COVID-19 shifts demands in the HCI space, creating opportunity for nimble vendors

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Accelerated demand due to COVID-19 has more vendors focusing aggressively on the HCI market opportunity

Over 40% of data center customers already consume hyperconverged infrastructure and have relatively strong loyalty to their incumbent HCI vendor. Still, 33% of respondents in TBR’s 2H20 Hyperconverged Platforms Customer Research report do not use HCI at this point in time, and HCI vendors will be focusing on this opportunity for market expansion.

Customers increasingly leverage HCI for digital-transformation-related workloads. The edge appears to be a key location for HCI installments, as the technology by definition is well suited for such deployments. IT modernization continues to increase demand for storage and compute capacity in remote and edge locations, and HCI is often the hardware of choice for such use cases.

Because there remains significant opportunity for private cloud and edge infrastructure — two uses for which HCI is heavily leveraged — competition is strong both from within and outside the HCI market landscape. Nontraditional competitors such as Amazon Web Services and ODMs increase their appeal by offering white-box private cloud hardware alternatives. At the same time, HCI vendors increasingly compete against each other and public cloud alternatives by offering new pricing models, as hardware commoditization squeezes the potential for differentiation through infrastructure innovation alone.

Impact of COVID-19 on Hyperconverged Platforms Spending

TBR’s Hyperconverged & Converged Market Landscape provides a high-level view of both markets, including key trends, recent alliance and acquisition activity, and analysis of the customer adoption cycle, including total market data. This report’s unique differentiator is its inclusion of nine deep-dive vendor profiles. This report largely focuses on which vendors are leaders, laggards and up-and-comers in the hyperconverged and converged markets, providing deep analysis into which vendors are differentiating themselves and how. TBR’s Hyperconverged Platforms Customer Research, which surveys 400 decision makers annually, addresses hyperconverged infrastructure (HCI) vendors’ customer-centric questions, drilling down into key categories such as adoption and budget, purchase drivers, workloads and attributes, purchase patterns, and vendor selection.

Can Gelsinger restore the rule of Moore’s Law?

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On Jan. 13 news broke that Intel CEO Bob Swan will retire and be replaced by Intel alum and current VMware CEO Pat Gelsinger, effective Feb. 15. Although Intel is facing challenges and has suffered setbacks in the last few years, it would be an exaggeration to say the company is in trouble. It dominates PC and server CPUs market share and extracts much greater profits from those devices than do their manufacturers.

Despite share gains by AMD, Intel’s hegemony over the x86 instruction set and its related silicon will assure continued profits for many years, as any transition in such critical components is slow and careful. Swan came to the corner office when Intel was struggling with issues that have persisted, and, in some cases, intensified. Some of these challenges have been self-inflicted from an inside-out perspective, while others have been outside-in threats that internal deficiencies have compounded. Notwithstanding, a growing number of activist investors have been pressuring Intel’s board for leadership change.

The inside-out challenge is to marry manufacturing scale and agility

Intel has enforced the rule of Moore’s Law on the industry for years. Faster, better, cheaper form factors have almost single handedly underpinned the digitization of business and the consumerization of IT throughout much of our daily lives. The inexorable march has seen the rapid rise and fall of business entities as proprietary minicomputer architectures gave way to the Microsoft Windows/Intel CPU, or Wintel, juggernaut that enjoyed a near virtual lock on the market. Intel built its share dominance on two core best practices: chip design and manufacturing.

Each new generation of CPUs requires both a thorough redesign and a massive technically challenging improvement in the chip manufacturing process. For decades, Intel has relied not only on its technical skills but also on its massive revenue to stay ahead of competitors. Other chip vendors rely on third-party chip factories, called foundries. Over the past three years, the main independent foundry, Taiwan Semiconductor Manufacturing Company (TMSC), has outperformed Intel, as has Samsung. The technology race in chip manufacturing is closely related to the thinness of the substrate. Intel has not yet produced its promised 7nm chip, and its current road map states it will not produce 5nm chips until 2023; whereas TMSC and Samsung produced 5nm chips in sample quantities in 2019.

Because of the delay in manufacturing technology, Intel has not been able to meet demand, resulting in PC vendor backlogs. These backlogs have been beneficial for PC vendors, reducing price competition and increasing margins. Intel margins are down, but not severely. The constrained supply made it easier for Intel’s main competitor in PC CPUs, AMD, to gain market share, but because of buyer conservatism and the long lead time necessary to design new PCs, the erosion has been small.

On the server side, Intel has to embrace a more agile manufacturing philosophy and a willingness to essentially become a contract manufacturer of third-party designs as the consolidated Wintel form factor gives way to multiple designs in what is commonly called accelerated computing. At the same time, market uniformity and scale are also giving way. Powerful, small, low-cost form factors are going to proliferate as digitization continues. Edge compute and various smart things will contribute to this shift, and the ability to run smaller manufacturing runs will become paramount.

Revamping Intel’s development process and pivoting to more agile manufacturing will be two core internal challenges confronting Gelsinger, but not the only ones. The outside-in pressures will mount as well.

Webscales will capture the majority of economic value of telecom edge compute market

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Webscales have various initiatives underway that will disrupt aspects of telcos’ business model, posing a direct threat to their connectivity businesses and ability to capitalize on new value created from 5G and edge computing. Webscales’ rapidly expanding presence in the edge compute space and keen focus on private cellular networks — particularly in the U.S. — are prime examples of this trend.

Though webscales are posturing like they want to partner with telcos on new opportunities, edge compute partnerships involving a webscale and telco to date are more exploitative than cooperative in nature. Arguably, the highest profile agreement to date is between Amazon Web Services (AWS) (Nasdaq: AMZN) and Verizon (NYSE: VZ), and while Verizon has touted the monetization opportunities, it is providing little more than site access and network connectivity, while AWS’ intelligent edge capabilities provide the bulk of the customer value. In this relationship, AWS doles out a cut of the revenue to Verizon while holding on to the customer relationship and most of the value that emanates from the use of its platform.

The end state of this competitive dynamic will see telcos capturing even less value as they increasingly offload towers and other sites to towercos and data center real estate investment trusts (REITs), and as webscales own greater portions of the network.

Webscales and data center players invest in India to capitalize on the nascent digitalization opportunity

India has become the epicenter of webscales’ focus and investment among emerging markets due to the country’s large population and growth prospects. Alphabet (Nasdaq: GOOGL), Amazon, Microsoft (Nasdaq: MSFT) and Facebook (Nasdaq: FB) are all investing billions of dollars in equity stakes, infrastructure build-out, applications and platforms customized to meet the needs of the Indian market, and setting up business model structures. Reliance Jio, Bharti Airtel and Vodafone Idea are partnering with these webscales on various projects to realize this digitalization opportunity in India.

TBR’s Telecom Edge Compute Market Landscape, which is global in scope, deep dives into the edge compute-related initiatives of stakeholders in the telecom market, including telecom operators, cable operators, webscales and vendors that supply the telecom market. The research includes key findings, market size, regional summary, technology trends, use cases, operator and vendor positioning and strategies, and acquisition and alliance strategies and opportunities.

Atos will gain scale it seeks in the U.S. with planned DXC Technology acquisition

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France-based IT services giant Atos confirmed on Jan. 7 rumors regarding a “friendly transaction” with DXC Technology (NYSE: DXC), which could result in the second-largest global IT services vendor, closer to the size of Accenture (NYSE: ACN) ($45 billion revenue in 2020) and larger than Tata Consultancy Services ($22 billion revenue estimated in 2020) and IBM Services (NYSE: IBM) after the Global Technology Services spin-off at the end of 2021 ($23 billion annual revenue after the spin-off).

What is in it for Atos? Scale, and more scale

Atos has not been shy about making larger-scale acquisitions over the last decade, acquiring Siemens IT Solutions and Services, and its roughly 26,300 employees, in 2011; Xerox’s ITO business, with 9,600 employees, in 2015; and Syntel, and its 23,500 employees, in 2018, proving its capabilities at absorbing companies of different sizes. With DXC Technology, Atos would gain scale in the U.S., something the company has been pursuing in fits and starts over the last five years, often through acquisitions as well as changes in leadership in North America.

From a portfolio diversification perspective, though, acquiring DXC Technology is not the best choice, in TBR’s opinion, as Atos’ scale would increase in managed infrastructure services, an area in which it is already well-established. However, Atos would gain DXC Technology’s security services and solutions capabilities and add approximately 3,000 people to its more than 5,000 security professionals. Additionally, Atos would gain scale in digital security, an area of strategic expansion as Atos aims to increase its revenues in this segment from €0.7 billion (or $0.9 billion) in 2019 to €2.1 billion (or $2.6 billion) over the midterm.

Despite the recent challenging market environment, Atos has been on an acquisition spree, using its remaining free cash flow after dividend payments to make bolt-on transactions. Since the beginning of 2020, Atos has announced nine acquisitions in four expansion segments: cloud, digital, security and decarbonization. With DXC Technology, Atos’ global service delivery capabilities would also expand and the company would reach a combined low-cost resource leverage of approximately 53%, compared to 46% for Atos alone.

DXC Technology gains opportunity for payout and stability

If Atos acquires DXC Technology, three years of failed attempts by DXC Technology to turn around eroding revenues and thinning profitability would be forgiven. DXC Technology leadership would see a cash-out payday, while remaining assets (people and capabilities) would move to a more stable corporate environment with a long-term view and objective, something Atos is strong at setting up and following through on.

Vendors pursue tactical run-the-business engagements to help clients react to COVID-19 and maintain operations

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Management consulting market summary

Outlook

The COVID-19 pandemic will continue to pressure discretionary spending and challenge vendors’ interactions with clients due to social distancing and travel restrictions. The vendors that will succeed are the ones that immediately adjusted their portfolios and service delivery models to accommodate clients’ pandemic-related run-the-business challenges and are now looking ahead to provide services to support clients in the post-pandemic world. TBR expects vendors to master the hybrid engagement model, navigate more smartly through the technology alliance ecosystem, deliver digital transformations and expand activities around decarbonization to recover ground lost in 2020.

Changes

Hybrid sales and service delivery, in which consultancies interact with clients both virtually and face-to-face, existed before the COVID-19 pandemic spread across the world in 2020; however, the dramatic difference from pre-pandemic days is the universal acceptance that hybrid engagements are a necessary and valuable way to conduct business. Vendors are now more adept at delivering services in person and remotely and have made collaborative technologies a natural extension of the job. Clients now receive services and adapt to different ways of working, recognizing that value in a services relationship can be sustained without face-to-face encounters. In 2021 IT services vendors and management consultancies that perfect the hybrid engagement model will outperform peers and accelerate consolidation across the IT ecosystem.

Market overview

TBR expects benchmarked vendors in the management consulting segment to increase revenue 0.9% year-to-year in 2020, a growth trend that will continue to surpass that of benchmarked IT services vendors in TBR’s IT Services Vendor Benchmark, which we expect to decrease 1.7% year-to-year in 2020. The Big Four vendor group will remain the largest revenue contributor at 55.2% of benchmarked revenue in 2020; however, strategy-led vendors will increase their market share by 50 basis points year-to-year to 28.6%. Solutions-led companies, the Big Four and strategy-led firms are all expanding their technology capabilities, intellectual property assets and managed services capabilities to address clients’ run-the-business needs with holistic capabilities.

Total Benchmarked Management Consulting Revenue 2015-2020E

The Management Consulting Benchmark provides key service line, regional, vertical and operational data and analysis for 13 leading management consulting firms. The research program also includes a deep dive into 11 vendors’ management consulting business strategies as well as SWOT analysis.

Collaboration enables software vendors to purpose-design solutions optimized for each quantum architecture

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The rise of quantum components vendors

TBR research shows that quantum components vendors are gaining steam, even though a commercial-grade quantum system has not yet been made available. This is atypical and highlights the fact that the quantum computing market landscape is one in which discoveries are made in tandem across hardware, software and services — unlike the classical computing market. The variety of smaller firms working on quantum computing components indicates that once a commercially viable system is developed, scaling will be faster than if system vendors had to develop all unique components in-house.

Collaboration still has roadblocks

While the quantum community is working to remove communication barriers to increase the speed at which scientific discoveries can take place, there are roadblocks to fully open communication, such as governments incentivizing working locally and imposing barriers to exports such as tariffs. While you cannot place a tariff on thoughts, these types of actions could also hamper collaboration and information sharing.

The race for qubit volume continues

Qubit volume remains the key measuring stick of progress in the quantum computing community, and as a result, increasing qubit volume is a common goal across quantum system vendors’ road maps. However, physical qubit volume alone does not predict success. Achieving an increased volume of logical qubits will be the ultimate way that quantum system performance will improve.

TBR’s Quantum Computing Market Landscape, which is global in scope, deep dives into the quantum computing-related initiatives of key players in the space. It lays out the vendor landscape, details current leaders and laggards, and discusses the differing strategies of vendors in the market. The report discusses alliances as well as the tie-ins between quantum computing vendors and their nonquantum computing counterparts. Predictions around use cases and workloads that will benefit initially from quantum computing are explored as well as current customer sentiment around the technology.

ServiceNow takes a platform approach amid plans to emerge as the standard for enterprise workflows

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TBR perspective

Defining reputation as a platform company

While many customers are poised to increasingly adopt best-of-breed solutions for diverse use cases, ServiceNow’s roots as a platform company allow the vendor to sidestep many traditional SaaS competitors and lead with a best-of-suite approach. The Now Platform — dubbed by CEO Bill McDermott as the “platform of all platforms” — is the driving force behind ServiceNow’s workflow narrative, as it is where all products are built and serves as a foundation for ServiceNow to stitch together its IT, employee, customer and creator workflows for lines of business and C-Suite clients.

The way companies operate is hybrid in nature, with multiple departments running different systems, and rather than directly competing with ERP or CRM systems, ServiceNow is helping enable these applications through an integrated, vendor-neutral approach, which TBR views as increasingly imperative in today’s technology landscape. ServiceNow’s revenue profile is also receptive to this approach, as roughly 80% of new business for the company stems from existing customers, paving the way for ServiceNow to scale to $10 billion and beyond in annual revenues.

AI moves to forefront of ServiceNow’s platform strategy

Following the intelligent automation capabilities unveiled as part of the Orlando release in 1Q20 and the subsequent appointment of Vijay Narayanan to the newly created role of chief AI officer, ServiceNow’s plans to lead with AI are not unexpected. However, as the Now Platform continues to be positioned as the core product that enables workflow delivery, ServiceNow’s AI vision is evolving to deliver greater time-to-value and ROI for AI customers. To achieve this, ServiceNow has been leading with M&A to build on the existing capabilities of the Now Platform, including incidents, agents, documents and cases, among others. For example, in January ServiceNow expanded its foray into AIOps with the acquisition of Israel-based Loom Systems, which was a strategic callout in many event presentations, due to Loom Systems’ IT Service Management (ITSM) solution that relies on AIOps to predict and monitor IT incidents.

TBR believes ServiceNow will utilize Loom Systems’ expertise in AIOps technology as an interim step in helping customers transition to DevOps and agile methods and help bridge gaps between development and operations teams across departments. Additionally, in the AIOps market, ServiceNow is working with IBM (NYSE: IBM) to help customers preemptively identify incidents and initiate a faster response. While Loom Systems’ tool is already integrated as a previous partner into ITSM and IT Operations Management (ITOM), ServiceNow announced plans to re-platform this technology into the Now Platform with the Quebec release in March 2021, underscoring ServiceNow’s strategy of bringing all major innovations back into its foundational platform and increasing customer adoption.

TBR believes the next step beyond empowering AIOps will be broad-based automation and optimization, as ServiceNow unveiled new process automation offerings in the Paris release, including Process Automation Designer, which will be generally available in the Quebec release, and various playbooks that are now available across the Now Platform. As a feature of the Now Platform, Process Automation Designer automates cross-functional processes and provides managers with a customizable user interface. Meanwhile, administrators now have the option of selecting from no-code playbooks with Playbook Experience to provide agents with insight into their workflows, powered through Process Automation Designer. Future tuck-in acquisitions in the area of process automation cannot be ruled out as ServiceNow looks to continues to strengthen its foundational play.

ServiceNow Digital Analyst Summit: In between reporting another strong earnings quarter in 3Q20 and releasing the Now Platform Paris, ServiceNow (NYSE: NOW) hosted a virtual industry analyst event, which included two days of breakout sessions, one-on-one discussions with company leadership, and product demonstrations. Key highlights included the company’s product strategy, which continues to underscore the importance of the Now Platform; how ServiceNow is redefining its go-to-market engine through partnerships and industry solutions; and the refinement of the company’s cloud strategy.

Hybrid engagements will become necessary and valuable in 2021

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Here comes hybrid

Hybrid engagements, in which IT services vendors and consultancies deliver both virtually and face-to-face, did not first arrive in 2020, but there has been one dramatic change from pre-pandemic days: universal acceptance that hybrid engagements will be necessary and can be a valuable way to conduct business. In 2021 vendors and consultancies with the perfect hybrid engagement model will outperform peers and accelerate consolidation across the IT ecosystem.

We always come back to the idea that services is fundamentally about people delivering value to other people. And for years, we have heard IT services vendors and consultancies extol the values of connecting humans and machines, expanding human experiences with artificial intelligence, and improving human work with robotic process automation. The human + machine future is here now, and it is hybrid. For many IT services vendors and consultancies, accelerating that digital transformation journey to hybrid engagements will require retraining talent, reconvincing clients of value and partnering differently across the ecosystem.

Maybe the best example of the hybrid engagement model for IT services vendors and consultancies is the application of hybrid in American schools as a reaction to COVID-19. U.S. elementary school teachers — whose average age is over 40 — have become more technologically adept and better at delivering lessons to both a camera and a classroom. Teachers have learned to manage virtual breakout pods and gauge virtual interactions. Students know the social benefits of being in the classroom but now understand that remote learning can include more depth and detail and a more concentrated learning process. (Of course, this is not true for all students and teachers, just as hybrid IT services and consulting engagements have not been perfect for all IT services vendors and consultants.) IT services professionals and consultants can now become far more adept at delivering both in person and remotely and have made collaborative technologies a natural extension of the job. Clients now receive services and adapt to different ways of working, recognizing the value, cadence and duration of services relationships can be sustained without face-to-face encounters. And just as everyone wants students back in the classroom full time, everyone also realizes on some level that some things have changed forever. No more snow days, ever. Business travel will never be the same. Digital transformations will accelerate and emerging technologies will increasingly permeate every aspect of IT services and consulting, bringing newfound speed and adoption both virtually and in person.

The following predictions examine how hybrid engagements might develop further in 2021, the potential impact of hybrid engagements on IT services vendors’ and consultancies’ technology partner ecosystems, and the revival of industry clouds across the entire IT market.

2021 Predictions

  • Hybrid selling and delivery replaces face-to-face as the standard — and preferred — engagement model
  • Emerging technologies necessitate more complex ecosystems, pressuring all players in IT services to partner differently
  • Industry clouds return, with competitive consequences for it services vendors and consultancies 

Register for TBR’s 2021 Services & Digital Predictions webinar, Hybrid engagements will become necessary and valuable in 2021, Jan. 20, 2022.

Technology Business Research 2021 Predictions is a special series examining market trends and business changes in key markets. Covered segments include cloud, telecom, devices & commercial IoT, data center, and services & digital.

Secureworks: A force for good in an unsafe world

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Taking a holistic fight to the enemy

Over the two-day Secureworks Analyst Event, multiple Secureworks (Nasdaq: SCWX) executives emphasized the company’s broad vision of belonging to, and leading, a larger cybersecurity community dedicated to helping customers, in the words of Secureworks CEO Mike Cote, “outpace adversaries.” Through a strategic shift toward providing platforms and software, Secureworks has begun repositioning itself within that larger community, becoming a more holistic provider of security offerings for its clients. In TBR’s view, this new emphasis on enabling “the right response rapidly,” as Cote said, and bringing the cybersecurity community together around shared challenges may set Secureworks apart in 2021.

Security at scale to meet customer needs  

Framing Secureworks’ place in the cybersecurity ecosystem, President of Customer Success Wendy Thomas said the company’s new cloud-native security software platform, boosted by embedded machine learning and workflow automation, has positioned Secureworks to be the security platform of choice. With 20-plus years of security operations experience, a global security brand, a scalable network effect, and market-leading threat intelligence, the company is, in Thomas’ estimation, “uniquely positioned to democratize access to security at scale” and meet its mission of securing “human progress by outpacing and outmaneuvering ever-evolving adversaries.” Thomas substantiated the assertions, noting that Secureworks’ experience and expertise enabled the company to bring significant cybersecurity-specific research to its shift into platforms and software. Secureworks, Thomas said, had embedded threat researchers into its software development teams, ensuring that the company’s software was purposefully built by security experts and security operators. To address customer needs, Thomas said Secureworks had begun transitioning existing customers to a cloud-based platform, starting with a standard consulting approach that focuses on building a journey map to demonstrate how well Secureworks knows the customer and its security environment. According to Thomas, Secureworks then develops a solution as “turnkey as possible,” while creating the feeling, for the client, of “an upgrade to first class,” with optimal security coverage and hygiene. In TBR’s view, Secureworks’ understanding of its own role in the cybersecurity ecosystem and evolving appreciation of its customers’ needs underpin the company’s pivot from a standard MSSP to a consulting-led platform and software provider, which could help Secureworks become a leading vendor across the cybersecurity market.  

Over two days of virtual sessions, Secureworks executives, partners and customers presented to analysts the company’s pivot toward a platform and products company, detailing changes to Secureworks’ offerings, go-to-market strategy and sales structure. The event included extensive interaction with the broad Secureworks team and individual sessions for TBR with the company’s leadership. The following includes TBR’s assessment of the event and perspectives from ongoing analysis of Secureworks; the cybersecurity space; and Secureworks’ primary shareholder, Dell Technologies.  

2021 will bring more demand, more partnerships, more industry innovation to cloud

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Certain uncertainty will accelerate cloud adoption in 2021

Despite living with the COVID-19 pandemic for most of 2020, so much remains uncertain. The timing and impact of a vaccine, whether or not there is additional government stimulus, and the changing economic environment will all have a profound impact on what occurs in 2021, and those are just the factors we know about. This uncertainty is reflected in TBR’s survey of 200 IT decision makers. When asked when they expect the business impacts of COVID-19 will subside, 78% of respondents expect the effects to subside sometime in 2021, but the responses diverge in terms of which quarter of 2021.

As a result of this continued uncertainty, flexibility in business operations and the IT resources that support them is more valuable than ever. Cloud was sought out based on necessity during the initial outbreak of COVID-19, but that behavior will persist in 2021 for two main reasons: flexibility and innovation. The ability to shift resources, enable more remote work, and scale cloud services up and down as needed are value propositions that resonate especially well in the current environment. Innovation is a broad concept and can cross analytics, integration and security realms. More generally, customers see value in the ongoing investments their cloud providers are making and in their ability to seamlessly access those enhancements. For these reasons, customers expect to accelerate their cloud adoption in 2021, regardless of exactly when the effects of COVID-19 subside. They may not know exactly what the business climate will hold, but they understand the flexibility and innovation that come with cloud-delivered solutions will play a role in helping them weather 2021.

2021 Cloud Predictions

  • Industry clouds become the norm
  • Partnership models support cloud demand in new era
  • Containers will challenge the legacy virtualization model

Technology Business Research 2021 Predictions is a special series examining market trends and business changes in key markets. Covered segments include cloud & software, telecom, devices & commercial IoT, data center, and services & digital.