NFV and SDN are transformational technologies, and even leading CSPs are in the early stages of evolving

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Despite market and complexity challenges, CSP spend on NFV/SDN will grow at a TBR-projected 32.4% CAGR from 2019 to 2024 to nearly $147B

NFV/SDN spend will increase at a CAGR of 32.4% to $146.9 billion between 2019 and 2024, compared to nearly flat overall communication service provider (CSP) spend (capex plus external opex) for the global market. NFV/SDN spend will scale through the forecast period as leading CSPs broaden their transformation initiatives and as additional CSPs begin their transformational journeys.

5G will be a key catalyst that will push more CSPs to adopt and broaden their NFV- and SDN-related initiatives. COVID-19 will serve as a catalyst for digital transformation, which implicates NFV and SDN, as operators will increase investment in the technologies to improve network cost efficiencies long term and support shifting data usage trends arising from the increased number of work-from-home employees and remote learners. Rakuten, along with China- and U.S.-based CSPs, will be key drivers of the spend increase in the early years of the forecast. TBR expects lower-tier CSPs in developed countries and key CSPs in emerging markets will ramp up NFV/SDN spend in the later years of the forecast period, driving continued spend growth in the overall market.

Most CSP spend on NFV/SDN to date has been on virtual machines, but this will increasingly transition to container-based and cloud-native, microservices-based spend through the forecast period as CSPs continue their evolutionary journeys.

TBR’s NFV/SDN Telecom Market Forecast details NFV and SDN trends among the most influential market players, including both suppliers and operators. This research includes current-year market sizing and a five-year forecast by multiple NFV and SDN market segments and by geography as well as examines growth drivers, top trends and leading market players. TBR’s NFV/SDN Telecom Market Landscape includes key findings, market size, customer and geographic adoption, operator and vendor positioning and strategies, and acquisition and alliance strategies.

Enterprise interest in 5G has greatly increased since the pandemic began, pulling forward adoption timelines

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Global 2000 companies and governments will drive the vast majority of spend on private 5G infrastructure

Global 2000-sized companies and governments have the scale, financial resources and technical acumen to handle the complexity of 5G and realize its full benefits. TBR estimates over 90% of private 5G investment will stem from these entities through mid-decade, at which point network slicing, solution maturity and lower price points will enable SMBs to participate more pervasively in the 5G opportunity. TBR expects most SMBs seeking 5G will leverage public infrastructure for their needs as the cost and complexity of private 5G will be too much for many of these smaller companies to handle.

Leading enterprises intend to fundamentally transform their operations by converging IT and operational technology with 5G, edge computing, AI and machine learning, and IoT.

Manufacturers and governments are expected to be among the largest investors in private 5G networks through mid-decade.

Software upgradability of private LTE systems to 5G will enable some enterprises to accelerate their migration to 5G

A large portion of the global private LTE install base is software upgradable to 5G, which will hasten some enterprises’ move to 5G, but the timing of these upgrades will be contingent on 5G device readiness.

TBR expects leading enterprises will upgrade their private LTE systems starting in 2021 as compatible devices and 3rd Generation Partnership Project (3GPP) features from Releases 16 and 17 become available. This upgrade cycle is a key factor in why the private 5G market size will be able to scale in the early years of the forecast period.

TBR’s Private Cellular Networks Market Forecast, which is global in scope, details private cellular network spending trends among enterprises and governments, particularly as it pertains to 5G. The report includes current-year market sizing and a five-year forecast of the private cellular networks opportunity by vertical, by provider type and by region.

DMS market will return to growth in 2021 as vendors explore new ways to engage audiences

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After a major slowdown in 2020, largely due to vendors’ inability to conduct face-to-face workshops and buyers’ hesitation to invest in new proof-of-concept areas, demand for strategy services will gradually rebound. Growth will come from two primary areas. First, buyers will continue to orient any advisory spend toward brand awareness, as creating business value that addresses brand health challenges and/or helps brands integrate digital into offline experiences remains a critical connection, especially as COVID-19 widens the gap between brands and consumers. Second, buyers that are further along the digital transformation maturity continuum will seek guidance to implement customer experience (CX) frameworks enabled by emerging technologies, including AI and machine learning, to optimize their back-office and supply chain operations. Vendors with broad-based relationships across the C-Suite will be positioned to win as long as they can overcome internal politics, particularly around data sharing.

While creative services, like strategy, will face initial headwinds, in the long run it will remain the fastest-growing service line. Marketers will remain true to their core and constantly test new ways to provide personalized, human-centric messaging. While the trend is nascent, we believe creating short documentaries will overtake traditional advertising and marketing campaigns. Connecting human experiences through a short story while incorporating behavioral, professional, purchasing and social data will become a way to generate brand awareness without sounding like a traditional ad.

TBR’s Digital Transformation: Digital Marketing Services Benchmark addresses changes in leading digital transformation vendors’ strategies and performances as well as their investments and go-to-market positions within marketing and advertising segments. The report includes use cases; analysis of agencies’, IT services’ and consultancies’ management of their technology partnerships and acquisitions; and a forward-looking view around key market trends, implications to customers and vendors, vendor performance, and associated technologies enabling digital transformation opportunities. Region-specific market trends are also highlighted in the report.

HPE’s array of hybrid workplace offerings provides silver lining for customers amid the pandemic

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HPE bundles its existing portfolio in a GreenLake wrapper

When CEO Antonio Neri initially announced in June 2019 that HPE (NYSE: HPE) will offer everything “as a Service” by 2022, many were skeptical that the plan would resonate with the market as a whole. It was clear that pockets of customers would buy into this offer, particularly in the SMB space, where pricing can have a greater impact. But for major customers, the conversation often boiled down to something as trivial as where to put the expense on the balance sheet for stakeholders. However, considering the changing market dynamics over the last six months due to the pandemic, this aggressive marketing campaign could not have come at a better time. Because HPE has been pushing GreenLake hard since 2019, the vendor is now serendipitously ahead of peers on its “as a Service” offerings.

HPE’s “as a Service” push is directly related to increases in IT sprawl. “Sprawl” is a concept the IT industry has grappled with for decades. Prior to distributed IT environments, the term was used to describe the increase in the variety of workloads in each environment. Now, it is used when describing a single-pane-of-glass management console to ease the burden placed on IT personnel when managing a diverse environment of IT infrastructure. Sprawl is now the upshot of the increasingly diverse application of technology to business, or digital transformation. Diverse applications lead to diverse IT requirements, from the edge to the core to the cloud, making cloud an integral piece of the story and establishing the importance of bundled solutions that provide business outcomes, which is precisely what GreenLake can provide.

GreenLake does come at a premium, as software and services are baked into hardware deals consumed through this model in many cases, but pricing it as a monthly subscription makes these solutions more available and affordable to firms with less capital support. HPE GreenLake clearly resonates with customers, as key competitors Dell Technologies (NYSE: DELL) and Lenovo both formalized their own consumption-based pricing offerings after GreenLake began to gain traction, although Dell Technologies did have informal offerings emerge around the same time as GreenLake initially. With COVID-19, the edge becomes increasingly more important as organizations deploy new workloads in their factories, office spaces and retail locations to ensure public safety while returning to work.

HPE’s workplace portfolio of solutions is attractive for several reasons. HPE’s existing infrastructure portfolio is augmented by HPE Aruba’s connectivity engine and associated services through HPE Pointnext Services, which combines expertise across workplace networking and IoT. The combined offering is then layered with GreenLake and sold as a use-case-based package to end customers, the primary benefits being the efficiencies gained in conjunction with the fact that the solutions are positioned and sold as business outcomes. Essentially, HPE takes care of the grunt work normally weighing down the end user but offers increased manageability and increased control at a reduced effort through GreenLake, leveraging the existing expertise within its organization to reimagine how the world of knowledge-based employees works and what is necessary to make it operate seamlessly in a hybrid model.

IT vendors are poised to solve the challenges that have arisen in the wake of the COVID-19 outbreak, and Hewlett Packard Enterprise (HPE) is a prime example of a vendor that, in response to the pandemic, is addressing previously unforeseen challenges by formalizing offerings pertaining to the workplace. Hybrid working was a pre-existing trend that COVID-19 has accelerated. However, for those individuals working in a knowledge-based field or with school-aged children, how they work and learn has fundamentally and permanently shifted. Further, people with non-knowledge-based jobs, many of whom lost work due to COVID-19, will find in-person work again, and these jobs will also see a fundamental shift in how they are performed to ensure safety and productivity. HPE’s announcements today at Workplace Next highlight how the company’s portfolio can be leveraged to ease customers’ COVID-19 mandated digital transformations.

Vendors’ ability to develop nonlinear revenue growth model will be tested once again as COVID-19 sets the stage for demand in ‘as a Service’ sales

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Market overview

The 14 benchmarked vendors continued to hire and acquire resources, albeit at a much slower rate in 1H20 than in 1H19 due to COVID-19, a trend we expect to accelerate in 2H20. 1H20 was a tale of two quarters as vendors had to swiftly change priorities and mobilize their staff to work remotely while continuing to provide support to ongoing digital transformation (DT) projects. As COVID-19 accelerated in late March and April, buyers paused many of their DT programs and increased focus on run-the-business projects, compelling vendors to adjust their hiring and reskilling programs and demonstrate capabilities in cloud, cybersecurity and workplace solutions management. Vendors can learn from their own experience three years ago when revenue contracted much faster than they were able to adjust hiring before rebounding back to maximize productivity and ROI.

Automation and profitability

As vendors went into damage-control mode amid the pandemic, most deployed legacy, proven, cost-rationalization methods, including layoffs, salary freezes, and limited SG&A spend to protect profitability. Automation also continued to play a role in this effort but was not, as many had hoped, the single most important variable in offsetting top-line and cost of services pressure associated with the legacy labor arbitrage model. With the consulting model most challenged due to limited face-to-face interaction, we expect vendors to begin exploring new channels to increase share of profitable sales. Vendors could either accelerate bringing consultants back to clients’ sites to increase higher-value advisory opportunities or begin to add digital routes as a sales channel to attract new buyers, particularly in the SMB space. Either scenario carries its challenges and opportunities, but in the long term, as vendors strive to increase “as a Service” sales, KPIs and expectations must also be aligned.  

The Global Delivery Benchmark provides efficiency comparisons, assessments and insights into global delivery strategies and investments across 14 leading IT services firms. The research highlights overarching resource management market trends, discusses implications to operations from increased labor automation and examines disruptors that shape new business models and KPIs.

Cloud professional services revenue grows by double digits as pandemic increases demand for cloud migration

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Cloud professional services market summary

Market overview

In the most recent iteration of TBR’s Cloud Professional Services Market Forecast, we projected the market would grow at an 11.7% CAGR between 2019 and 2024 as vendors balance the effects of COVID-19 with rapid growth in digital transformation. Opportunity for benchmarked vendors comes from the large number of customers still operating on premises, which leads to the need for advisory, consulting and implementation services, as plans to shift to the cloud come to fruition. Additionally, the pandemic will likely have many businesses reevaluating their IT road maps, causing an inevitable uptick in cloud adoption. As a result, cloud managed security and application services, especially during a new working-from-home reality, will prove opportunistic for benchmarked vendors. Meanwhile, for existing cloud users, the need for hybrid and multicloud environments will necessitate ongoing integration and management needs from technology-neutral vendors.

Market disruptors

Changes in general purchasing habits brought on by the COVID-19 pandemic have proved disruptive for many professional services vendors; however, the market is expected to rebound quickly as customers replace legacy IT systems with cloud solutions. As a result, managed cloud services is expected to be the fastest-growing subsegment of the cloud professional services market, especially as hybrid IT sprawl intensifies. However, some other submarkets, primarily application development and maintenance, will feel some pressure from automation, especially as adoption of cloud-native technologies rises and plays a role in suppressing labor-driven resources.

TBR’s Cloud Professional Services Benchmark covers the professional services that are critical to enabling customers to take advantage of available technology as well as the market opportunity that exists for firms that cater to service needs. Additionally, the benchmark analyzes the size, growth and leading providers of services around cloud environments.

India-centric IT services vendors focused on protecting margins to survive rough market conditions

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Select vendors pursue alliances and deals in the growing cloud market to offset choppy financial performance

During the first couple quarters of the pandemic, Cognizant (Nasdaq: CTSH), HCL Technologies (HCLT), Infosys (NYSE: INFY), Tata Consultancy Services (TCS) and Wipro (NYSE: WIT), the India-centric vendors covered in TBR’s IT Services Vendor Benchmark, looked to form partnerships and sign new deals, especially those around cloud capabilities, with strong patterns of continued growth in cloud implementation, migration and advisory to offset deteriorating areas in traditional outsourcing engagements. For example, Wipro’s partnerships with cloud infrastructure experts, such as Google (Nasdaq: GOOG) and Microsoft (Nasdaq: MSFT), will allow Wipro to build solutions off these technologies and pair them with its advanced AI and automation capabilities to strengthen its position in the market.

To mitigate the damage caused by COVID-19, the India-centric vendors will also make resource management improvements, such as enhancing their training and hiring efforts, and solidify existing client relationships by supporting clients through optimization and digital transformation offerings as they transition to digital business practices. Cognizant must secure alliances to bolster the company’s cloud and analytics capabilities while focusing on internal stability.

HCLT performed rather well financially, all things considered, and should utilize its cloud and software power to further develop its portfolio mix, leading to improved client satisfaction. TCS, on the other hand, should capitalize on its global presence as well as its diverse portfolio to gain traction and improve its financial performance. Wipro also struggled during 1H20, but its financial performance is expected to improve if the vendor focuses on acquisitions, similar to its recent purchase of Europe-based 4C, to add new sources of cloud services revenue in the region while driving portfolio investments around cybersecurity. Similar to HCLT, Infosys came through 1H20 mostly unscathed, due to its healthy pipeline and a strong first quarter. The company should continue to tap into new areas of opportunity, such as digital transformation and blockchain, using its recent partnerships with Essential Utilities and the National Bank of Bahrain.

True to their business models even in a pandemic, India-centric IT services vendors prioritized margin protection as a primary damage control strategy during COVID-19. To adjust management operations and combat growing company expenses, IT service vendors will likely increase employee training and look to hire internally to fill positions. Additionally, TBR believes it is imperative for vendors to continue their focus on upselling to existing clients and leaning on strategic partnerships to offset revenue losses due to geographic macroeconomic disruptions.

Break/fix maintenance disaggregation accelerates with profound business model implications for many

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Consumerization of IT continues its inexorable march up the IT complexity stack

“Faster, better, cheaper” has been the IT hardware mantra for decades, and this continues pending the step-function increase in compute capacity that enterprise-grade quantum computing will bring to market before the next decade. Edge compute is little more than traditional distributed computing in smaller, more reliable form factors. Ultimately, edge computing hardware selection will become a derived decision in much the same way that cable television set-top boxes are a derived decision when consumers select a content provider for home entertainment.  

As TBR’s Tailored Services Group has heard during customer interviews, this device simplicity has large enterprise IT organizations beginning to view simple server and storage elements as practically disposable items. Here is where the service arms of hardware manufacturers face market challenges. They have created reliable, simple, low(er)-cost devices, and enterprise buyers are less inclined to pay a premium for their break/fix repair services given the lower number of outages that occur and the lower cost to the devices in general. This market condition provides a greater opening for third-party maintainers (TPMs) to gain share against OEMs, particularly when the OEMs have considerably higher operating cost models than the TPMs.

OEMs hope software abstraction and analytics monitoring and management systems will trigger operational challenges and potential barriers to TPMs

Single pane-of-glass management is another longtime aspiration in the industry and is rising to the fore as technology entrants large and small seek to develop the requisite software orchestration and management layers to run hybrid cloud environments. Within enterprise IT, this move to software management shells has reduced the need for siloed storage and server admins who can revert back to green-screen technology and provision instances. Instead, automatic provisioning occurs based on drag-and-drop templates. On top of this technology, companies build out performance management tools to be able to monitor workload performance and the underlying reliability of the physical infrastructure. IBM purchased Red Hat, for example, for its Swiss Army knife flexibility in this space. Hewlett Packard Enterprise (HPE) has taken the basic analytics assets gained in the Nimble Storage acquisition and slowly extended them out across more of the company’s hardware assets.

At issue now is TPMs gaining the access to these monitoring systems as well as the requisite training to know what the appropriate actions are to take when receiving these automated alerts. This could lead to litigation about access and data ownership down the road, similar to how the issue of spare parts access led to court cases in the 1980s, which were ultimately decided in favor of broader market access and legitimized third-party maintenance operations in the eyes of enterprise customers. For now, however, TPMs take different measures to work around the issues associated with interacting with OEM software shells when supporting enterprise customers. Some deploy third-party diagnostic tools from firms such as BMC and ingest raw log files. Others merely hire ex-OEM employees who are well versed in older core systems and build their own consolidated remote diagnostic centers.

TBR’s Tailored Services Group has seen rising interest in understanding the ways in which hardware maintenance providers go-to-market and operationally deliver break/fix repair services to enterprise customers. The fundamental simplifications and reliability improvements that triggered shifts in laptop and desktop service delivery models are coming to the data center. Further, some enterprises seek to hold onto server and storage assets longer as an interim step while migrating workloads to the cloud.

Beyond these consumption demand shifts, technology vendors, it can be argued, have become victims of their own success by manufacturing more modular systems with easier-to-navigate abstraction layers that reduce the frequency of critical outages. In short, response times become less critical given software-driven failover provisioning and as the diagnostic skills required on the ground become less challenging due to this increased software abstraction. All of these issues point to a radical transformation of the operating model best practices to deliver break/fix repair services to end customers, and that trend accelerates rapidly each day the world operates without a known vaccine to mitigate the spread of COVID-19. 

Innovation and transformation centers: Smart strategies pre-2020 will lead to success in a hybrid future

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What the elite vendors have known: It is all about talent, location and network

In meeting with leaders at innovation and transformation centers around the world and discussing their approaches to talent, TBR learned that the most aggressive and successful vendors understood key human resources elements: Talent developed at a center could be dispersed across the globe to help establish new centers; the centers could be a magnet for new talent; and diverse talent on-site as a dedicated part of the center appealed to clients more than flying talent in for each engagement. 

In addition, the earliest successful centers featured a physical location separate from the rest of the company’s facilities to reinforce the idea as new and different while also encouraging clients to think more broadly about the vendor’s capabilities and offerings, getting clients out of their own offices into a more creative space, and providing the vendor with an attractive location for its own professionals to expand their own thinking about what was possible.

While all of these IT services vendors and consultancies have maintained global operations, the elite vendors have combined the talent elements and the benefits of a physical location and understood the importance of creating vibrant virtual networks to facilitate spreading ideas, sharing industry- or technology-specific best practices, and tying together multiple teams and solutions. In contrast, TBR visited vendors whose centers acted as stand-alone silos, with a minimal amount of or leadership emphasis on cross-border cooperation or sharing, limiting the impacts of the centers on clients’ transformations or the innovations within the vendor itself. Overall, the elite vendors understood that these centers catalyzed change throughout their own organizations, accelerating their own transformations even as they worked with clients.

“One additional current operational element stood out during the informal tour: PwC now engages in daily briefs to share success stories and exchange knowledge about solutions and creative approaches to clients’ issues. TBR has pressed every consultancy and IT service vendor on the issue of ensuring new ideas do not stay siloed in one location (diminishing the value of a global firm); to date, TBR believes no firm has developed a comprehensive, robust, and truly global means for sharing innovations and accelerating knowledge dispersion among digital transformation centers, although PwC, EY and Accenture likely have progressed the most.” 

TBR Special Report, Peak PwC or just getting started? PwC’s NYC EC, April 2019

Everyone has a digital transformation center: Over the last 10 years, every vendor in the consulting, IT services and broad technology space has opened a physical center dedicated to working with clients on their digital transformations and collaborating on innovation of products, processes or business models. TBR has visited at least one of nearly every vendor’s centers, from nine-story buildings in India to one-room product showcases in Texas. Among the common themes, three of the most persistent have been around people and clients.

Vendors have also wrestled with the best approaches to having technology partners on-site, choosing industry focus areas, selecting suitable spaces and/or locations, and managing intellectual property. The most common unknown is how to measure success. While disparities persist on how best to establish, run and monetize these centers, the common themes and challenges present an opportunity for vendors to examine which elements within a partner’s or peer’s center have contributed to what remains the common goal: retaining clients and expanding opportunities.

Globally diversified government IT vendors buffered pandemic-related turbulence overseas with growth in U.S. federal sector

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Overall government IT spending will take a significant hit from COVID-19; growth opportunities will eventually arise but on a longer-term horizon

Public sector market growth drivers

State and local governments in the U.S. as well as civilian agencies of international governments saw significant disruption to tax revenues and their ability to provide even basic levels of citizen-facing services as a result of the pandemic. Employment services agencies, for example, were suddenly forced to operate at sharply lower levels, if at all, while experiencing surges in new jobless claims. As a result, ongoing IT programs were put on hiatus while moratoriums on new technology initiatives were implemented. Conversely, spending on defense, intelligence and national security initiatives by foreign governments, even with temporary stoppages in delivery, was less affected by COVID-19, though essentially profiting only defense contractors like Raytheon Technologies, Northrop Grumman and others that have long-standing relationships with international defense agencies.

TBR’s Public Sector IT Services Benchmark compares and contrasts covered vendors’ go-to-market models, recent investments and key deal wins. The benchmark also reviews numerous key financial performance metrics and highlights vendors that have been particularly successful in expanding market share and improving profitability.