COVID-19’s societal pressures kick up a Digital Dust Bowl

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Evolving business activity and social interaction have been on a collision course with dated public policy best practices for decades

Three years ago, TBR put out a report called The impending Digital Dust Bowl: Mitigation, survival and interdependence, in which we evaluated the social, economic and political arenas and examined how the pivot to digital business and social interactions was disrupting society. In the interim, we have discussed what seems to be transpiring as a societal rebirth, arguing that while there would be pain involved as a normal component of bringing about new life, the end result would be a better world because of what the technology industry can enable the world to do. Big changes are on the cusp of commercialization as blockchain ensures data accuracy, machine learning addresses new queries, and quantum provides the compute horsepower needed to tackle the world’s most intractable problems.

Three years ago, in discussing AI’s impact, the historical comparison we settled on was the Great Depression, fueled by manufacturing automation, which appeared to be a reasonable analogy. Henry Ford launched his first assembly line in 1913; Watson beat a human on “Jeopardy!” in 2011. These were the comparative touchstones.

At this juncture, we may view that historical comparison as a best-case example and may find mechanization in the early to mid-1800s as a more appropriate parallel. The mid-1800s radically transformed agrarian economies, and that disruptive impact spurred the revolutions of 1848 in Europe and was a contributing economic factor to the U.S. Civil War.

Few conversations today are held without discussing the implications of COVID-19 on our daily lives. Technologists and other pundits talk of the accelerating trends the pandemic triggers. Whether social, business or political trends as we know them, COVID-19 has certainly quickened the rate at which those trends are being felt by virtually everyone around the globe. It is a unique time and highlights the need for career technologists to step forward and participate heavily in the dialogues occurring throughout society on how to remediate the dysfunctional aspects of modern life on which COVID-19 has shined a very bright light.

Public sector entities besides the U.S. federal government bear a disproportionate share of pandemic-related impacts

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The predominance of the U.S. federal market is on display in Figure 1 as most of the observed deceleration owes to the diminishing impact of strategic acquisitions made by federal IT vendors prior to 2019 and the sharp slowdown in overall M&A through 1Q20. The latter trend will be exacerbated by the coronavirus outbreak as acquisition activity grinds to a near complete halt in conjunction with the turbulence in global capital markets. IT spending by the civilian agencies of international governments was also affected by the pandemic, with some ongoing IT programs furloughed temporarily or indefinitely, while others saw their funding redirected to emergency public health initiatives in response to the outbreak. Buffering these headwinds was the continuance of defense modernization programs, particularly in Europe, Australia and the Middle East, though the negative effects of declining oil prices may impact the latter market.

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

Amid a consolidating market, vendors adopt creative initiatives to fight for mission-critical cloud workloads

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Public cloud growth leaders

While Amazon Web Services (AWS) continues to dominate the public cloud IaaS market, its rivals continue to expand in the space and even collaborate to take market share. Microsoft and Oracle added a new data center interconnection in Amsterdam, deepening the ties between the vendors as they enable customers to run Oracle workloads on Azure and integrate workloads between the vendors’ clouds. TBR believes Microsoft and Oracle will continue to improve their competitive position against AWS as more data center interconnections are added. In addition, TBR expects Alibaba will become a growing threat to AWS and other U.S.-based vendors as it builds out data centers in APAC and EMEA.

Public cloud remains the largest and fastest growing segment of the cloud market. Changes in customer acceptance, data integrations and innovation have combined to sustain the rapid growth of public cloud adoption. The Public Cloud Benchmark details how hybrid deployments, new use cases for enterprise apps, and trends in emerging technology will make public cloud even more relevant in the future.

East meets West: A comparative tale of two e-commerce giants placing big bets on the cloud

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Alibaba Cloud, AWS focus on build-outs of global footprints via infrastructure investments in 5G and expansion of data center and edge locations

While the growth of the two globally dispersed e-commerce giants Alibaba and Amazon is largely fueled by retail, both businesses have showed marked dedication to the growth of their respective cloud empires, focusing on infrastructure to fuel global expansion and investment in augmenting their respective portfolios. The investment in cloud is evident as the backbone driving each business as they compete on the global stage to become leaders in digital transformation (DT).

Alibaba Group’s aforementioned profit margins, fueled by its B2B operating model, have enabled a hefty investment of $28 billion dedicated to the cloud business. As the world was gripped by the initial effects of the COVID-19 pandemic back in April, the parent company announced the allocation of the sum, which stands as a massive proclamation of the company’s dedication to cloud and related technologies as the core drivers toward the enablement of DT. The sweeping investment, coupled with new leadership and an expanding partnership strategy, solidifies Alibaba’s intent to position its cloud business as a viable contender against AWS, especially in APAC. Alibaba is clearly placing a large majority of its bets on cloud and the future of DT, as the investment equates to 40% of its total 2019 revenue and is 5.7x the revenue of Alibaba Cloud.

The investment will have a profound impact on Alibaba Cloud’s ability to execute on strategies around DT, infrastructure build-out and R&D, and came at a time when the world could not have been in more need of capabilities such as increased bandwidth and enterprise and SME support. The focus in the medium term is a multifaceted push to gain scale globally, attract new customers and expand wallet share with existing customers, and much of this growth will be propelled by the expansion of Alibaba Cloud’s infrastructure backbone with the build-out of data centers and investment in 5G across EMEA and APAC.

Since solidifying its dominance in China and garnering competitive positioning on the global stage, Alibaba has been frequently referred to as the “Amazon of China.” Both companies have anchored their businesses as e-commerce platforms and have demonstrated parallel growth trajectories, becoming mainstays in the lives and businesses of customers globally. The uniqueness of their respective journeys, which have been significantly shaped by their foundations as e-commerce giants, does not overshadow the companies’ similar strategies. Over time, Alibaba and Amazon have evolved rapidly into diversified companies with a distinct focus on technology and digital transformation. While the companies are in different phases of their growth, in terms of size and global footprint, and have different operating models, the investments in and focus on their respective cloud businesses to drive growth are evident when comparing their evolutions and forward-looking growth strategies.  

Unprecedented government support will help CSPs deploy 5G more quickly and broadly than originally anticipated

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CSP spend on 5G infrastructure will scale faster and peak higher than originally anticipated due to the vast amount of support by governments in a range of countries, including but not limited to China, the U.S., the U.K., Japan, South Korea and Singapore. Due to this, typical historical deployment curves for cellular technologies will not apply to the 5G market, which is now expected to be widely deployed globally by the middle of this decade instead of in the later years of the decade. This pull forward and broadening of infrastructure investment are primarily due to attempts by leading countries to support their economies amid the COVID-19 crisis as well as to keep pace with China’s aggressive and broad investment initiative for competitive reasons. Over the past 12 months, 5G has become a highly political issue, and this unprecedented government involvement and funding are being justified on national security, economic competitiveness and public health grounds.

The 5G Telecom Market Forecast details 5G 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 5G market segments and by geographies well as examines growth drivers, top trends and leading market players.

IT services revenue retained its growth trajectory in 1Q20, but the negative effect from the pandemic will intensify in 2Q20

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IT services trailing 12-month (TTM) revenue growth, at 1.5% in U.S. dollars (USD), was down 20 basis points sequentially and 170 basis points year-to-year in 1Q20 as the COVID-19 pandemic began to negatively affect vendors’ revenue growth during March. At every level of every organization, the pandemic forced massive changes in human resources management, pushing vendors to quickly reorganize service delivery to work-from-home models and proactively pursue similar activities with clients as they strive to keep operations running. While vendors are strengthening relationships with existing clients, the pandemic disrupted traditional sales motions, making attracting and landing new logos more difficult in an all-virtual environment, and challenging IT services vendors to develop novel ways to promote new offerings to clients. The pandemic substantially boosted demand for cloud and cybersecurity as all-remote working and delivery necessitated massive changes and brought in new risks.

The IT Services Vendor Benchmark details and compares the initiatives of and track the revenue and performance of the largest global IT services vendors. The report includes information on market leaders, vendor positioning, the IT services market outlook, key deals, acquisitions, alliances, new services and solutions, and personnel developments.

Intelligent supply chain and ports: Atos on the present and future of digital transformation in port operations

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Applying emerging technologies to supply chains  

In a wide-ranging discussion, Atos Technology and Innovation Lead Erwin Dijkstra and his colleague Bas Stroeken, Scrum Master & Pre-sales Consultant – Intelligent Supply Chain, shared a few key insights into their company’s strategy on integrating emerging technologies, such as AI, blockchain and IoT, into maritime port ecosystems, highlighting Atos’ current clients and use cases. Noting that Atos’ client base includes airports as well as traditional supply chain solutions buyers (such as manufacturers), Dijkstra and Stroeken described Atos’ differentiation as its ability to integrate across an entire enterprise and ecosystem, optimize around delivery times, and build a platform for intelligent supply chain management, which Atos then manages as a service to the client. A critical factor for Atos’ clients, according to Dijkstra and Stroeken, has been the company’s in-depth examination of actors and roles within an enterprise and how those actors will engage with the platform. Various roles require different information and options in the event of an out-of-plan event, making the ideal platform more than simply a collection of data points and alerts. As Stroeken explained, real-time insights are meaningless if everything is going according to plan (think Homer Simpson working at the nuclear power plant — all good, until it is not). When something deviates from expectations, multiple actors need to be alerted, informed and given options for remediation. With multiple actors involved, real-time information becomes critical as one person’s decision nearly always impacts options or needed actions for others in the ecosystem.

Bringing the discussion back to the broader enterprise level, Stroeken made two observations that resonated with TBR. First, professionals tasked with managing supply chains within many enterprises are not deeply experienced in AI, which necessitates Atos acting as the bridge between the technology and the humans who need to understand it, deploy it and benefit from it. Second, as Stroeken said, “Collaboration begins with the proper sharing of data,” which may be a perfect mantra for digital transformation and emerging technologies.

Atos provided two additional use cases, both tied to port operations, specifically customs, an area in which Atos has expertise. In the first, natural language processing and AI contribute to understanding the text in customs forms, improving and expediting the classification process. In more colorful terms, Dijkstra explained how a drone could be classified as a toy, a military use item, or a camera, all with different tax implications, creating a need for assistance among customs agents to get the classifications correct. In a second use case, Atos helps cargo screeners operate more efficiently and with fewer random checks by scanning containers with X-ray machines and using AI to match the images to the manifests. In both cases, Atos operates as the integrator, bringing together various emerging technologies and providing the platform for clients’ continued operations.

TBR and Atos also discussed blockchain as a tool across the maritime shipping and supply chain ecosystems. While the well-known benefits of increased transparency and a more level playing field appeal to enterprises across the shipping world, including manufacturers, ports and shipping operators, Atos’ role primarily comes through facilitating adoption and overcoming the human barriers, such as lack of trust in the technology and uncertainty around data-sharing (see the collaboration mantra above). In TBR’s view, blockchain solutions apply more readily to supply chain than nearly any other use case outside of bitcoin. Atos’ approach — which assumes the technology has been proved secure and reliable, but the humans need coaching — reflects what TBR believes will be the long-term reality for blockchain.

We continue to be intrigued by ports as test beds for emerging technologies and as starter kits for large-scale smart cities. Following a presentation on IoT by Dijkstra, TBR analysts discussed intelligent supply chain solutions, ports and emerging technologies with Dijkstra and Stroeken, including details about Atos’ use cases and current offerings. The following reflects that discussion as well as TBR’s analysis of the consulting and IT services opportunities around emerging technologies, including insights from TBR’s Digital Transformation portfolio and Management Consulting Benchmark.

COVID-19 pushes IT architecture further to the edge

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The growing impetus for edge computing in a pandemic-burdened world

It is an understatement that the COVID-19 pandemic and resulting shutdowns have dramatically altered the ways individuals live and businesses function. Reliance on networks, infrastructure, the cloud and associated technologies has never been greater, and the effect of such dependence has laid bare weaknesses in existing architectures. The result has been a proliferation of opportunities and use cases for technology to remediate the pandemic-driven impacts to daily life, namely remote work, increased video streaming and surges in virtual collaboration.

Edge computing is one such supporting technology that was already becoming increasingly relevant in a world where low latency, advanced analytics and intelligent data mining were quickly gaining momentum across a wide range of industries. As devices have become more common and require more processing power, an increasing amount of data was already starting to be generated on what is referred to as the edge of distributed computing networks. By sending only the most important and least time-sensitive information to the cloud, as opposed to raw streams of it, edge computing preserves bandwidth, eases the burden on the cloud and reduces cost. The pandemic then serves as the quintessential blanketed use case for edge computing as the benefits provided by computing data at the edge, such as reduced networking burdens and increased processing speed, address many of the issues caused by the sudden spikes in network traffic and burden on systems.

The COVID-19 pandemic is dramatically accelerating digital transformation timelines for many enterprises while fundamentally changing the ways we interact with and consume data. As remote work and self-isolation measures have resulted in a dramatic uptick in the use of the web, cloud computing has become essential to businesses and people’s personal lives. Edge technology has only recently become recognized as a complementary evolution of cloud computing, and adoption of the technology has been more widespread. Previous use cases centered on leveraging edge computing’s core value proposition of alleviating challenges associated with bandwidth, latency and near real-time analytics. The sudden shift in workloads and network traffic, coupled with bandwidth constraints, has shined a spotlight on how the benefits afforded by edge computing can alleviate the challenges created by the pandemic.

SAP enhances its best-of-suite strategy with core apps running on HANA and improved industry approach

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COVID-19 impacts highlight the value of SAP’s existing portfolio and road map

Before SAP CEO Christian Klein took the virtual stage for SAPPHIRE NOW 2020’s keynote, Chief Marketing Officer Alicia Tillman spoke with the company’s regional leaders for EMEA, APJ and the Americas. Across geographies, there was consistency in customer sentiment, particularly around the benefits of using technology to react quickly to changes in demand and supply chain challenges.

SAP’s president of Asia Pacific and Japan, Scott Russell, summarized many of the regional leaders’ key points by saying, “There’s one thing that I keep on hearing from our customers small, medium and large, whether you’re in the manufacturing sector, which is really strong in this region, or in other industries, is that ability to be flexible, agile and act with speed. And that’s the expectation of SAP: You need a digital platform … to give you the information you want in real time, so I can make better decisions and adapt to a situation, which for all of us is very unpredictable.”

The pandemic-induced, turbulent business environment has created a new lens for customers to look through and appreciate SAP’s portfolio, but at its core, SAP’s strategy has remained consistent in recent years. SAP has been building upon its Intelligent Enterprise vision, in which customers use wall-to-wall SAP products to integrate their IT environments and gain AI-enabled insights from their data. However, the pandemic did enable Klein to double down on SAP’s messaging about the value of IT modernization, stating, “We have all realized companies which use innovative technologies were more competitive before the crisis and are more resilient in the crisis. Those that enabled new digital business models drove automation and adapted their supply chains and were better prepared for the unexpected. This crisis shows us if your business is not resilient, you will be left with nothing.”

SAP (NYSE: SAP) held SAPPHIRE NOW 2020 Reimagined, with the “Reimagined” branding stemming from the event’s virtual delivery method. While this was a new delivery method for SAP’s annual event, the vendor’s messaging stayed largely the same, with a focus on SAP Business Suite 4 HANA (S/4HANA), S/4HANA Cloud, Qualtrics and emerging technologies — all part of SAP’s Intelligent Enterprise vision. In addition, SAP’s recent strategic shift toward industry-specific solutions in the back office added a new flavor to the vendor’s go-to-market strategy.

IT services vendors react as the pandemic persists

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TBR perspective

The first theme to emerge in TBR’s discussions with industry participants — coping with COVID-19 — centered on the maturation of approaches, solutions and ongoing concerns across the IT services space. Vendors continue to prioritize employee safety while increasingly looking to employee productivity measures, and continue to prioritize sales and go-to-market motions around retaining existing clients. Not surprisingly, some vendors have seen the pandemic’s sustained presence as an opportunity to organize offerings and solutions around pandemic-dedicated business units. The second theme, based on extensive discussions with IT services and consulting leaders over the last six weeks, focused on positioning for 2021 and recognizing that this annus horribilis must end before enterprises can truly return to growth. While IT services vendors and consultancies have seen some profit and growth pockets, notably in cloud and security, the overall sentiment can be summed up as, “Survive and operate now; grow next year.” The final theme, emerging from the vendors’ earnings releases last quarter and in-depth discussions with subject matter experts in areas such as supply chains, healthcare IT and outsourcing operations, was scale. Many people TBR spoke with believe scale matters more now than ever, in large part because sustaining operations and retaining talent through what will be a chaotic end to 2020 and a likely rocky start to 2021 require sound financials, the ability to pivot resources to new areas, and the wherewithal to acquire talent and serve new clients when smaller vendors collapse. TBR expects this last theme to carry well into 2021 as federal, state and local budgets begin to feel the pinch of dramatically reduced tax collections caused by the COVID-19 lockdowns. With the overlay of these themes, TBR sees the following six topics as key for 2020.

COVID-19: Coping with employees

Having managed or muddled through the shift to all-remote working and delivery, IT services vendors and consultancies have now begun to face challenges around reopening their offices, including establishing newly defined roles and restructured physical spaces, with variations across every region and country. Companies need to wrestle with setting new work-from-home policies, right-sizing real estate and addressing lingering worries around the virus. In this transitional phase, IT services vendors and consultancies can test their own technology solutions and change management even as they roll out return-to-workplace offerings for clients. For the most aggressive companies, IT services will encompass areas as basic as connectivity and as pandemic-specific as biometrics, telemedicine, enhanced IoT and contact tracing. As vendors do begin allowing employees to return to their offices, some are looking to embrace a hybrid approach with employees working both remotely and on-site, which requires further adapting to remote-working tactics.

Coping with clients

Retaining clients and securing a larger piece of a shrinking budgetary pie continue to be IT services vendors’ and consultancies’ primary concerns with respect to clients as the pandemic continues depressing economic activity, particularly in hard-hit industries, such as transportation and retail. Further disrupting traditional sales motions, attracting and landing new logos has become vastly more difficult in an all-virtual environment, challenging IT services vendors and consultancies to develop novel ways to promote new offerings to existing and potential clients. TBR expects to see changes in marketing spend, particularly as companies begin learning what promotional efforts do and don’t work in an all-virtual reality.

Moving into a third quarter of pandemic-caused disruptions across the entire IT services and consulting space, TBR has spoken with vendors and clients across three broad themes — coping with COVID-19, positioning for 2021 and scaling — leading us to focus our 2H20 intelligence gathering and analysis on six topics.