the first step in the transformation process.

Prior to initiating the transformation, EY conveyed voice of the customer and voice of the employee studies to be able to drive a cultural change and adoption of digital processes at the bank. During the three-year engagement, which began in 2021, EY supported the client during the adoption of the model, which was driven by metrics such as revenue growth, and implemented a data platform that underpins clients’ operational processes. EY’s understanding of the clients’ business and key performance metrics, and delivery of thought leadership on the financial services industry, enabled the client to expand activities with its customers and pursue opportunities in new areas, such as establishing a digital marketplace.

Future transformations require data-enabled foundations today, and EY offers reliable frameworks for clients and partner companies

EY’s future-back approach to innovation aligns better to technology adoption than it does to execution against the increasingly anachronistic enterprise-first mentality. Applying its future-back framework to data and AI opportunities positions EY as an ecosystem orchestrator that can help guide, develop and manage enterprise motions regardless of where transformation programs originate: bottom up or top down. In the bottom-up scenario, building organizational muscle, such as establishing a Center of Excellence through building use cases and an AI North Star to scaling often stalls because of internal politics, which, on the other hand, create change management opportunities for EY. The top-down motion, typically C-Suite led, takes a bolder approach, which a firm like EY can support through its robust background in financial analysis, governance and risk management. While neither scenario is unique to data and AI, the market is ripe for transformation, but only if a firm like EY manages to extend its support beyond the front-end advisory recommendations.

 

In TBR’s special report EY Managed Services protect clients from the bleeding edge of regulatory change we wrote: “EY said little about infrastructure technology, and yet the value propositions discussed throughout the day repeatedly referenced EY Fabric. A cloud-based data lake infused with AI and machine learning, the critical distinction of EY Fabric is that it is one global operating model. A single global operating model requires a standard set of business rules and inordinate amounts of data wrangling before any analytics can be applied against the data for business insights.

For years technology vendor events have brought forth clients to share their operating horror stories of trying to get right the standard data model. That EY, a global partnership, was able to settle on one global data model internally, and then drive it out to market is a testament to the EY operating culture, and a boon to its managed services practice. EY Fabric automates data wrangling for EY clients. It then extracts data from client systems, normalizes the data in EY’s data lake and runs proprietary algorithms against the data. Finally, EY Fabric reports fact-based insights and change management recommendations to the client. From those advisory engagements flows the managed services agreements, where EY ‘lands’ by addressing the topmost set of operational pain points, and then ‘expands’ through that proof of value into adjacent service modules.”

While EY Fabric provides the necessary link to managed services, the platform also connects well with partner technologies. For example, SAP represents the application layer, which contains much of the EY client that must be extracted and run against EY algorithms for business insights. Microsoft underpins the cloud-first EY Fabric and coinnovates with EY on the hooks into customer data. ServiceNow (NYSE: NOW) provides the base workflow shell for many of the EY managed services workflows. These relationships further amplify EY’s end-to-end enterprise transformation value proposition. We believe EY is self-aware of its strengths as the firm continues to collaborate with partners, including technology and services companies, to ensure it maintains service quality and protects its brand.

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EY’s humility paves the way for long-term success in a tough marketplace

We understand that becoming ecosystem orchestrators in the data and AI space or in the technology market takes time and, most importantly, talent; it is important to build a bench with orchestrators that consist of project heads with the necessary domain expertise to curate client processes for ingestion into EY Fabric as well as orchestrator AI chatbots to be run against the increasing volume of regulatory changes flowing from the public sector as governments seek to keep up with the pace of business change technology unleashes.

EY is not immune to talent retention headwinds, but the firm continues to invest in various initiatives to expand its recruitment reach. For example, EY’s Open Data Science Challenge gives the firm access to university students across the globe who sign up to participate. EY gains a database of potential recruits who bring AI knowledge and business interest, which the firm could later explore, especially those who move further in the competition. During the conference, EY announced  the winner of this year’s challenge, which was focused on developing an AI algorithm addressing biodiversity and predicting the movement of frogs in nature. EY sees these recruitment opportunities as another node of its already humble approach to build an ecosystem where each participant plays a role rather than constantly competing with each other.

In TBR’s December 2022 Cloud Ecosystem Market Landscape we wrote: “To be leading ecosystem participants, vendors across the ICT value chain will be required to prioritize the needs of both their partners and enterprise buyers over their internal growth aspirations. It sounds like an idea born in marketing, but DT outcomes will demand multiparty business networks, which bring together the value propositions of players across the technology value chain. By leading with their core competencies, players can establish the needed trust of partners and customers alike, increasing their competitiveness against other players that have spread themselves too thin with aspirations of being end-to-end DT providers.”

 

Executing against the commercial construct of multiparty ecosystem technology and delivery model starts with aligning leadership vision to sales motions and incentive models that are centered on superior customer service rather than fulfilling quarterly sales quotas. With EY pursuing plans to split its consulting and audit business and the NewCo seeking to become a publicly traded company through an IPO, preserving the firm’s humility and entrepreneurial culture will likely present an even greater challenge than developing tools and algorithms that can clean enterprise data swamps and turn them into valuable customer insights that provide the necessary links to support end-to-end enterprise transformation.

 

Since TBR attended the summit, EY has announced the global chair and CEO for the two proposed organizations post-split (AssureCo and NewCo). Julie Boland will serve as the global chair and CEO of AssureCo, and Carmine Di Sibio will serve as the global chair and CEO of NewCo. AssureCo will focus primarily on audit, tax and specialized advisory services. NewCo’s capabilities will be geared toward offering consulting-led IT services and solutions. TBR will closely monitor the progress of the split and will reflect our takeaways in special reports as well as future iterations of the Management Consulting Benchmark Profile: EY. TBR will share additional analysis and financials of EY’s data and AI business as part of the January 2023 Digital Transformation: Analytics Professional Services Benchmark.

 

In November TBR had an opportunity to attend, in person, EY’s first Global Data and AI Summit held in Malaga, Spain. EY did not randomly choose the location, and it gave the firm an opportunity to highlight its entrepreneurial culture, something that came through vividly throughout the conference as TBR interacted with some of the more than 100 attendees including EY clients, partner companies and other analysts. In recent years Malaga has become the IT nomad’s paradise as its warm climate and lower cost of living have attracted many IT professionals, turning the town into a leading IT industry destination in Europe. EY also recently opened a Global Delivery Center in the city. Entrepreneurship often means innovation and understanding that success is rooted in collaboration, which is highlighted by EY’s recent activities as the firm aims to capitalize on end-to-end enterprise transformation opportunities.

Amid macroeconomic uncertainty, AWS looks up the stack to enable complete solutions for customers

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Overview

Despite some of the macroeconomic challenges that have stalled many IT projects, AWS (Amazon Web Services) continues to invest, testing customers’ use of the cloud, and ultimately prepare for a boon in adoption across SaaS, PaaS and IaaS once markets normalize. To support demand, AWS announced several offerings at re: Invent, which, in addition to the usual cadence of updates and features released in response to customer demand, included solutions less customary for the IaaS leader to offer, such as industry-specific modules and a service parallel to a true SaaS business application. When Selipsky took the helm as CEO in May 2021, we speculated how his experience at Salesforce would tie into an infrastructure-centric company like AWS. A year and a half later, it is clear that Selipsky is bringing AWS into a new chapter, one that looks beyond general-purpose infrastructure toward data and application services that will support the next wave of innovation and cutting-edge workload requirements.

New Supply Chain service marks AWS’ foray into enterprise SaaS

With infrastructure services responsible for its large revenue volume and industry-leading margins, AWS is naturally less associated with the SaaS space. Often marketed as business applications, AWS’ SaaS portfolio offerings consist of productivity apps, such as Amazon Chime and Amazon WorkDocs, as well as front-end offerings like Amazon Connect. That is, until now.
 
AWS used re:Invent to preview AWS Supply Chain, an application-level service that combines Amazon software with AWS’ IaaS and machine learning (ML) services to provide businesses with more visibility into their supply chain operations. With the new solution, users can connect to ERP systems like SAP Business Suite 4 HANA, EDI (electronic data interchange) feeds and other data sources to automatically provision a data lake, import data into a unified model and contextualize it in real time. In his opening keynote, Selipsky argued that getting a complete view of supply chains often requires complex, third-party integrations, but with AWS’ solution, customers can have a unified place for their data, potentially allowing them to consolidate point solutions. This could end up being a tough sell for AWS, however, considering the hold that vendors like Oracle (NYSE: ORCL) and SAP (NYSE: SAP) have on the market, especially as these vendors offer full-suite SaaS solutions, such as ERP and CRM, thus easing many supply chain integration pain points by default.
 
In other words, customers will by no means rip-and-replace their current systems, but they may still find themselves evaluating their current supply chain management (SCM) products to see if the level of predictive insights matches that of Amazon SageMaker, the ML engine powering AWS Supply Chain. Currently available in preview, the new solution is already gaining traction among companies like Accenture (NYSE: ACN), Lifetime Brands (Nasdaq: LCUT) and Traeger (NYSE: COOK). Amazon-owned retailer Whole Foods is also deploying the solution to improve inventory management and get a real-time view showing when products will arrive at its distribution centers.

 

The launch of Supply Chain comes just months after Amazon made a notable organizational shift, transitioning Dilip Kumar from VP of Physical Retail and Technology at Amazon to VP of Applications at AWS. This change highlights an ongoing intersection between the commerce and cloud sides of the business, and how Amazon is leveraging AWS to expand the reach of retail solutions like Just Walk Out and, from AWS’ perspective, access unique IP that can help it build new industry applications. Because AWS’ new solution essentially acts as a repository for supply chain data, we do not see it as directly comparable to the traditional SCM solutions on the market, as it is designed more to supplement these companies’ systems rather than replace them. It is still early days for AWS Supply Chain, but regardless, the new service suggests AWS is looking up the stack and building new applications, and Selipsky, with his former experience at SaaS giant Salesforce, could be giving us an early preview into AWS’ transformation to a full-stack vendor.

Customers across industries are building with AWS

With customers becoming more vocal about their need for industry customization, AWS has adapted its go-to-market model to align sales teams by both products and an underlying vertical. With AWS’ competitors making big bets on industry cloud, Selipsky is prioritizing industry solutions, which for AWS largely consist of adding specific rules and policies within popular tools like SageMaker and, in some cases, layering on ISV solutions to address a specific use case. This approach does not necessarily act as a big money maker or help AWS hone in on a particular industry, but nonetheless helps it get a foot in the door with both large enterprise and midmarket customers.

 

Showcasing some of its latest innovations in healthcare, Selipsky welcomed Lyell Immunopharma, a T-cell testing startup, to the stage. The head of the company described a compelling edge use case, in which they developed an IoT solution on AWS to collect data from medical equipment and process it in real-time via the cloud. This eventually led Selipsky to reveal Amazon Omics, a new Health Insurance Portability and Accountability Act (HIPPA)-compliant solution that allows customers to store, query and analyze genomics data and predict vulnerabilities to target and prevent diseases through SageMaker.
 
Meanwhile, in financial services, AWS highlighted a deal win with Trust Bank Singapore, which chose AWS as its primary cloud provider and in the course of six weeks has onboarded over 300,000 customers to its digital banking platform. Trust Bank Singapore chose AWS for its user-friendly interfacing and developer tools, which will help the firm build new digital products, and appears willing to fill any industry gaps with third-party software available via the AWS Marketplace. AWS has over 1,600 ISV partners listed on the marketplace, many of which may be wary of AWS building out its own software, including industry-specific apps that could be sold into more strategic accounts. That said, partners should be somewhat reassured by the fact that AWS is still an IaaS provider at its core and AWS Marketplace partners are key to helping customers easily buy software and ultimately expand their AWS consumption.

AWS unveils new services and integrations to become more entrenched in its customers’ data pipelines

Swami Sivasubramanian, AWS VP of Data and ML, delivered the third keynote of the conference and spoke of the importance of an end-to-end data strategy, which he contended is made up of three core components: a strong data foundation, data connectivity and data democratization. According to AWS, the data foundation includes areas customers cannot compromise on, such as reliability, security and scalability. AWS showcased several innovations that address these areas, including Redshift support for multiple Availability Zones, which allows Redshift clusters to run on multiple instances at once to protect critical applications in the event of a data center outage, and Amazon GuardDuty RDS Protection, which extends threat protection capabilities to data stored in Aurora.

 

Perhaps the most notable release addressing the data foundation was support for a zero-ETL (extract, transform, load) integration between Amazon Aurora and Redshift, which will allow customers to bring data from Aurora databases into the Redshift data warehouse, without requiring them to build and manage ETL pipelines. In addition to addressing a top pain point among data scientists, this announcement marks AWS’ push toward what the company is calling a “zero-ETL” future, one that heavily automates a process that has defined the database market for decades.
 
That said, in our view, zero-ETL, like so many other concepts in the cloud industry, is somewhat of a marketing term; even as customers benefit from having data automatically replicated from Aurora to Redshift, they will still likely have to perform some level of ETL on the data sitting in Redshift, whether it is extracting data from third-party files or transforming SQL queries. AWS is also not the first cloud provider to innovate in the space, with Google Cloud (Nasdaq: GOOGL) bringing its support for Bigtable data on BigQuery into general availability this past August. With this integration, Google Cloud, like AWS, looks to eliminate manual aspects of ETL pipelines and make it easier for customers to copy data into its data warehouse solution, BigQuery.
 
The new zero-ETL Aurora and Redshift integration is an indicator AWS is trying to fend off competition from cloud-native database peers, some which are benefiting from more open, infrastructure-agnostic approaches that AWS has yet to adopt. Even legacy database giant Oracle has taken steps to make its database services available on competing public clouds, including AWS, to retain market share. In general, existing customers — 94% of whom reportedly use 10 or more database and analytics services — will appreciate steps AWS is taking to automate the data pipeline, but a promise of a zero-ETL future may not be enough to sway customers outside the AWS database ecosystem.

New connectivity, governance and management capabilities help AWS deliver promise of an end-to-end data strategy

Already strong in the foundational aspects of the data life cycle such as storage, querying and analytics, AWS rounded out its portfolio with new connectivity, cataloging and governance solutions. One of the more notable announcements in this area was Amazon Data Zone. As highlighted by the head of product for Amazon Data Zone, Shikha Verma, the new solution offers customers a unified environment where both data producers and consumers can access, share and utilize data. For instance, Verma laid out a scenario where a marketing team wants to run a campaign and therefore needs to access and analyze sales data, which is dispersed across a data lake, data warehouse and third-party systems. The sales team can use Data Zone to import and cleanse data and provide the marketing team with access to the data so they can effectively run their campaign. Looking to improve data access, AWS also announced 22 new data connectors for AppFlow, its integration service, including support for Google Ads, Zoom Meetings, MailChimp and Stripe.

 

Making data more accessible throughout an organization, including to the line-of-business domains, remains a key issue that many pure plays and AWS partners are trying to solve. For instance, TBR also attended Informatica World 2022, recalling a similar scenario where the marketing analyst needed more data to run a campaign and with the Informatica Data Loader tool was able to pull data from a third-party system and ingest it into Google Cloud’s BigQuery. At re: Invent, AWS announced support for Informatica Data Loader on Redshift, so customers can similarly copy data to AWS’ data warehouse solution. This integration may provide AWS with inroads to cross-sell newer offerings, including Data Zone, and is one example of strong partner synergies at work between the hyperscalers and pure play PaaS vendors.
 
That said, these synergies do not come without risk. AWS’ rapid exploration and innovation of new markets poses a challenge for partners as AWS offers customers native alternatives that, if competitive enough in features and capabilities, may cause customers to re-evaluate their use of point solutions. Through 2023, AWS will have to walk a fine line between where it innovates directly and uses partners. This is especially true as Microsoft (Nasdaq: MSFT) and Google Cloud are partnering to build out end-to-end cloud data services, including those that can run across clouds and on premises.

 

In the final stages of his talk, Sivasubramanian touched on the concept of data democratization, which starts by democratizing access to education. In TBR’s own findings, executive pushback and lack of sufficient skills are among the leading factors preventing businesses from productizing their data and viewing it as an asset, which is why AWS and so many of its partners are investing in training and education programs to advance careers in technology. AWS announced it has trained 310,000 developers on ML technology through DeepRacer and launched 18 new courses for the education platform in 2022 alone. At the event, AWS also announced Machine Learning University, a program for community college educators that offers courses in areas like natural language processing, computer vision and responsible AI.

 

AWS leads with custom silicon to power a new wave of workloads

AWS’ ability to look up the stack and cross-sell data services to its existing client base is only as good as the breadth and depth of its underlying infrastructure. Aside from being first to market with EC2 in 2009, AWS continues to benefit from the scale of its infrastructure footprint. And while some competitors may tout a greater number of cloud regions, the capacity of AWS’ facilities, in addition to micro data centers suited for latency sensitive workloads, remains largely unmatched. This diverse footprint joined with the Nitro system, which optimizes performance by offloading capabilities like network access and local storage to SmartNICS cards, is key to AWS’ success and helps the company sell its own proprietary processors and capture more critical workloads.

 

  • Unsurprisingly, AWS used re:Invent to showcase a new set of EC2 instances powered by its own Graviton processors. C7gn instances and Hpc6g instances are designed for network-intensive workloads, such as firewalls and load balancers, and high-performance computing (HPC)-specific workloads, like weather forecasting and genomics processing. A key part of AWS’ strategy is expanding the Graviton portfolio, hoping cloud-native customers will spin-up new workloads on AWS chips, especially as existing Intel users may not be itching to move off their industry-standard hardware anytime soon. To support adoption, AWS also announced the Graviton Delivery specialization within the AWS Partner Network. Partners with this validation have approved software and professional services offerings designed to help customers adopt Graviton and optimize their EC2 usage.

 

  • As discussed by David Brown, VP of EC2, managing a networking architecture that meets the needs of administrators, who typically want stricter control over network access, and developers, who want to connect applications without worrying about infrastructure, remains a common challenge. Trying to address both personas, AWS launched VPC Lattice, a networking application that helps users set up service networks within a virtual private cloud (VPC) and apply consistent policies for network access, monitoring and traffic management across AWS accounts. As with some of the new data services announced at re:Invent, VPC Lattice highlights AWS’ strategy of releasing services that appeal to different buyers to help customers consolidate point solutions. For instance, as VPC Lattice expands in global availability and features, network administrators may find they can replace some third-party network solutions. Complementing VPC Lattice, AWS also announced the availability of Network Manager, a new capability within the AWS Management Console that allows customers to monitor network performance in real time.

 

  • Making a push toward HPC workloads, AWS announced the general availability of SimSpace Weaver, a managed compute service that allows customers to run spatial simulations across up to 10 EC2 instances. The service is suited for a range of use cases too demanding for the CPU power and memory typically available in a single compute instance, including smart-city planning or stadium development.

Re: Invent showcased several innovations, but multicloud was not among them

Throughout re: Invent there was a consistent theme of supporting customers with data services regardless of underlying infrastructure (e.g., EC2, EKS [Elastic Kubernetes Service], Lambda). As such, AWS is offering deeper integrations between its products with Data Zone’s connection to Redshift, Athena and QuickSight, as well as the zero-ETL integration between Aurora and Redshift, among the leading examples. Despite these integrations, however, it is abundantly clear that AWS is making it easier to consume multiple products, but only if they are powered by its own infrastructure. Multicloud remains one of the core ways competitors target AWS workloads and brand the company as closed-off and prone to locking customers into its cloud stack. While true in some regards, market dynamics like high inflation and labor shortages are giving new weight to monocloud environments, making it easy for AWS to message around product consolidation and cost savings. As such, for the time being, AWS seems content letting customers use tools from Microsoft Azure or Google Cloud Platform to connect to its cloud rather than enabling a true multicloud environment for customers by offering its own services outside AWS.

Marking its shift toward solution selling, AWS unveils new programs and tools for partners

With over 100,000 partners, some of which can pocket $6.40 for every $1 of AWS they sell, AWS has come a long way over the past decade in how it goes to market. AWS does not re-vamp its partner programs often, but last year’s switch from two partner tracks — Technology and Consulting — to five tracks — Software, Services, Training, Distribution and Hardware — was strategic, providing partners with a simplified way to engage with AWS professionals and customers based on the specific type of product or service they offer. In addition to giving partners more chances to work with AWS resources directly, this model, dubbed Partner Paths, has helped AWS support partners exploring new business models.
 
The most notable example is the large global systems integrators (GSIs) using both of AWS’ Services and Software tracks as they start to build out IP to supplement traditional services models. Leveraging Partner Paths, AWS announced Solution Factory, which is very much in line with the re: Invent theme of providing customers end-to-end offerings rather than one-off services. With Solution Factory, partners within a particular track can work with AWS experts via workshops, demos and storyboards to roll out prebuilt solutions that address a specific business and industry challenge.
 
With customers clearly seeking end-to-end solutions, particularly at the PaaS layer, we expect Solution Factory will resonate with the ecosystem and drive greater collaboration among AWS partners, such as ISVs and GSIs, who may see opportunities to work together and provide specific outcome-based solutions on top of AWS. VP of Worldwide Channels and Alliances Ruba Borno also announced new features within the AWS Marketplace, including Vendor Insights, which makes security and compliance information for different vendors available to buyers, and new QuickSight dashboards for data visualization.

 

AWS is clearly taking steps to help partners better build and sell with the cloud giant, promising higher profit margins for those who engage in solution selling via multiple Partner Paths, new programs like Solution Factory and the AWS Marketplace. Nonetheless, these new offerings may only do so much to address the top concern among most partners: keeping pace with AWS’ evolving portfolio of over 220 services. Some of the large-scale GSIs and software vendors may find it easier to take advantage of AWS’ solution-based programs and chase a $6.40 multiplier, but the Tier 2 consultancies and ISVs, which are key to landing greenfield accounts, may be left playing catch-up. Further, while throughout various keynotes AWS has indicated it “can’t go it alone,” some of the new SaaS and PaaS innovations continue to suggest that AWS is indeed trying to go it alone in hopes of becoming an end-to-end cloud provider. As AWS continues to monetize new offerings over time, it risks boxing out partners and marginalizing opportunities, which may make room for competitors to use selective innovation and partner-first approaches to compete.

TBR Takeaway

Leveraging its IaaS foundation to enable entire data pipelines and build new SaaS applications, AWS has a growing aspiration to offer customers “one hand to shake” when it comes to cloud. We expect this approach will help AWS address customers’ concerns around cost and lack of in-house resources in the near term and win larger deals as customers expand their spend levels beyond basic data hosting in the long term. With its industry-leading profitability — at a 26.3% operating margin in 3Q22 — AWS is in a unique position to build out new product and services capabilities internally, but there are still risks to trying to innovate in too many areas too quickly. Further, as AWS looks up the cloud stack to markets far less saturated than IaaS, the company will welcome more competition and will have to be mindful of not infringing on partners — something its competitors are adept at and will continue to leverage to boost margins and offer clients maximum flexibility on premises and across clouds.

 

AWS re:Invent 2022: This year, TBR analysts were among the more than 300,000 people who live-streamed the immense amount of content at Amazon Web Services’ (AWS) annual conference, including five executive keynotes and 22 leadership sessions. Macroeconomic uncertainty and its impact on global businesses served as the basis for AWS CEO Adam Selipsky to tout the power of cloud computing and argue that AWS — offering not only more than 600 compute instance types but also a broadening portfolio of adjoining platform and application services — is best suited to address the needs of a maturing enterprise.

A streamlined and growing IBM Consulting

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IBM Consulting delivers business transformation with an emphasis on industries leveraging IBM’s technology capabilities and growing partner ecosystem

The new IBM Consulting that emerged on Nov. 3, 2021, following the spinoff of Kyndryl is a streamlined and growing company that is a key enabler for IBM’s expansion into hybrid cloud and AI. IBM Consulting, which accounts for one-third of IBM’s total revenue and more than half of IBM’s headcount, is utilizing its established consulting, business transformation and application services capabilities to support clients’ transformation initiatives. IBM Consulting is leveraging proven and emerging technology offerings from IBM, along with IBM’s broadening partner ecosystem, to deliver platform-enabled transformation and innovation.
 
A notable change for IBM is the shift from a historically closed company that largely relied on IBM technology products and solutions to one that is much more open to partnerships. This shift increases IBM’s and IBM Consulting’s value propositions and, according to IBM Consulting SVP John Granger, drives “a renewed interest and excitement about what IBM is doing in the marketplace.”

Integrating industry skills and security into IBM Consulting facilitates value creation

Granger shared during the opening keynote of the IBM Consulting Analyst Summit that from a go-to-market standpoint IBM Consulting has two growth platforms. The first one enables clients’ journeys to hybrid cloud through application migration, application modernization and managing cloud environments. The second platform focuses on the delivery of business transformation through intelligent workflows, process expertise, AI-enhanced methods, automation, business process outsourcing, and data and AI solutions. Both platforms are underpinned by IBM’s ecosystem of partners, enabling IBM Consulting to deliver business transformation and solve clients’ complex challenges.
 
IBM Consulting is also increasing its already strong industry expertise by tapping into IBM’s industry capabilities to drive specialization in segments such as telco, banking, consumer packaged goods, energy and resources, and the public sector. As security has become a key priority for and enabler of digital transformation, moving IBM’s security services capabilities from IBM’s products business into IBM Consulting improves IBM Consulting’s value proposition. IBM Consulting will be better able to expand sales of security offerings to its clients, use its operational services capabilities to improve clients’ security performance, and tap into IBM’s partner ecosystem to increase security solution variety beyond IBM technology.

 
IBM Consulting is positioned for growth and is investing in attracting talent and developing resource skills such as by increasing certifications in ecosystem partners’ platforms to address client demand and drive revenue growth, which ranged between 16% and 18% year-to-year in constant currency during the past four quarters. Changing the way IBM thinks about partnerships and establishing an alliances organization within IBM Consulting to better identify joint opportunities for solution development and expansion also positively impacts IBM Consulting’s revenue growth. Expanding IBM Consulting’s capabilities through tuck-in acquisitions enables the company to strengthen its digital transformation capabilities.
 
In September IBM announced the acquisition of Dialexa, a digital product engineering services company based in the U.S., which will expand IBM Consulting’s product engineering expertise and improve its ability to deliver digital transformations. Dialexa is IBM’s sixth acquisition in 2022 and third in the professional services segment following the additions of Sentaca around telecom consulting and systems integration and Neudesic around cloud consulting to IBM Consulting. Emphasizing the IBM brand and clearly identifying IBM Consulting’s capabilities will enable IBM Consulting to better attract talent and capture client engagements, positively impacting the company’s growth.

 

IBM Consulting increases its competitive position by tapping into IBM’s global footprint, balance sheet and technology skills, including Red Hat capabilities being used by 4,000 Fortune 500 clients moving to hybrid cloud with support from IBM Consulting. IBM’s strong incumbency with multiple clients, such as around managing their application estates, improves IBM Consulting’s ability to establish deep client relationships and drive business outcomes through industry expertise. Supporting collaborative innovation with clients through the IBM Garage approach, which is used in 70% of IBM Consulting’s deals, improves the company’s ability to drive cross-functional collaboration between business and IT functions and deliver business outcomes through short sprints while prioritizing value.

Strategic partnerships enable IBM Consulting to deliver solutions that meet clients’ needs

While it has taken some time for IBM Consulting to augment its ecosystem and bring multiple partners together on engagements, the company currently has 12 strategic partners including Microsoft (Nasdaq: MSFT), SAP (NYSE: SAP), Kyndryl, KPMG, Workday (Nasdaq: WDAY), Oracle (NYSE: ORCL), Celonis, AWS (Nasdaq: AMZN), Salesforce (NYSE: CRM), ServiceNow (NYSE: NOW), Adobe (Nasdaq: ADBE) and IBM. IBM Consulting is augmenting partner-related revenue and changing its relationship with partners to successfully deliver transformations. For example, 18 months ago 42% of IBM Consulting’s revenue in EMEA was generated jointly with partners. The revenue share increased to 60% in November, and the target is to expand partner share to more than 70% in 2023.
 
On the partner relationship side, 18 months ago IBM Consulting in EMEA had 1:1 relationships with partners as partnership deals were historically sequential; however, the relationships evolved in 2022 to 1:many and partnerships are now multidimensional with several vendors included in engagements as transformational solutions require technology from different providers. IBM Consulting’s goal for 2023 in EMEA is to have a partner orchestrator role that coordinates offerings from multiple partners to deliver seamless solutions to clients. While IBM is one of IBM Consulting’s strategic partners for technology solutions, it is important to note that IBM Consulting follows a client-first mindset when selecting partners for joint solution delivery and is open to working with other technology partners if IBM solutions are not the right choice for the client.
 
As Granger said, “We are the trusted advisor and intimately embedded in client [relationships] but with our point of view, bringing some of IBM’s technology and going where the client wants to go.” IBM also highlighted its relationship with Kyndryl around on-premises managed infrastructure services, which were moved to Kyndryl after the spinoff. While Kyndryl is a key part of IBM’s managed services provider ecosystem and supports IBM in delivering mainframe modernization and moving joint customers to the cloud, IBM has expanded the infrastructure services partners beyond Kyndryl to provide customers with options.

 

During the keynote presentation on the second day of the event, IBM had representatives from SAP, AWS and KPMG on stage to showcase its collaboration with different types of partners and the nuances of each relationship. IBM recently celebrated the 50-year anniversary of its partnership with SAP, a vendor with which IBM delivers services, solutions and technology. IBM Consulting is enhancing its portfolio with accelerators to speed up SAP implementations. AWS is a more recent partner for IBM, partnering since 2016, but is one of the fast-growing relationships in terms of resources and revenue generation.
 
Key success factors of the relationship include the cultural alignment between IBM and AWS, especially around customer-centricity and relationship development. IBM also combines the IBM Garage approach with AWS’ innovation mechanisms when working with clients around defining technology-agnostic models and prototyping joint solutions. IBM also recently partnered with KPMG to address clients’ needs around financial processes improvement utilizing IBM Consulting’s consulting, applications services and business process services expertise; IBM’s research and technology capabilities; and KPMG’s expertise in audit, tax and consulting. Through its partner ecosystem, IBM is seeking new ways to deliver solutions to clients that have compelling value propositions and attractive pricing.

IBM Consulting utilizes its data, AI, hybrid cloud, transformational consulting, and design and experience capabilities to capture growth opportunities

IBM is infusing data and technology across IBM Consulting’s offerings to enable clients’ business transformation

IBM Consulting leads with data and AI offerings to scale AI in organizations and uses technology to improve processes and help clients gain access to data. The company works closely with its industry sector leaders and its partner ecosystem to enable clients’ business transformations through data and technology, such as improving customer experience and driving customer intimacy across sales and services cycles. For example, IBM Consulting is enabling the U.K. healthcare industry, which according to Client Partner and UKI Data & Technology Transformation Leader Clare Mortimer is a “data-rich, but information-poor industry,” to better understand the value of data and adopt data-driven decision making.
 
IBM worked with the U.K. Health Security Agency, which had five data platforms and was challenged by massive data duplication and high costs to run the solutions, to help it understand the value of data. IBM and AWS established a single platform for enterprise data analytics to address protection and surveillance needs in the U.K.’s public healthcare sector. To implement the solution and stand teams quickly, IBM Consulting utilized a core team in the U.K. and its global delivery capabilities, including in Spain, India and Brazil.

Transparent and trustworthy AI solutions support talent transformation activities

IBM Consulting is also utilizing data and AI to enable clients to transform talent, gain skills and build an adaptable workforce. The company is integrating AI in process workflows to facilitate clients’ search for skills and improve accuracy of decisions such as around hiring skills, building skills, retaining skills, paying for skills and planning for skills. As Senior Partner and UKI Talent Transformation Leader Andi Britt stated during a breakout session on talent transformation, IBM Consulting utilizes AI solutions to provide recommendations for different levels of employees, including experts, managers and practitioners, who use their recommendations to make decisions.
 
AI solutions have to be transparent and trustworthy, so IBM Consulting emphasizes providing ethical AI that analyzes vast amounts of data and makes the best recommendation around ethical values such as individual rights, privacy, nondiscrimination and nonmanipulation. For example, IBM Consulting worked on a skills inference engagement with a multinational medical, pharmaceutical and consumer packaged goods corporation. IBM Consulting provided AI solutions to scan and analyze the client’s internal data using AI and build a competency framework that gives a sense of skills supply within the organization.

Regulations drive clients’ sustainability initiatives

According to IBM’s 25th edition of The CEO Study, which published in May 2022 and covers 3,000 surveyed CEOs across more than 40 countries and 28 industries, 81% of organizations have a sustainability strategy in place and 53% of the CEOs rated sustainability as a top priority; however, only 35% of the polled organizations have started executing sustainability initiatives. Approximately 63% of the surveyed CEOs expect digital capabilities and AI to help close the sustainability gap. IBM Consulting is well positioned to capture growth opportunities in sustainability. The company is leveraging its Sustainability Services portfolio and industry expertise; tapping into IBM’s broad capabilities in software and systems as well as Red Hat and IBM Research; and utilizing its partnership ecosystem to help clients become sustainable enterprises.
 
As IBM Consulting Partner and IBM DACH Sustainability Services Market Leader Elisabeth Goos stated during a breakout session on sustainability, while sustainability transformation is a complex business challenge, legislation is a big driver for sustainability, especially in Europe, which surpasses North America and APAC in sustainability initiatives. Stricter regulations and measures at the European Union and national levels — for example, punitive measures in Germany that amount to 2% of clients’ revenues and negatively affect profits — and customers’ desire to purchase sustainable products and their willingness to often pay a higher price are pushing IBM Consulting’s clients to accelerate sustainability initiatives.

Showing business use cases for the metaverse supports solution adoption

IBM Consulting provided a breakout session on the metaverse led by IBM Consulting Distinguished Engineer Chris Hay and IBM Consulting (in the U.K. & Ireland) iX-Customer Transformation Service Line Leader Suzanne Jones. Hay set the direction of the discussion by defining what is behind the metaverse, which is a rapidly evolving virtual world. According to Hay, the metaverse is not about one or two technologies; it is a promise to build on a new set of values — connections, commerce, consent, collaboration, community and copresence — and collectively drive the idea of a co-reality.
 
During the presentation, Hay shared multiple use cases for the metaverse across industries and noted that financial services organizations and telcos are showing increased interest in IBM’s metaverse-related solutions. For example, use cases could include metaverse commerce, in which IBM provides a 3D virtual storefront for VR and augmented reality (AR) that is connected to an omnichannel experience through the IBM iX Experience Orchestrator; metaverse workplace, where employees and customers could meet through secure web-, AR- or VR-based 3D virtual spaces; and metaverse branch, which provides optimized virtual spaces for real-time communication and tasks based on public platforms and virtual worlds.
 
An example of a metaverse branch is IBM Consulting’s work with a hospital in Japan where IBM Consulting created a digital twin of the hospital that is accessible to patients who want to learn what will happen during their stay, such as using simulations to see what the CT scan process looks like.
 
When asked during the session why clients should choose IBM for this type of work, Hay explained that IBM is a cloud, design and experience company and importantly IBM has an ethical point of view regarding hybrid cloud. For example, financial services companies face challenges when adopting public cloud platforms due to regulations around data protection and security. However, IBM provides broad options for partners and technology and is increasingly more open to working with an ecosystem of partners to address clients’ specific business needs. And notably, all work on the metaverse is done with business value, user value and a sustainable mindset in place, such as using web-powered solutions instead of pixel streaming, which usually is expensive from a cost and sustainability standpoint.

In conclusion

IBM Consulting is well positioned to continue expanding in the IT services and management consulting segments due to its clear focus on providing consulting and business transformation and application services capabilities augmented by industry and technology expertise. The global transition to a partner-friendly approach and a client-first mindset when developing solutions broadens and deepens IBM Consulting’s capabilities and increases its value proposition and attractiveness. IBM Consulting’s scale, global service delivery capabilities, established experience design resources through IBM iX, and ability to collaboratively innovate with clients through the IBM Garage approach enable it to successfully run and deliver transformations across the globe. Its emphasis on nurturing client relationships, along with its proximity to clients and understanding of industry nuances and regulations, enables the company to capture opportunities in the dynamic market environment, such as around sustainability and healthcare in EMEA.

 

IBM Consulting Analyst Summit: IBM Consulting held its first in-person analyst event in EMEA one year after the spinoff of Kyndryl into a separate managed infrastructure services company. The event took place in IBM’s new location for its Innovation Studio in London’s South Bank region. The goal of the two-day event was to provide an update on IBM Consulting’s strategy, capabilities and future direction; showcase how the company works with strategic partners such as SAP, Amazon Web Services (AWS) and KPMG; and dive deep into multiple IBM Consulting use cases.

PTC’s Corporate Experience Center: Experiencing software in a physical world

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In September TBR toured the PTC Corporate Experience Center (CXC). The meeting space, located at the company’s Boston headquarters, serves as the demonstration showcase and is filled with examples of PTC’s (Nasdaq: PTC) work with a wide range of manufacturing and industrial clients.

 

In this review of PTC’s CXC, we describe an innovation and transformation center that breaks molds while building on previous lessons learned and sets a new standard for how a technology-centric demonstration center can excel. Critical to note: PTC’s CXC is not completely comparable to what TBR has termed “innovation and transformation centers,” as detailed in our Market Landscape of the same name. PTC intentionally changed both the name and the focus when the company shifted from a Customer Visit Center, which hosted client briefings and executive visits, to the CXC, described in full below.

 

 

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Breaking rules, partnering smartly, and separating today and tomorrow

Embracing the headquarters-based showcase model reflects PTC’s strengths

PTC broke three of TBR’s cardinal rules for designing innovation and transformation centers: The PTC CXC is physically colocated with the company’s main offices, designed as a showcase, and built to be a single entity, without plans to open similar centers closer to clients. But with all three, PTC has seemingly made the right decisions.

 

PTC’s CXC takes up roughly two-thirds of the 17th floor of the company’s corporate headquarters, stretching in a semicircle from a massive packaging machine demonstration to conference rooms to the xR wall to the Reality Lab, operated in concert with the Massachusetts Institute of Technology.

 

Since PwC first opened a stand-alone Experience Center in Hallandale, Fla., removed from PwC’s local offices, TBR has maintained that separation from corporate headquarters helps facilitate, for both clients and employees, a more creative mindset and an environment unconstrained by previous ideas about what clients can expect from the vendor. PTC made a different calculation. By colocating the CXC with PTC’s corporate global headquarters, the company can more easily bring business line leaders and subject matter experts into customer sessions and demonstrate to new and current employees the full breadth of PTC’s capabilities and the company’s value to clients. And reinforcing a critical success factor described below, keeping the CXC in the headquarters allows PTC’s CEO to drop in on any client session.

 

In another TBR truism, innovation and transformation centers cannot be primarily technology showcases. Relying on static displays or moderately interactive demonstrations too frequently limits clients’ perceptions of the vendor’s value and may not be consistently relatable in every client engagement. For example, a retail store mockup will not resonate with an oil exploration company.

 

Because algorithms, platforms and code do not display particularly well, PTC embraced demonstrating its core products through its clients’ use cases, allowing CXC visitors to see and physically touch, among other displays, connected taps, a Volvo truck engine, and, as mentioned above, a $1 million full-sized and fully operational industrial packaging machine. The showcases, intended to be rotated with enough frequency to ensure returning CXC visitors do not see the same demonstrations every time, allow PTC to effectively tell stories about the value of their solutions across a range of client use cases and industries (admittedly, with a focus on manufacturing and industrial applications). In every case, the client provided PTC with the necessary equipment, and PTC’s CXC leadership noted that clients frequently ask whether their use case can become part of the CXC tour.

 

Lastly, TBR has seen the most effective innovation and transformation centers replicate themselves across the globe, bringing the vendors closer to clients while building a talent pool of design thinkers, innovative technologists and consultants fully versed in digital transformation. For PTC, the COVID-19 pandemic provided an immensely valuable testing period for virtual delivery from the CXC to PTC offices globally as well as clients’ physical and virtual environments.

 

By refining effective virtual delivery — first by recognizing and facilitating the need for communication between all participants, whether in person or remotely — PTC realized it could maintain the quality and freshness of demonstrations without compromising the client experience. While PTC maintains large offices in other countries, the company has no immediate plans to replicate the CXC abroad and will instead maintain a strategy centered on delivering either completely in-person or completely virtual engagements from Boston.

 

For PTC, focusing on building CXC capabilities exclusively at the company’s headquarters reinforces company culture and ensures consistency in delivery. Long-term, TBR anticipates a steady accumulation of case studies, lessons learned and highly trained professionals will lead PTC to create a similar facility at another large PTC location, closer to clients in Europe or Asia.

Following proven approaches, but with a PTC twist

While PTC broke a few cardinal rules, the company also adhered to some of the core characteristics TBR has identified among the elite innovation and transformation centers, notably a willingness to embrace ecosystem partners, a dedicated staff, and an openness to the local community. TBR previously reported on PTC’s inclusion as a branded partner at EY’s Nottingham Spirk innovation center in Cleveland. At PTC’s CXC, the company includes partners as diverse as KPMG and Nokia (NYSE: NOK) as clearly branded logos when those partners have been integral to the solution on display.

 

Clients understand and expect every vendor they engage across the consulting, IT services and technology ecosystem — from McKinsey & Co. to Wipro (NYSE: WIT) to Nokia — will play a part in solving their business problems and delivering on digital transformation in some way. Including partners in innovation and transformation centers strengthens a vendor’s brand, a lesson many consultancies and IT services vendors took years to learn while PTC leapfrogged into implementing a partner-friendly approach.

 

  • An important tangent: PTC raised the concern that its technology at partners’ locations could be unintentionally misrepresented or improperly demonstrated if PTC’s professionals were not involved. TBR has considered embracing technology partners’ capabilities and brand to be a critical success factor at innovation and transformation centers, but PTC’s caution reflects an important nuance in how consultancies and IT services vendors incorporate alliance partners’ technologies into client engagements. PTC smartly relies on delivering up-to-date and high-quality demonstrations remotely from its CXC when the company believes the particular use case, the specific client and the partner require PTC’s intimate involvement.

 

PTC staffs its CXC with professionals trained to present the company’s technology and use cases while tailoring the storytelling elements to a client’s specific needs, industry or interests. Sales professionals prepare the client for on-site visits after the CXC staff, in coordination with PTC’s leadership, reviews the business case to organize one- to two-day sessions. Subject matter experts elsewhere in the building can be summoned to assist should a client raise questions beyond the assigned staff’s immediate knowledge.

 

In all, PTC’s CXC staffing model echoes that of similarly sized innovation and transformation centers and seemingly lacks only consulting specialists adept at drawing out business challenges and reshaping engagement sessions while they are happening. Further replicating successful strategies at other centers, PTC has embraced the local community, opening the CXC for social or less structured sessions outside of scheduled business hours. In Boston’s seaport district, PTC and the CXC benefit from the technology-oriented business community and easy access to universities and startups.

Delivering something different: PTC’s CEO, Hollywood and a view of tomorrow

In addition to breaking innovation and transformation center rules, PTC’s CXC contains a few unique elements. First, as noted above, PTC benefits from a CEO who wants to participate in every engagement at the CXC and a leadership team that resides in Boston should a client need to hear directly from the company’s decision makers.

 

In TBR’s analysis, while most innovation and transformation centers have used a variety of metrics to evaluate their effect on their company’s bottom line, the most successful centers have leveraged initial leadership commitments to sustain long-term strategies and investments, with or without counting the number of client sessions, pull-through revenue, or other measure of success. PTC’s CXC staff tracks the effectiveness of its client engagements, reporting quarterly to PTC’s leadership, while enjoying the attention – and pressure – of a highly engaged CEO.

 

In addition, PTC’s CX Studio and extended reality (xR) wall bring a Hollywood-level quality to virtual presentations and engagements. For a company that, according to its website, purports to “use digital technology to improve the physical world,” having a truly state-of-the-art capability to produce digital content and broadcast globally reinforces the company’s potential value to clients. During TBR’s visit, the PTC CXC professionals noted that the sheer technological prowess of the xR wall allowed PTC to punch above its weight in the crowded software and services market, allowing the company to deliver differently and meet emerging expectations around the quality, versatility and interconnectedness of virtual delivery.

 

  • A second important tangent: PTC will not engage in hybrid client engagement sessions. Everyone is either on-site at the Boston CXC or remote (typically in Europe or Asia). In PTC’s experience, every hybrid engagement includes a suboptimal experience for at least one group of participants. While a necessary compromise during the pandemic, PTC currently insists on one common delivery experience, with the xR wall greatly improving what can be done virtually. TBR predicted hybrid engagements would eventually become the norm as consultancies, IT services vendors, technology providers and clients adjusted to the post-pandemic world. PTC’s decision to jettison hybrid strikes TBR as in keeping with the company’s independent and practically minded culture, even as TBR believes many of PTC’s ecosystem partners will continue to rely on hybrid for innovation and transformation engagements for the near future. As the pandemic fades, PTC will likely prove to be ahead of peers as hybrid’s limitations fail to overcome convenience.

 

PTC’s final unique element comes from the physical and intentional separation between today and tomorrow. Most of the CXC’s space illuminates what PTC can deliver today, with demonstrations of clients’ use cases and ample room to engage with client decision makers, PTC subject matter experts and professionals, and PTC’s technology partners. In contrast to innovation and transformation centers that focus on the art of the possible, PTC’s CXC stays rooted in what can be deployed today.

 

But in a separate space and enclosed by glass walls, the PTC Reality Lab allows the company to experiment with near-future technologies and demonstrate for clients what could be possible in their IT and operational technology environments. In TBR’s view, this clear delineation between today and tomorrow solves one of the persistent challenges at these centers: bringing immediate value during a client’s on-site visit while positioning for transformation after the client returns to their home offices and facilities.

 

Over the last six years, clients have lamented to TBR that art-of-the-possible sessions imagining an incredible future state have not solved current business and technology challenges. PTC’s approach likely resonates with clients that have visited consultancies’ and IT services vendors’ innovation and transformation centers and walked away intrigued but unsatisfied.

Subtle key to success: Touching the hardware at a software vendor’s showcase

In TBR’s landscape of innovation and transformation centers, PTC’s CXC stands apart for a couple of reasons. First, the center’s focus on client use cases to showcase PTC’s technologies contrasts with consultancies’ and IT services vendors’ typical focus on solving business problems (although PTC tackles this as well). Even as many IT services vendors and consultancies move toward becoming software vendors — or at least selling software “as a Service” — the CXC reflects the core business model differences between those vendors and PTC and the resulting differences in value derived from running a client experience center. Second, the physicalness of the CXC’s use cases provide clients with a visceral experience, a hands-on-an-engine kind of engagement that is both uncommon at innovation and transformation centers and surprising coming from a software vendor.

 

Overall, PTC has addressed clients’ fundamental business needs — tell me what to do, help me do it, do it for me — by creating an experience center that shows what can be done through on-site physical demonstrations, proves that PTC’s solutions can be vital to solving business problems and be deployed immediately, and positions clients to work with PTC on future challenges. Further, the CXC helps PTC build trust and relationships across its entire ecosystem, from partners to clients to clients’ customers.

 

As part of ongoing research, TBR publishes a semiannual Innovation and Transformation Centers Market Landscape, which includes characteristics common to these centers, analysis of trends influencing vendors’ activities and investments, and profiles of a dozen or more leading consultancies, IT services vendors, and cloud and software companies. TBR will publish the next edition in mid-December and will include a special section on PTC’s CXC.

Capgemini betting on business outcomes to drive growth

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Capgemini provides transformational services that drive business outcomes

In an early session at the Global Analyst and Advisor Summit, Capgemini CEO Aiman Ezzat declared Capgemini had become a business and technology partner to clients, helping them with their digital transformation and delivering business outcomes.

 

To make clear the change from years past, Ezzat said unequivocally that Capgemini is “not an IT services company,” a sentiment echoed throughout the day’s sessions and in many of TBR’s side discussions with Capgemini leaders and professionals.

 

In TBR’s view, Capgemini must shift more than just its approach toward clients if the company wants to bring a truly robust breadth of offerings, from strategy to core IT services to cocreation of shared IP. Capgemini must shift its culture, an effort TBR believes is well underway. Across a number of competencies, strategies and go-to-market motions, TBR saw examples of Capgemini bringing a new focus on value, such as the comment by Capgemini’s Group Chief Strategy and Development Officer Fernando Alvarez that Capgemini would be selling “value and delivering business outcomes,” not just basic IT services.

 

Given the global economic uncertainties, newly developing competitive pressures and accelerating commoditization of IT services, cultural and business model shifts might challenge Capgemini’s performance as businesses might cut back on discretionary spending on transformational projects; however, TBR expects the company to leverage Capgemini Engineering as the bridge between transformation and a new wave of outsourcing opportunities.

 

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Positioning as a strategic partner for clients enables value creation

Capgemini places value creation at the center of its strategy and creates value utilizing its technology background and software engineering skills. The company is looking for ways to help run clients’ businesses more efficiently and also establish new business models, such as by utilizing its development skills to build software architectures for e-vehicles. Pushing client centricity and selecting 10 focus industries to drive specialization improves Capgemini’s ability to create value and increase client reach.

 

While in the past Capgemini was not as vocal on being proactive on the topic of innovation, its leadership team is placing innovation at the core of its strategy. The company is running an initiative to increase perception with clients around innovation and is involving two-thirds of its strategic accounts in coinnovation activities in the Applied Innovation Exchange (AIE) network and labs to address areas of transformation such as around quantum computing, metaverse-related solutions and sustainability.

Capgemini attracts clients and talent by leading with value

Capgemini is positioning as a strategic partner for its clients to address their needs. Alvarez stated during his presentation that listening to clients is the rule for Capgemini and the company must communicate in a focused way by industry to better serve its clients. Delivering value to clients is driven by measurable business outcomes, industry expertise and data-driven industry solutions.
 
Creating new business models, harnessing the value of partners and data ecosystems, and supporting talent that has a passion for innovation are also value creation factors. According to Alvarez, Capgemini does not just address clients’ needs around cloud; it covers what runs on top of cloud. For example, data is a critical asset for clients, and Capgemini pushes to drive excellence around implementing data solutions and focusing on insights and business outcomes, and the data capability is coupled with cloud for scalability. Capgemini’s ability to build ecosystems to create value with partners by industry verticals and bring subject-matter expertise in engagements drives value creation and improves the company’s ability to price differently and position as a talent magnet.
 
Capgemini’s management team is no longer seeing the company as an IT services provider with outsourcing heritage sitting in Europe, but as a global digital and technology transformation provider that focuses on value creation, a strategic direction that will enable the company to continue to drive profitable revenue growth in the coming years.

Capgemini is shifting from selling capabilities to selling transformation

Establishing a proactive offerings development strategy and packaging offerings with clear value proposition and business outcomes improve Capgemini’s ability to expand wallet share with existing clients and approach new clients before they reach out with a request for proposal.

 

Capgemini’s corporate strategic framework, which has two pillars (data/AI and cloud) and three playing fields (customer first, intelligent industry and enterprise management), allows the company to support clients’ technology-based transformations. Investing in developing industry and domain expertise enables Capgemini to become a transformation partner for clients and drive revenue growth of over 20% year-to-year at constant currency in its three playing fields and 25% year-to-year in its two pillars.

 

According to Franck Greverie, head of Portfolio and Global Business Lines at Capgemini, connecting the dots by delivering end-to-end transformation that starts at the customer-first playing field and moves through intelligent industry and enterprise management is a key emphasis for Capgemini. Clients expect activities across the value chain, and engagements typically start with strategy services and work with clients on use cases and on transformation tasks to reach the endpoint. The strategy piece is key, so Capgemini is not only selling solutions but also providing transformation components and is partnering with clients to help them reinvent themselves. According to Greverie, two-thirds of Capgemini’s offerings were related to technology-enabled transformation four years ago while two-thirds are related to business-led transformation today, a shift that also contributes to Capgemini’s value creation.

Applying innovation at scale supports value creation

According to Pascal Brier, chief innovation officer, innovation enables clients to drive change, grasp opportunities, build value and separate from competitors. Placing innovation at the center of its strategy enables Capgemini to help clients change their status quo. Capgemini has a three-step approach to innovation that helps create value and deliver innovation at scale.

 

First, the company highlights what comes next and puts technologies to the test. Second, the company develops a tailored approach for each client, and third, it deploys innovation at scale. In the first step, the company conducts self-funded internal research and utilizes partnerships with academia to look at emerging trends and prepare capabilities. For example, Capgemini works with MIT around defining a framework for trust in AI and autonomous systems. The partnership with the MIT Initiative on the Digital Economy and joint research on B2B platforms was highlighted at the event.
 
Capgemini also participates in industry consortiums with government subsidies and conveys joint research with clients. Capgemini also cited the EcoSat R&D program, an initiative led by Capgemini Engineering to develop a solar balloon to conduct observations of the Earth and expand 5G capabilities. Capgemini’s labs, such as around quantum, 5G and edge, the metaverse and Web3, and autonomous systems, support the company’s research programs and thought leadership, improve its internal readiness and enable early business engagement.

 

In the second step, Capgemini’s global network of 22 AIEs across the globe enables tailored coinnovation with clients that is catered to specific industries and applies technologies to use cases. The key for innovation is that it is deployed at scale, and this is the way value is generated. Capgemini’s frog studios, ecosystem of technology partners and startups, Centers of Excellence and established network of global delivery centers enable scaling of innovation.

 

Capgemini Invent, the digital innovation, design and transformation business of Capgemini, highlighted two brands that drive technology-based innovation — Cambridge Consultants and Synapse.
 
Cambridge Consultants, which Capgemini acquired as part of Altran in 2020, is a specialist in identifying and developing breakthrough products and services that drive differentiation to clients. Headquartered in Cambridge, U.K., it has generated over 5,000 patents for its clients and comprises over 800 engineers, scientists, designers and consultants across offices and over 140 labs in the U.K., U.S., Japan and Singapore. Synapse, which is based in the U.S. and was a Cambridge Consultants company, is a product engineering company whose mission is to positively impact people and the planet through sustainable product development and improved user experience. Such expertise strengthens Capgemini’s transformation and innovation capabilities, enabling it to attract clients by reinventing their business models and generating business outcomes.

Industry expertise augments business outcomes delivery

Integrating the industry angle into its strategy and offerings, applying industry expertise with global accounts, and touting industry specialization through marketing messaging and branding supports Capgemini’s industry mission. Capgemini has selected 10 priority industries in which the company is building depth and investing in talent with the goal of helping clients offset pressures from external factors that negatively affect their business performance.

 

Capgemini shared six factors for disruption across industries, including geopolitical conflicts, energy crises, supply chain disruptions, economic factors, labor constraints and planet boundaries. For example, Capgemini stated that the consumer products and retail industry is challenged by labor crises and increasing labor costs, which are negatively affecting distribution centers that move daily household essentials. There is also approximately 35% employee attrition, on average, in stores and approximately 30% in manufacturing. To capture opportunities in consumer products and retail and help clients drive revenue growth, manage costs and operate sustainably, Capgemini is showcasing its capabilities around omnichannel commerce, advanced user experience, and solutions that combine physical and digital shopping.

 

Capgemini’s emphasis is to drive innovation in the sector and enable clients to improve customer experience and take costs out through a transformational effort, not a transactional effort, such as around changing store designs, addressing specific store employee needs and balancing activities with clients’ brand purpose. Consumer products and retail accounted for 13% of total revenue in 3Q22 and grew 14.5% year-to-year in constant currency in 3Q22 and grew 20.4% year-to-year in constant currency for the first nine months of 2022.

Capgemini creates new business models in the automotive industry

During the event, Capgemini augmented the sessions with multiple client representatives discussing their work with Capgemini on stage or connecting live through a virtual communication platform to show Capgemini in action and provide insight on successes and challenges during engagements. For example, Capgemini invited its client Lynk & Co, a global mobility company and part of Geely Auto Group, to talk about the journey around implementing an innovative and sustainable car-sharing service in Europe.

 

According to the presentation, cars stand still during their lifetime approximately 96% of the time, on average, while just 4% is spent on the road, or 6 hours and 43 minutes in a week and 14.6 days in total for the year. Lynk & Co is improving car usage by launching a car-sharing model in Europe, in which a person’s Lynk & Co car can be rented out while it is not used by its owner.

 

The Lynk & Co mobile app enables car owners to make their cars available to the community, including establishing rental pricing and requirements about parking the car when the rental time is over. The cars are built to be shared, with advanced telematics and connectivity to make the rental process secure. Community members receive star ratings from car owners based on their behavior to avoid vehicle misuse, while car renters get rated for the condition of the vehicle they own. The customer journey for purchasing a Lynk & Co vehicle is fully digital, with an online sales channel and no dealer involvement.

 

Capgemini was instrumental in the initial development of the business model and launch of the solutions and digital platform program with Lynk & Co in Europe. Capgemini was involved in the development and implementation of a custom-built platform, CRM solutions and mobile apps, and implementation of financial management software from SAP. The Lynk & Co client case highlights Capgemini’s capabilities around business and digital design consulting, along with its technology and systems integration expertise, which drives superior customer experience and new business models.

 

Intentionality and industry clouds: How EY’s Microsoft practice harnessed a dynamic market

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  • EY has transformed from a legacy audit, tax, and consulting firm into a technology-enhanced digital transformation powerhouse. Its Microsoft practice currently ranks as the 4th largest Microsoft Dynamics 365 partner globally.
  • Its strategy aligns with two dominant trends in digital transformation: industry clouds and multi-enterprise business networks. Its all-of-the-ecosystem strategy aligns with digital transformation clients’ understanding that no vendor is a one-stop-shop.
  • EY is committed to bespoke, higher-value, innovative cloud professional services while leaving the commoditized work to global systems integrators, and it is well positioned to continue growing its Microsoft practice with Infosys as a potential partner for Microsoft-specific consulting opportunities.

It starts with context

EY’s robust and expanding Microsoft (Nasdaq: MSFT) practice exemplifies how steadily, quietly and persistently EY has transformed from a legacy audit, tax and consulting firm into a technology-enhanced digital transformation powerhouse. While media and competitor attention focuses on EY’s pending split into a legacy audit firm and an unfettered consulting and IT services vendor, the existing firm continues acquiring assets and talent, growing revenues, and delivering to clients and technology partners.

 

In October TBR met with leaders from EY’s Microsoft practice, including Jim Little, EY Global Microsoft Alliance leader. We discussed trends across the cloud and IT services ecosystem, EY’s Microsoft-related capabilities and growth, and EY’s expectations for 2023 and beyond. The following reflects that conversation and TBR’s ongoing research on EY, Microsoft, and both vendors’ ecosystems and competitive landscapes.

Building capabilities and influence by playing to strengths

EY continues to build, run and sell consulting services, including a Microsoft practice that Little and his team said currently ranks as the fourth-largest Microsoft Dynamics 365 partner globally. Among the facts and figures EY presented, a few stood out to TBR:

 

  • EY earned over 6,000 Microsoft certifications in FY22 and is an Advanced Specialized partner with Microsoft Solution Partner designation across all six domains.
  • Ninety percent of EY client service solutions are used on the Azure cloud.
  • EY has delivered over 16,000 Microsoft projects across over 4,000 clients globally.

 

Greg Jenko, EY Global Microsoft Services Group leader, noted that EY is a “business transformation firm” with well-established industry expertise and a long history of understanding back-office processes and change management, allowing EY to “deliver transformation on the back of Microsoft.”

 

While not competing with India-centric IT services vendors on cost-driven cloud migrations, EY has been building capabilities on top of the Microsoft stack, focused on six advanced specializations (in addition to broad Microsoft capabilities). EY’s U.S. member firm has a dedicated Microsoft team, while member firms in other regions with less scale operate as virtual business groups. According to EY, the firm’s global connected dedicated Microsoft Team is the first among the Big Four at its current focus and magnitude.

 

In addition to the firm’s size, scope and capabilities, Little also stressed EY’s flexibility, noting that his firm could examine business model and technology implications of a client’s strategy, leading to EY-assisted bespoke data-driven transformations. Kathy Hevland, EY Global Microsoft Relationship director, explained that the firm has “strong brand permission” in heavily regulated industries, such as financial services, based on EY’s heritage in audit and assurance.

 

Additionally, EY has found success working with clients in industries with critical supply chain challenges. Little summed up EY’s value in the Microsoft space by noting that “bringing EY specialists to bear allows clients to move faster,” which echoes TBR’s research around clients’ highest priorities for digital transformations and cloud migrations.

 

Shaping trends around industry clouds and ecosystem alliances

Looking ahead, the EY team’s comments about strategy and opportunities matched two dominant trends in digital transformation: industry clouds (aka smarter alliances) and multi-enterprise business networks (aka extended ecosystem plays). Little said EY has been partnering with Microsoft in “engineering solutions to ensure industry clouds are fit for purpose” at both the sector and subsector levels.

 

Further refining EY’s strategy, Little added that the firm has focused subsector industry cloud innovations on geographies where EY and Microsoft have already been jointly partnering to deliver to clients. EY has played to its own strengths, by both industry and geography, to maximize the benefits of its Microsoft capabilities (in contrast to peers and larger IT services vendors, which have remained more opportunistic and transactional). According to Little’s description, EY is also influencing Microsoft’s strategic road map for industry clouds. In TBR’s view, the hyperscalers’ increased push into industry clouds will both expose the ecosystem players lacking industry expertise and open opportunities for vendors (and especially consultancies) with established industry-centric capabilities.

 

In that evolving cloud and digital transformation ecosystem, EY’s strategic decision to stay committed to bespoke, higher-value, innovative cloud professional services, while leaving the commoditized “simple stuff” to the global systems integrators, further plays to the firm’s strengths and helps maintain the firm’s brand permission around business transformation enabled by technology. Further, Hevland noted that “80% of EY’s ecosystem partners” are also Microsoft’s partners, reflecting Microsoft’s “incredibly ecosystem-friendly” posture.

 

With a strategic technology partner committed to alliance relationships and well aligned to EY’s ecosystem, EY should be well positioned to continue rapidly growing its Microsoft practice, even as it leans on IT services partners for capabilities or headcount in areas where EY lacks scale. Little suggested that Infosys, in particular, could bring Microsoft-specific consulting opportunities to EY, and Hevland noted that EY considers ecosystems critical to the firm’s strategy, including evolving new alliances with nontraditional players such as smaller, independent software vendors. In TBR’s view, EY’s all-of-the-ecosystem strategy aligns with digital transformation clients’ understanding that no vendor is truly end to end and every vendor needs to play well in the consulting, cloud and IT services sandbox.

Reassuring talent stays focused to increase retention and aid recruiting

No discussion about digital transformation can ignore talent management, which TBR and the EY team explored at length. In a stark rebuke of consultancies’ decades-long insistence that they are technology-agnostic and rely solely on their clients’ technology preferences, EY stated that while they can still be technology agnostic, they believe Microsoft is clearly winning in the market and so EY has strategically chosen to align with Microsoft and consistently reinforces that dedication. Little said EY professionals know they “will be excellent at Microsoft” and will not be “bouncing around” between hyperscalers’ technologies, giving those professionals reassurances around maximizing their skills.

 

In recent years, EY has acquired Microsoft-only people, niche vendors, building capabilities breadth and extending into new geographies while continuing to recruit with a sustained pitch around Microsoft-focused training and development. Sarah Bingham, EY Global Microsoft Services Group Operations leader, explained that to facilitate recruitment and training at scale, the firm developed a “recruitment-in-a-box” tool kit for EY member firms in countries with smaller, less-developed Microsoft practices. Bingham stressed that intentionality, scale and integration of Microsoft into broader EY training underpinned the global firm’s overall talent strategy. Potentially separating EY from peers, according to Bingham and Little, was the firm’s decision to focus on six advanced specializations, reinforcing EY’s role in bringing higher value to cloud migrations and optimizations.



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Intentionality as a mindset for transforming challenges into opportunities

Throughout the discussion with Little and his team and upon reflecting on EY’s potentially highly disruptive change within the digital transformation landscape, the word “intentionality” stood out as succinctly encapsulating what EY has been doing with its Microsoft practice for the last few years and the challenge the firm has created for peers and competitors.

 

By concentrating on Microsoft Azure as a preferred cloud partner — whether by default or design — EY has wrangled three challenges and turned them into opportunities for growth. First, EY’s clients and ecosystem partners know EY’s strengths center on Microsoft technologies, diminishing any market confusion about EY’s core strategy and capabilities. Second, marrying EY’s established industry expertise with Microsoft’s emerging industry clouds provides differentiation in a crowded competitive landscape. Third, EY’s sustained focus on Microsoft gives its professionals additional reasons to stay with the firm, reducing attrition and potentially attracting highly skilled talent.

 

Whether or not the split happens, EY will need to sustain this intentionality and capitalize on these opportunities for growth. According to TBR’s 2Q22 Cloud Ecosystem Market Landscape, Deloitte — despite its audit relationship with Microsoft that precludes a formal go-to-market alliance — has at least 8,500 Microsoft certifications, surpassing EY’s 6,000. TBR does not expect EY to surpass Accenture’s (NYSE: ACN) 43,000 Azure certifications in the near term (or ever), but EY should be able to match and exceed Deloitte within a couple of years, provided that activities related to the potential split do not adversely affect the firm’s Microsoft practice and that EY can maintain the advantages embedded in its strategy.

 

With RPA market maturing, UiPath paves the way for enterprise automation opportunities enabled by partners

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UiPath’s annual FORWARD conference provides a forum for the company to outline the next phase of its growth aspirations. TBR attended this year’s event, FORWARD 5, alongside 3,500 participants, including representatives from nearly 1,000 partners, and learned about UiPath’s goal to build on its position as a leading vendor in the robotic process automation market — in which it reportedly holds over one-third in market share — to become an automation platform capable of addressing enterprise transformation needs across all lines of business of an organization. To achieve this objective, UiPath’s ecosystem partners, from IT services and consulting firms like EY to cloud platforms like Microsoft, will be crucial. Similar to previous FORWARD events, UiPath reiterated its desire to scale within its existing install base — a number that now exceeds 10,500 global customers — by selling business outcomes.

Turning the corner from a pure play RPA vendor to an enterprisewide automation vendor compels UiPath to stay the course of its portfolio expansion

Three years ago, UiPath saw the opportunity to develop a platform that will help it build the de facto layer that will enable enterprises’ core processes from ERP to HR and finance to identify, gather and manage data with minimal human intervention. Fast-forward to 2022, and UiPath is adding modules to enable its Business Automation Platform (BAP) to meet its goal of departing from being viewed as purely a robotic process automation (RPA) vendor.

Combined with the purchase of the no-code AI communications vendor Re:infer, these elements will enable UiPath to provide support in high-volume communications channels — across email, chats, service desk and CRM notes — augmenting the task mining cycle and providing enterprises with key insights around how business gets done. As UiPath strives to bring together integrated discovery and automation to optimize enterprise processes, BAP provides the layer between enterprises’ processes and employees with three distinct functions enabled by UiPath’s portfolio and organized into three categories: Discover, Automate and Operate.


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While the majority of the opportunity remains within the Automate cycle, the acquisitions of Process Gold three years ago and now Re:infer have added the necessary modules and capabilities for UiPath to continually uncover opportunities throughout the cycles of process mining, task mining, communications mining and idea capture. We view these cycles as necessary steps for UiPath as it seeks to elevate the value of its platform and provide the enabling layer for enterprises to use automation for innovations and operations.

With cloud becoming the backbone of enterprises’ digital transformation programs, UiPath also seeks to find a spot in the otherwise crowded technology space. Developing a solution that will allow enterprises to migrate, automate and manage their cloud workloads provides the company with the necessary use case to demonstrate the value of its API-led automation and integration services, as these assets allow UiPath to standardize the opportunities around BAP. We believe the long-term opportunity around integration services for UiPath depends on the company’s ability to not just build connectors — which it has done quite well, supporting over 2,400 clients that have purchase integration services and over 5,000 active connections — but also extract the data that gets processed through the connectors.

We believe this data will be invaluable to UiPath’s partners as they seek to elevate the value of automation from a discretionary to nondiscretionary line item of IT and line of business (LOB) budget spend. Additionally, UiPath’s integration services supports multiple personas from Centers of Excellence and IT through RPA and app developers and citizen developers, which we believe will help UiPath to build the orchestration layer.

The technology partner ecosystem will be vital in supporting UiPath’s evolution from RPA incumbent to an enterprise automation platform at scale

Cloud platforms provide the infrastructure backbone and data center footprint to expand the addressable market of UiPath’s proprietary technology. Further, these same entities power the SaaS and on-premises workloads, enabling organizations’ business processes and workloads. UiPath must be able to reflect these workloads in its catalogs of prebuilt integrations to deliver on its promise of enterprisewide automation. By deepening its leverage of the technology partner ecosystem, UiPath will gain access to a wider variety of enterprise workloads and, more critically, provide customers with its growing array of Discover and Operate capabilities, to extract insights from the associated business process data being captured during the company’s Automate process.

While other cloud players are racing to build out their portfolios of automation capabilities, including RPA and low-code/no-code development assets, to support the growing customer appetite for workload customization, their capabilities lack the depth of UiPath’s and, in the near term, their value will be highest when used in conjunction with vendors’ first-party applications. This value-add does not align well with the reality of today’s enterprise SaaS environments.


Specifically, TBR’s 1H22 Cloud Applications Customer Research found that enterprise preference for best-of-breed SaaS deployment strategies is rising, with 40% of respondents stating they use three or more SaaS vendors today, and 60% of respondents stating the number of SaaS vendors they utilize will increase over the next two years. UiPath has an opportunity to exploit its position in the market and become the enterprise automation platform for tomorrow’s multi-enterprise business networks. In short, UiPath has the ability to provide customers with an automation platform capable of enhancing not only the processes corresponding to a single SaaS-workload like CRM but also the processes underpinning an end-to-end business outcome across workloads leveraging IP from multiple ISVs in areas like CRM, sales forecasting and marketing automation.


Over time, this approach will allow UiPath to achieve its goal of selling outcomes to clients, building libraries of process automations with cross-industry applicability and thus making its IP stickier across the enterprise landscape. In support of this aspiration, UiPath announced an expanded relationship with one of its largest partners, Microsoft (Nasdaq: MSFT). The two announced they will collaborate on a vision for the future of automation in the cloud; with Microsoft naming UiPath as a preferred enterprise automation partner and UiPath endorsing Microsoft Azure as its preferred cloud platform.


The pair, which have already developed 80 integrations available out of the box to joint customers, will further integrate UiPath across Microsoft Power Platform, Dynamics 365 in Business Applications, in addition to Microsoft’s Cognitive Services. While Microsoft has aggressively expanded the scope of Power Platform in areas like RPA and development, an IT services and consulting executive recently commented to TBR that Microsoft’s platform capabilities are not yet robust enough to support enterprises’ end-to-end automation projects. By further weaving UiPath across Microsoft’s vast portfolio, joint customers will be able to augment Power Platform with UiPath’s market-proven Automate assets, thus providing UiPath with a vast install base across Office 365, Dynamics 365 and Azure to drive traction of assets across Discover and Operate.


But to be a true enterprise automation company, UiPath will need to expand its current relationships with cloud platforms Amazon Web Services (AWS) (Nasdaq: AMZN) and Google (Nasdaq: GOOGL) to the same level and magnitude as that with Microsoft to position itself as a multicloud automation partner. Specifically, just as enterprises’ application environments increasingly consist of multiple SaaS vendors, so too do their IT infrastructures. Client preference for multicloud, hybrid cloud and hybrid IT deployments has steadily risen over the past few years as a means to reduce vendor lock-in, with TBR’s 1H22 Cloud Infrastructure & Platforms Customer Research finding that 46% of respondents plan to increase the number of infrastructure vendors utilized over the next two years.


This dynamic again presents UiPath with an opportunity to exploit client preference for multicloud environments, as the growing automation tool kits from AWS, Google and Microsoft will not be well served to automate the business processes and workloads spread across peers’ cloud infrastructure and legacy on-premises environments in the near term. In summary, UiPath’s ability to leverage the technology ecosystem — from cloud platforms, SaaS incumbents and the massive ISV community — will be critical to achieving the objectives laid out at FORWARD 5 around scaling, selling outcomes, and establishing itself as not just an RPA incumbent but also the enterprise automation platform market bellwether.

 

 

Partners provide access and use cases necessary for UiPath to scale adoption compelling the company to fine tune go-to-market efforts

To complement its technology ecosystem-led approach, UiPath will increasingly leverage services entities to gain access to enterprise LOBs. More critically, services entities today have the trust of C-Suite buyers, which will be needed to scale automation projects beyond single LOBs to achieve enterprisewide automation objectives. During the event, UiPath made several announcement highlighting the company’s efforts to strengthen relationships with services partners, recognizing the opportunity they offer when it comes to scale.



For example, EY unveiled that UiPath is now a Tier 1 alliance partner, a designation EY has only given to four other vendors and is often a confirmation of aligned vision, go-to-market efforts and client support. Accenture (NYSE: ACN) announced it will deploy UiPath automation to all of its employees (Accenture’s headcount stood at 721,379 as of 3Q22). Other partners like PwC held multiple sessions on stage, providing insights and sharing best practices from its collaboration with UiPath and the overall value of automation especially as it pertains to enabling its staff and creating capacity for higher-value tasks.


Given UiPath’s plans to pivot to selling outcomes, leveraging services’ partners vast benches of consultants will be crucial to clearly articulating its business cases across the industry continuum to secure the necessary enterprise budget to scale automation projects. Amid the growing macroeconomic uncertainty, UiPath’s promise of cost savings via automation — a mantra it touted endlessly at FORWARD 5 — may be well received by enterprises globally, but securing IT budgets is becoming more difficult as spending is increasingly scrutinized and will require the involvement of services partners that have the permission and trust of the budget decision makers.

Implications and opportunities

UiPath’s success lies in the company’s ability to evolve its value proposition as it executes on its three core pillars: technology, ecosystems and culture. With UiPath’s platform remaining open and easy to access, developing and integrating the focus of the co-CEOs has increasingly been focused on ecosystems and culture. We see the background of each CEO playing a key role in shaping leadership dynamics. We believe former SAP (NYSE: SAP) and Google executive Robert Enslin will remain largely focused on developing and executing UiPath’s sales and go-to-market strategy, which primarily revolves around its relationship with key alliance partners. Enslin understands the value of the ecosystem, especially as UiPath is trying to develop the next chapter of its client management strategy.



With UiPath’s roster of over 10,500 clients, Enslin knows that the company needs to develop a tier-based structure with large services partners and consultancies getting involved in relationship mining with the bigger accounts and also develop more self-service support mechanisms for smaller logos. Increasing expectations from partners will have to come with the necessary enablement framework. Providing access to clients and retuning incentive models will be key as UiPath strives to scale annual sales fivefold by capturing enterprisewide automation opportunities within the IT service management space.


In parallel, UiPath’s co-founder and CEO Daniel Dines’ humble beginnings provide the necessary foundation to ensure the company’s culture stays intact as it enters the next chapter of its growth strategy. Dines’ previous stint at Microsoft also helps him understand the value the partner brings to the relationship, evidenced by the two companies endorsing each other as preferred partners. Adopting an evolved sales and partner strategy while preserving culture will not be an easy task, but we believe UiPath’s leadership’s grounded vision and execution will help bring the company to the next level. Additionally, the incoming global downturn might even accelerate the transition for UiPath from a pure play RPA vendor to a subprocess platform enabler. With AI and automation providing enterprises with insights into how and where they can create efficiencies, we believe UiPath’s UI+AI+API framework around continual discovery mining will help elevate the value of its offerings.

Verizon Business showcases use cases highlighting ROI potential of 5G

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TBR perspective

The enterprise market represents significant revenue growth opportunity for Verizon as the company expects the combination of multi-access edge compute (MEC), private cellular networks (PCNs), IoT and B2B technologies will grow to an addressable market exceeding $30 billion by 2025. Verizon also anticipates the aforementioned technologies will generate over $2 billion in revenue growth for the company from 2022 to 2025.

The Verizon 5G Innovation Session held in Boston showcased the opportunity advanced 5G use cases provide in attracting businesses seeking to improve operational efficiency, streamline headcount, optimize on-premises safety and security, and enhance customer experience. Verizon Business, as well as other telecom operators, will face challenges that will hamper 5G monetization, however, such as business models that require revenue to be split with other members of the value chain including hyperscalers, ISVs and network solution providers. Telecom operators will also face headwinds in the MEC and PCN markets from certain clients circumventing operators to work directly with hyperscalers and OEMs, limited recurring revenue opportunities, and customers’ limited awareness and budget allocation toward enterprise 5G solutions, especially among SMBs.

A prominent theme of the event was the value of partnerships, such as with Nokia, in bringing use cases to life while also coinnovating with customers to expand possible use cases into a variety of customer business units. Verizon is holding similar events with partner Ericsson (Nasdaq: ERIC), and Verizon also has a relationship with Celona for its private 5G solution. The event showcased several use cases that can be enabled by Nokia hardware and software combined with Verizon’s 5G connectivity and delivered by Verizon’s systems integration practice. Verizon’s mature partner ecosystem can foster additional symbiotic relationships with other network solution providers and ISVs in the 5G era, which is unique in cellular technology history. As Nokia Head of Cross Portfolio Solutions and Partners Jason Elliott noted, “5G is purpose-built for enterprise, whereas 3G and 4G were not.”

Impact and opportunities

A focus on improving business outcomes will position Verizon Business to attract 5G clients

Use cases demonstrated by Verizon Business at the event highlighted how 5G solutions can help businesses address operational challenges while providing opportunity to significantly reduce expenses, especially regarding headcount. Robotics and manufacturing solutions are a prime example of this strategy as Verizon demonstrated multiple use cases in which robotics solved businesses challenges, including placing an engine inside a vehicle at an automobile manufacturing plant as well as pairing robotics with video analytics to inspect and monitor parked vehicles, including for potential suspicious activity.

Frictionless shopping was a prominent use case as Verizon showcased an autonomous store leveraging 5G MEC and AI-powered computer vision applications to enable customers to purchase items without the need for an on-site human cashier. TBR believes this use case will be particularly appealing to national retailers such as convenience stores seeking to open smaller locations that require minimal headcount. Large venues such as stadiums and arenas are another targeted segment for Verizon as 5G solutions are helping to optimize processes such as crowd control and admission while improving the fan experience through benefits such as providing projected wait times for areas like concession stands as well as immersive smartphone applications offering capabilities such as showing multiple camera angles of an event.

TBR believes a focus on equipping sales personnel to help clients identify how 5G solutions can improve business outcomes will be paramount for Verizon Businesses in attracting contract wins. Providing systems integration (SI) services is also beneficial for Verizon Business as recurring revenue from MEC and PCN deployments will be limited by clients using their own or unlicensed spectrum, such as Citizens Broadband Radio Service spectrum. Notably, Verizon did not directly mention collaborations with traditional SI partners at the event, potentially indicating that Verizon aims to work with clients more directly in this area to maximize revenue opportunities. An increased focused on SI services will also strengthen Verizon Business’ existing bonds with its large client base, enabling Verizon to more successfully upsell customers to advanced 5G solutions in areas such as MEC and PCN while helping the operator differentiate and counter hyperscalers and network equipment providers seeking to attract customers in these areas, independent of telecom operators. Verizon Business would face challenges in growing its SI personnel, however, as Verizon will need to compete against leading SI firms to attract talent.


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Verizon and Nokia benefit from each other’s strengths

Nokia and Verizon work together across several domains, and Nokia places a high value on its partnership with Verizon, which owns relationships with enterprises to which Nokia can sell its MEC and PCN solutions, particularly the Nokia Digital Automation Cloud (NDAC). Verizon is also bringing to bear its SI capabilities in MEC and PCN engagements with enterprises, enabling Nokia to minimize investment in selling and service delivery while remaining true to its core competency of selling communications networking hardware and software.

Nokia’s NDAC solution is a part of a robust set of private cellular network deployment options Verizon has for its international private 5G platform for enterprises across the globe. The quickly deployable solution includes Nokia radios, switches, mobile core, and either a Hewlett Packard Enterprise (HPE) (NYSE: HPE) or Dell Technologies (NYSE: DELL) server. The switch, mobile core and server stack is highly compact and can support up to 100 Nokia radios. Nokia demonstrated a hologram use case at the Innovation Session leveraging only a Nokia small cell, switch and evolved packet core (EPC) in combination with an HPE server. Nokia and Verizon have a significant reference deployment of NDAC with Associated British Ports’ (APB) Port of Southampton, for which the companies have rolled out a 5G PCN and greatly consolidated the port’s wireless infrastructure. A Nokia representative told TBR the ABP deployment consisted of seven macro radios running over the aforementioned NDAC stack, condensed from 250 Wi-Fi access points.

Nokia’s long-term revenue growth depends in large part on diversifying its customer base to include more enterprises. 5G and enterprise go-to-market partnerships with operators such as Verizon are essential to Nokia achieving its goal.

Conclusion

The Verizon 5G Innovation Session showcased compelling use cases highlighting the potential of technologies including MEC, PCN, IoT, robotics and video analytics to improve business outcomes for enterprises. TBR believes large customers such as manufacturing companies, arenas and stadiums, and national retailers will account for the bulk of Verizon’s MEC and PCN initial target customers as they have a more tangible business case and path to ROI for deploying these technologies and also have higher budgets to support costly accompanying solutions such as robotics.

TBR expects Verizon Business will continue to focus on serving its smaller clients with mainly traditional network solutions, such as through its 5G Business Internet fixed wireless service and unified communications solutions including BlueJeans while targeting specific industries through existing portfolio offerings leveraging 5G such as transportation and fleet management companies via Verizon Connect and first responders through Verizon Frontline. The expanding availability of Verizon’s 5G Business Internet service also enables the company to serve new broadband customers outside of its FiOS footprint and target clients seeking cost savings over rival broadband companies, including cable and fiber providers.

Verizon Business will face formidable competition in the MEC and PCN markets as AT&T (NYSE: T) and T-Mobile (Nasdaq: TMUS) are likewise evolving their portfolios and partner ecosystems to capture market share, though Verizon will benefit from being the first U.S. operator to form partnerships with all three leading hyperscalers (Amazon Web Services [Nasdaq: AMZN], Google Cloud [Nasdaq: GOOGL] and Microsoft Azure [Nasdaq: MSFT]) to enhance its position in these segments. Verizon Business will also be challenged by hyperscalers and network equipment vendors positioning to serve clients independently of telecom operators. Fostering relationships with partners such as Nokia and existing clients will be paramount for Verizon Business in countering these pressures, while equipping its sales and SI teams to ensure clients realize the full ROI potential of 5G MEC and PCN will be vital for Verizon Business to compete as a leading player in these segments long-term.

A select group of industry analysts, media representatives and customers gathered at the Verizon Innovation Center in Boston to learn about Verizon Business’ 5G customer strategies and developing use cases leveraging emerging technologies including MEC and 5G PCN. The event was co-hosted by Nokia (NYSE: NOK), which is providing underlying infrastructure to support many of Verizon’s (NYSE: VZ) 5G enterprise solutions, and included use case demonstrations, speaker segments and panel discussions featuring leadership from several Verizon Business customers. Verizon is hosting a half-dozen similar events across the country. Key representatives who participated in the event included:

• Aparna Khurjekar, SVP and chief revenue officer, Business Markets and SaaS, Verizon Business
• Jennifer Artley, SVP, 5G Acceleration, Verizon Business
• Andy Brady, VP, Enterprise Sales, Verizon Business
• Mark Tina, VP, Business Sales, Verizon Business
• Danny Johnson, director of Product Marketing, Verizon Business
• David De Lancellotti, VP, Global Sales, Nokia
• Jason Elliott, head of Cross Portfolio Solutions and Partners, Nokia
• Michael Israel, chief information officer, the Kraft Group
• Samia Mahjub, VP of Business Strategy for TD Garden and Boston Bruins

 

 

 

 

 

 

 

 

 

 

 

 

VMware Explore touted as ‘center of multicloud universe’

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VMware is heralding VMware Explore as “the center of the multicloud universe,” aligning its annual conference with the company’s ambitions to become the de facto control plane for hybrid, multicloud environments. During his keynote and subsequent breakout sessions at the newly named VMware Explore global cloud conference, VMware CEO Raghu Raghuram laid out the company’s case for why and how it will succeed in achieving these goals, focusing much of the discussion on product initiatives that add to its end-to-end platform and modernize legacy products.

These products target the growing need for “cloud-smart” infrastructure management, and VMware, with one foot in the cloud and the other on premises, continues to make a compelling case for many enterprise customers. Throughout the event, VMware management highlighted the importance of strong partnerships that support product integration as a key to execution, impacting not only its vSphere business but also multicloud products. The company was joined on stage by hyperscalers, such as Microsoft (Nasdaq: MSFT) and Amazon Web Services (AWS) (Nasdaq: AMZN), to discuss ongoing joint product initiatives that are expanding customers’ ability to preserve past virtualization investments while migrating these environments to the cloud.

Specifically, the new Azure VMware Solution fills a critical gap in the VMware Cloud Universal program, and new flexible consumption options are opening doors for smaller enterprises looking to utilize VMware Cloud on AWS. In multicloud, new integrations with rival IBM (NYSE: IBM) involving both its Red Hat OpenShift and IBM Cloud Satellite were announced, underscoring both vendors’ commitment to openness and flexibility to deliver on the promise of “any cloud, any Kubernetes.” With product launches and partner initiatives indicating an innovative future, VMware Explore 2022 felt entirely like business-as-usual, and one could be forgiven for forgetting the significant transaction that looms in the future.

Innovating to enable modern applications and cloud-smart IT strategies

vSphere 8 brings modern application capability to update the virtualization platform and support modern applications with new DPU functionality

In VMware’s opinion, cloud-smart strategies require enterprises to retain some workloads on premises due to cost considerations and performance requirements, pushing the company to continue to innovate with its popular vSphere platform. With vSphere 8, customers gain access to the long-promised Project Monterey. Originally announced at VMworld 2020, Project Monterey rearchitects vSphere to support data processing units (DPUs), providing far better performance when running data-intensive, modern applications in the cloud, on premises and at the edge.

Specifically, DPUs augment the power of the CPU or graphics processing unit (GPU) by providing a place to offload core infrastructure tasks like networking and data storage. This frees up core capacity up to 20%, allowing the CPU or GPU to focus on the specialized tasks present in modern applications like AI, machine learning (ML) and high-performance computing (HPC). Instrumental to Project Monterey, the company partnered with chipmakers NVIDIA (Nasdaq: NVDA), AMD (Nasdaq: AMD) and Intel (Nasdaq: INTC), and hardware OEMs Dell Technologies (NYSE: DELL), Hewlett Packard Enterprise (HPE) (NYSE: HPE) and Lenovo, relying on this ecosystem to support the hardware integrations necessary to offer DPU architecture support with vSphere 8.

TBR believes that with Broadcom as a major chipmaker itself, vSphere and future innovation around silicon architectures could be an interesting possibility. Regardless, the improvements in compute performance added through vSphere 8 are unlikely to change the long-term trajectory for the virtualization platform. Public cloud providers continue to invest heavily in specialized server chips to come to market with application-optimized instances capable of delivering superior performance in the cloud for many modern applications. Instead of differentiating, these updates prolong vSphere’s relevance by enabling customers to preserve their past virtualization investments.

 

Introducing hybrid, multicloud management with VMware Aria

At VMware Explore 2022, the most noteworthy announcement was VMware Aria, which, according to VMware, will represent the core of the company’s multicloud management strategy going forward. VMware Aria is a new hybrid, multicloud management portfolio built to alleviate modern IT complexity challenges, which VMware management accurately refers to as “cloud-chaos.” The portfolio includes a set of end-to-end solutions for managing cost-performance optimization and consistent policy implementation across any cloud. The foundation of the portfolio rests on the announced VMware Aria Graph and VMware Aria Hub. Customers will manage and apply policies within the graph via the VMware Aria Hub, the portfolio’s control plane, while the graph data store serves as the engine of the offering, providing a connection to an enterprise’s complete array of IT assets, from multiple public clouds to virtual private clouds and on premises.

VMware Aria Graph’s application mapping serves as the basis for newly announced end-to-end management services: VMware Aria Guardrails, VMware Aria Migration and VMware Aria Business Insights. Aria Guardrails helps enterprises automate policy implementation at scale to support multicloud networking, security and configuration through an everything-as-code approach. Meanwhile, VMware Aria Migration promises to accelerate multicloud migrations with automated assessment, planning and execution, and Aria Business Insights provides full-stack process analytics by leveraging machine learning and AI to support infrastructure optimization and security.

TBR believes VMware’s position as a virtualization provider could provide the company with an advantage in attracting enterprise customers. With many enterprises preserving their virtualization investments in the near term, tight integrations with vSphere could create meaningful value for complexity-conscious customers. Further, as VMware management claims, the expertise in infrastructure management VMware has accumulated over the years through the development of the company’s virtualization platform will serve it well as it builds products that reduce complexity in multicloud management.

However, VMware must execute on this promise by maintaining its investments in R&D, as well as its go-to market effort. As the fight for the multicloud control plane grows, any deviation from the company’s current investment path would likely be detrimental to adoption as others maintain their pace of innovation. Further, with headwinds to virtualization unlikely to abate, failure to remain competitive would have significant ramifications in VMware’s ability to generate sustainable long-term growth.

Partnering to deliver on ‘any cloud, any Kubernetes’

VMware Explore 2022 follows a year of transformation regarding the company’s relationship with its partner ecosystem, and commentary during the conference suggested this change of heart is here to stay. As VMware pivots toward the cloud, it will need to engage with not only hyperscalers but also professional service providers as the company looks to accelerate vSphere migrations and drive adoption of its cloud-native portfolio.

Over the past year, VMware has seen significant success in bolstering its relationships with services partners, a reflection of recent ecosystem investments that are adding technical resources to joint customer engagements. While management highlighted these recent successes, conference announcements focused on collaborative product initiatives and integrations, aligning with the conference theme of “any cloud, any Kubernetes.” Considering Broadcom management shares similar views on shifting the business toward the cloud, TBR believes that the momentum in partner engagement is unlikely to change following the acquisition, at least as it pertains to significant revenue generators like vSphere.

‘Any cloud’ achieved with the addition of Azure to VMware Cloud Universal

While multicloud offerings like VMware Aria and Tanzu represent a long-term growth opportunity for VMware, shifting vSphere customers to subscription-based consumption methods is a more near-term strategic objective for the company, requiring it to work with hyperscalers to provide the necessary infrastructure component. So far, the company has been successful in this pursuit, with subscription revenues growing over 20% year-to-year in recent quarters.

On track to its FY2023 subscription revenue goals, subscription growth is driven by vSphere migrations, which are supported by joint product initiatives between VMware and its hyperscaler partners. Adding to the VMware Cloud Universal program, the company announced the general availability of the new Azure VMware Solution, improving vSphere migrations to Azure’s public cloud. Over the past year, VMware’s partner initiatives with Microsoft have largely mirrored its efforts across the public cloud landscape, with its cloud-native applications recently becoming available on the Azure marketplace.

However, VMware continues to view AWS as its preferred cloud provider, emphasizing the partnership at VMware Explore with the launch of new consumption options for the VMware Cloud on AWS. VMware’s favoritism toward the company threatens its multicloud reputation, especially given AWS’ restrictive stance on multicloud environments. Going forward, this perception can be combated by accelerating development programs with its other hyperscaler partners, such as Microsoft Azure, to bring the same level of capability and the same breadth of consumption methods to all cloud environments.

Integrating with rivals to deliver on ‘any Kubernetes’ promise

As VMware positions VMware Aria at the core of its multicloud strategy, the underlying Kubernetes deployment platform is becoming less of a differentiator, with “any Kubernetes” integration taking precedence. Announced at VMware Explore, VMware will enable cross-platform container deployment with rival Red Hat OpenShift, a move that recognizes the likelihood enterprise customers will consume multiple Kubernetes platforms.

While “vendor-neutral” has been a common marketing phrase used to describe the lack of direct affiliation with a public cloud provider, this integration pushes platform openness further. Given VMware’s and Red Hat’s market share, TBR expects other vendors will be pressured to follow their lead, initiating an “any Kubernetes” approach across the industry. Outside of product integrations, IBM Consulting was named a global systems integrator (GSI) for VMware, adding to an expanding list of GSIs building their VMware-related business. IBM’s focus on executing on its hybrid cloud strategy makes its partnership with VMware more of a necessity based on the company’s enduring presence in the cloud.

Conclusion

With the conference emphasizing a multicloud future, VMware Explore 2022 felt like business as usual, an indication for TBR that strategy will remain unaltered post-acquisition. Led by its product-focused CEO, VMware’s ability to innovate was on display as the company pivots toward cloud-smart strategies. VMware’s updates for core products, like vSphere 8 and vSAN 8, are creating enduring value for enterprise customers, prolonging their secular decline. Meanwhile, VMware Aria takes the company into its next chapter of multicloud management. Now, VMware must execute on this pivot by maintaining its pace of innovation and the growth of its partner ecosystem.

With Broadcom (Nasdaq: AVGO) CEO Hock Tan watching from the front row, Raghu Raghuram and the rest of VMware management hosted the newly named VMware Explore global cloud conference, a change from its namesake VMworld. The rebranding, which is significant based on the prior event’s reputation as a go-to event, appears to be driven not by the pending change in VMware’s ownership but by the company’s efforts to position itself as a provider of more than its virtualization platform.

Major announcements emphasized VMware’s ongoing evolution from an on premises virtualization provider to a leading enabler of “cloud-smart” IT strategies, with launches for VMware Aria, vSphere 8 and vSAN 8 exemplifying the company’s ability to innovate. However, while an innovative spirit remains at VMware today, a feeling of uncertainty around future innovation existed among conference attendees this year as stakeholders grapple with the impending change in ownership. While much is to be determined, prior public statements by both companies describe the transaction as transformational to Broadcom Software Group, and TBR walked away with our prior stance unchanged, believing in incremental benefits for VMware if investments in strategic areas remain consistent.