Private 5G networks market will see strong growth as a broad range of industries and governments adopt the technology

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The environment after COVID-19 will prompt enterprises and governments to take a hard look at how they can apply new technologies such as 5G to mitigate operational and safety risks. Leading enterprises in the U.S., Germany, Finland, South Korea and Japan will drive the first wave of private 5G network investment through 2021, giving way to broader adoption beginning in 2022 as key 3rd Generation Partnership Project (3GPP) standards are finalized, devices become available and the technology matures. The governments of these countries will also be key initial investors in 5G for civilian, first responder and, in the case of the U.S. and South Korea, military purposes. The Chinese government will also invest in private 5G networks.

Preliminary private 5G deployments are mostly exploratory in nature

Private 5G network spend in 2020 is primarily for exploratory purposes. The ecosystem is experimenting with different use cases, business models and value chain structures in a bid to test the technology and prove the business case as well as to formulate a plan on how best to go to market and which solutions to focus on commercializing.

One key feature of this exploration is ecosystem participants innovating in their own environments, such as RAN vendors applying their own 5G solutions in their factories and industrial companies coinnovating with their partners on pilots. This will help parse out reference cases that can prove the business case for 5G, and some of these pilots will result in commercial contracts.

TBR’s Private Cellular Networks Market Landscape deep dives into the market for private cellular networks, particularly as it pertains to 5G. This global report covers enterprises and governments that are investing in private cellular networks as well as all of the major vendors and some of the key disruptors (e.g., startups) that supply infrastructure in this space. The research includes key findings, key market developments, market size and forecast, regional trends, technology trends, vertical trends, use cases, and acquisitions and alliances that are occurring in the market. The report also provides lists of key companies in the private cellular networks ecosystem that play a role in the market.

Hybrid-influenced vendors respond to customer demands, including limited vendor lock-in and seamless, secure integrations

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Hybrid-influenced vendors sit in a high-growth market as they rely on proprietary infrastructure to architect in-demand hybrid solutions. Microsoft (Nasdaq: MSFT) is separating itself from much of the market as many enterprises use Office 365 in a hybrid environment and as the vendor wins legacy VMware (NYSE: VMW), Oracle (NYSE: ORCL) and SAP (NYSE: SAP) workloads. Among vendors competing for legacy workloads, TBR expects Amazon Web Services’ hybrid-influenced revenue will continue to grow as the vendor strongly competes against Microsoft for the enterprise migrations.

TBR’s Hybrid Benchmark helps providers of hybrid environments and their partners align to growing opportunity, highlighting the market size of hybrid-influenced public cloud, hosted private cloud and traditional software; the go-to-market strategies vendors are using to drive revenue in the hybrid IT space; gaps in the current ecosystems for enterprises; how vendors are addressing customers’ integration challenges; and more.

Fujitsu continues on path of transformation despite macroeconomic challenges

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2020 will be a critical year for Fujitsu as the firm executes on its plan to become a digital transformation (DT) company, emphasizing key areas of emerging technologies and superior client experience. The company’s pace of portfolio investments and expansion outside Japan will support Fujitsu’s goal of driving top-line revenue growth and transitioning to a DT provider. Additionally, Fujitsu’s ability to retain its client base despite COVID-19 challenges will showcase whether the company can quickly adapt to dynamic economic conditions and address client needs; if the firm is unable to evolve its portfolio in a timely manner while protecting its existing market, Fujitsu could face greater challenges in creating new avenues of growth around emerging areas.

Fujitsu focuses on growth areas to drive its top-line revenue

AI is a top-of-mind concern for clients when considering digital transformation (DT) strategies as they look to automate certain processes as well as adopt other emerging technology solutions such as analytics, which enhance and increase efficiencies of human tasks. IT services vendors develop their portfolios around AI to help maintain client engagement as well as to capture demand around AI and analytics. Cloud is also an area vendors have sought to build services around to support migration, integration and management services as clients seek to leverage more responsive and insightful operations.

The cloud market has been growing more rapidly than the IT services space — the cloud professional services market grew 16.3% year-to-year, according to TBR’s 4Q19 Cloud Professional Services Benchmark, versus IT services growth of 2.2% year-to-year, according to TBR’s 4Q19 IT Services Vendor Benchmark — as clients shift to remote work environments that require greater capacity and workload support to ensure stable operations and client delivery and prepare for the post-pandemic era.

Changing client initiatives coupled with increased demand for AI guided Fujitsu’s September decision to transition from a traditional IT vendor to a DT company that will infuse digital throughout operations and engagements as well as work more closely with partners and clients using its network of transformation centers to improve delivery and execution. Fujitsu identified AI, IoT and data utilization as key areas that will enhance and uphold its transformation engagements and has invested in filling gaps around AI and data tools in 2020 to deliver on its clients’ DT initiatives. For example, in collaboration with Inria, a France-based research institute that focuses on emerging technologies, Fujitsu developed a technology that identifies patterns and outliers within IoT environments through devices and sensors that use AI. Capabilities of the technology include sorting methods and AI deployment models that guide business decisions and drive operational efficiencies, improving clients’ data analytics.

PwC Products: Not your father’s PwC

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“Us disrupting ourselves” — PwC Digital’s journey to 2020

“In contrast to peers such as EY, which held an entire analyst conference focused on, and organized around, its technology consulting capabilities, PwC structured each of its client stories around the central business challenge, with the technology solution presented as only part of the successful outcome. PwC placed considerably more emphasis on how it worked with clients’ C-Suite and line employees to identify and resolve key pain points and organizational issues, rather than leading with silver-bullet technology solutions that addressed clients’ specific RFPs.” TBR analysis, October 2018

While PwC Products fully coalesced into being over the last 12 to 18 months, the firm’s technology evolution started at least 10 years ago, with the Hallandale Experience Center perhaps the most critical catalyst in changing the firm’s overall approach to embedding technology into every engagement. Importantly, embedding technology did not mean, as noted above, focusing first on technology, even as the firm developed fully formed solutions. As PwC leaders reminded TBR, the firm developed the DoubleJump Health platform more than three years ago, building experience with a subscription-based software business model. In the last year, PwC enhanced collaboration among the eight digital factories and labs across the firm and took careful stock of the assets the firm had already developed and deployed with clients.

While previously PwC developed bespoke solutions within an industry or service line, with little collaboration across the firm, the recent shift included consolidation of the independent assets that had potential and a scrubbing of these old assets through a digital process pipeline. By putting the solutions through a rigorous vetting process with the goal, as explained by PwC, of determining which assets would meet consistency and quality standards as well as “make an impact,” the firm created a model for product innovation that could be implemented across all of PwC. As one PwC leader noted, “The assets were there. PwC Digital’s job was to put them together.” In addition to process, the firm also needed creativity and a willingness to disrupt itself, something TBR commented on in April 2019: “A PwC leader once challenged TBR to explain why the consulting business model seemed immune to the disruptions changing every other industry. The answer, and the disruption, are within his own building, and consultancies and IT services vendors not seeing it risk falling substantially behind.”

PwC Products: The $500M business built on BXT

“Is PwC now a software company or a technology-enabled consultancy with a global distribution channel for assets and managed services? We’re watching and waiting to see.” TBR analysis, October 2018

We have our answer. PwC is a business solution provider, and some of those solutions include products — tangible, defined assets that allow the firm to be, as the PwC leaders noted, “better, faster, and cheaper for clients.” Some of those assets will remain within the firm, scalable but deployed only to increase speed or efficiency in certain engagements. Some assets will remain with the client, paid for in full, through licensing or by subscription.

Wave of growth that will outpace prior estimates expected for cloud professional services market

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Cloud professional services market overview

Market overview

Prior to the COVID-19 outbreak, the increasing complexity of enterprise hybrid and multicloud environments had already established a growing need for managed services and system integration vendors. Traditional deployment schedules and delivery timelines have been accelerated as the pandemic has created a short-term need to fulfill the demands of a new work-from-home reality, especially in the realm of security and privacy. The increased demand for cloud professional services will necessitate both immediate and ongoing advisory and implementation services as the pace of multicloud and hybrid cloud adoption will increase rapidly for many enterprises needing advisory and implementation services.

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.

EY and technology: Embedding AI and moving beyond trust

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Taking AI further

EY’s “six habits” study provides detailed information and assessments of digital transformation leaders’ best practices as well as “actions for the boardroom,” such as “create a culture of continuous learning” and “embed innovation with corporate governance.” In previewing the study, TBR noted that the recommendations for boards to consider when accelerating AI — “assess the current state,” “integrate AI into core” and “measure AI benefits” — perfectly mirror EY’s own consulting offerings around AI. In discussing AI further, Higgins and Little explained that the firm has been applying AI when making its own financial forecasting and HR management decisions, providing additional insights into how different solutions could be rolled out to clients. Little made explicit that the firm would “build AI into every solution we have,” laying down a clear marker of the firm’s bet on emerging technologies. The firm has been trying to move away from the historical consulting and systems integration approach of putting many people on projects and would instead be adopting more agile sprint methodologies, automation and AI. A concerted effort to embed AI both internally and in every solution built for clients echoes TBR’s November 2019 Digital Transformation Insights Report: Emerging Technology, which noted that, “to capitalize on the cost savings generated by AI, vendors must shift their value proposition toward navigating clients’ technical and business change management obstacles to implement solutions, a strategy requiring continued investment in consulting expertise.”

Building better ecosystems

In discussing changes to the partnering ecosystem for all consultancies and IT services vendors, TBR has emphasized the need for re-evaluation and constant management of alliances, particularly as the technology vendors themselves change their own partnering models and go-to-market approaches. EY has stepped ahead of this change, recognizing the firm needed to evolve its traditional partner program into strategic ecosystem management.

In February EY released a new study on the “six habits of digital transformation leaders,” based on a survey of global CEOs and board members. TBR spoke with Jim Little, EY’s global Microsoft Alliance lead and EY Americas Technology Strategy lead, and Dan Higgins, EY’s global Technology Consulting leader, to gain additional insights and comments on the study, as well as to understand how the firm has shifted its internal operations and strategy around technology. TBR has attended multiple EY events in the last few years, including those geared specifically toward highlighting the firm’s technology practice. Based on those events and the March 2020 discussions with Little and Higgins, TBR believes EY has substantially changed its approach to technology consulting, from enabled to embedded and scalable, which will increasingly expand the firm’s opportunities with global clients, potentially at the expense of traditionally more technology-centric competitors, such as Accenture (NYSE: ACN) and Deloitte. Little and Higgins explained that EY fully intended to embrace a new strategy around technology, with solutions designed for reach and scale, a brand seeking to move beyond trust, and an ecosystem managed to “create real outcomes” for clients.

CSP IoT revenue growth will accelerate gradually through 2024 as more 5G use cases become commercially available

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An increased focus on value-added services is necessary to maximize CSP IoT revenue as connectivity growth is limited by low ARPU connections

IoT revenue is growing steadily but has yet to significantly impact CSPs’ overall financial positions

TBR estimates global CSP commercial IoT revenue increased 20% year-to-year to $26.8 billion in 2019. Despite sustaining strong revenue growth, global CSP commercial IoT accounted for only 2.6% of global CSP wireless revenue in 2019, in TBR’s estimates, which was insufficient for many CSPs to fully offset erosion within challenged segments such as video and legacy network services.

Most Tier 1 operators have begun integrating multiple low-power network technologies such as LTE-M and NB-IoT to attract customers by providing greater flexibility and supporting a larger range of devices. However, offering multiple low-power connectivity options is proving to be unviable for some operators, due to added network costs and the need to generate high subscriber connections to achieve significant ROI because of low average revenue per user. This trend is evidenced by NTT Docomo’s discontinuation of its NB-IoT services in March.

Providing accompanying solutions beyond connectivity is essential for CSPs to maximize IoT revenue

Given the low ARPU generated by IoT devices, CSPs must evolve their IoT business models beyond solely providing cellular connectivity to maximize revenue. Taking a business model approach of being an agent of digital transformation, rather than merely an IoT connectivity pipe, enables CSPs to more effectively cross-sell accompanying solutions in areas including professional services, security and cloud.

Owning content and platforms, such as data visualization tools for car telematics, is another means for CSPs to augment IoT connectivity revenue. Collaborating with the broader technology industry, especially with webscales, is also enabling CSPs to foster portfolio innovation while capitalizing on reseller opportunities.

TBR’s Telecom IoT Market Landscape, which is global in scope, deep dives into the IoT-related initiatives of stakeholders in the telecom market including telecom operators, cable operators and vendors that supply the telecom market. This telecom-centric report focuses on the commercial IoT endeavors of stakeholders in the telecom market, but also touches on consumer IoT. The research includes key findings, market size, regional summary, technology trends, use cases, verticals, operator and vendor positioning and strategies, and acquisition and alliance strategies and opportunities specific to the telecom industry.

SAP and IBM were prepared, responding rapidly, but are still waiting for COVID-19’s peak impact

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The 1Q20 earnings releases of IBM and SAP offered the first glimpse into how COVID-19 is impacting IT vendors financially and into the strategies being used to respond. The two vendors are a positive litmus test for the rest of the IT industry, given their breadth of businesses and customer bases across geographies and vertical industries. From their performances and commentary, it is clear that 1Q20 was a tale of two halves. Before mid-February, business was progressing as normal, while after that point, customer priorities shifted and many deals stalled. In the latter half of the quarter, IBM’s and SAP’s priorities also shifted, including both vendors citing 95% of their workforces have been moved to working remotely. Revenue was slightly impacted during the quarter, but more significantly, the two vendors noted their reactions to the many facets of the virus.

Transactional businesses suffer the first negative impacts

Early results show the COVID-19 pandemic is having the most profound impact on transactional businesses. In broad terms, IT business models fall into two categories: transactional and annuity. Transactional businesses are those where an immediate one-time event results in revenue for the vendor and access to a product for the customer. For IT vendors, examples of transactional businesses are software licensing hardware sales and fixed-price services.

Both IBM (NYSE: IBM) and SAP (NYSE: SAP) cited the stalling of their software licensing businesses as the biggest weakness experienced during 1Q20. The quarter was progressing fairly normally until roughly mid-February, at which point customer priorities shifted dramatically and many sales engagements came to a halt. That behavior is understandable, as at first the uncertainty surrounding the virus caused customers to pause, and then attention shifted to direct COVID-19 responses, primarily the shift of most employees to working remotely. The impact during 1Q20 was amplified by the seasonal dynamics of the software license sales business, which relies on most deals closing just before quarter’s end. By the end of March, the impacts of COVID-19 were in full effect, as most customers dealt with huge disruption to normal operations.

There is both good and bad news for software licensing throughout the remainder of 2020. The bad news is that the first quarter is the lightest seasonal quarter for software licensing and hardware sales — both IBM and SAP expect to experience a bigger impact in the second quarter. The potential good news is that there is still a possibility some of the impacts caused by COVID-19 could fade before 2H20, when the majority of software licensing activity typically occurs. In this respect, the timing of reopening and resuming business as usual will have deep implications for any vendor with a transactional software business like that of SAP and IBM.

Annuity businesses are immune, at least for now

Annuity business recognize revenue from long-term contracts over time, which is an asset in the current environment. For IBM, SAP and Oracle (NYSE: ORCL), annuity businesses are primarily cloud subscriptions and software maintenance, and those businesses have so far remained resilient. Especially for these vendors, the resiliency of annuity businesses reinforces the benefit of shifting to a cloud subscription model, even though it was disruptive to the traditional software licensing model. There has been a marked shift to cloud for IBM, SAP and Oracle over the past 10 years, which increased the mix of their revenue from annuity businesses, of which IBM boasts more than 60%, Oracle 71% and SAP 70%.

For more insight on how COVID-19 is changing IT sales strategies, read Senior Strategy Consultant Geoff Woollacott’s blog COVID-19: Shifting customer loyalties and selling motions.

Zoom videoconferencing booms amid COVID-19, but Microsoft and Google will win with broader SaaS

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Zoom’s rapid adoption highlights security concerns; Microsoft and Google are better positioned

Microsoft (Nasdaq: MSFT) and Google (Nasdaq: GOOGL) were relatively well prepared for the unexpected demand for videoconferencing, with global data centers and strong security measures in place, while Zoom’s security was not ready for the same scaling. There have been numerous reports of “Zoombombing,” which is when hackers join a Zoom meeting and disrupt the workflow, particularly in online classrooms. While some educators did not use password protection to make their online classrooms private, TBR believes this security lapse also occurred because Zoom lacks end-to-end encryption. Microsoft and Google Cloud have experienced difficulty with outages but have performed well in terms of security with end-to-end encryption in Teams and Meet. The regularity of these hacks has led to a recent investigation by the FBI and caused some government agencies, companies and educational institutions to ban the use of Zoom. In TBR’s special report Security measures taken to combat impacts of COVID-19 on businesses will have long-term implications, Senior Analyst Nicole Catchpole discusses the security concerns with Zoom and other cybersecurity threats that have risen amid the COVID-19 pandemic.

Zoom, Microsoft and Google remove pay barriers, increasing usage and setting the foundation for a much larger base of paying customers post-COVID-19

Use of videoconferencing solutions is skyrocketing, but modernization of these platforms will be a long-term strategy

Zoom, Microsoft and Google are offering their video-collaboration tools for free to support the unexpected global shift to remote work and learning environments. For six months, Microsoft is removing paywalls for Government Cloud and certain Office 365 subscriptions — including Office 365 E1 for businesses and Office 365 A1 for educational institutions, both of which include Microsoft Teams. Google Cloud is also offering Meet for free until Sept. 30, but only to existing customers, which makes it slightly more restrictive than Microsoft’s offer. Finally, Zoom has also removed the 40-minute time limit on its free basic subscription tier for K-12 schools in numerous countries, including the U.S., where the company boasts roughly 60,000 customers as of mid-March. Within the “freemium” tiers that are available, Zoom customers can have up to 100 participants in a virtual meeting, whereas Teams and Meet can support up to 250 people in a meeting. Given that each of these vendors has reduced cost-related barriers to adoption, customers can select the vendor that best fits their broader IT environment.

The global shift to a virtual work-from-home and learn-from-home environment has drastically increased demand for SaaS solutions that support collaboration and remote workflows, particularly videoconferencing as companies and educational institutions try to maintain as much face-to-face communication as possible. Among the numerous SaaS offerings available, some of the most popular are Zoom, Microsoft Teams and Google Meet. Zoom quickly rose in popularity and became a household name, growing from 10 million users in December 2019 to 200 million users in March 2020. While Zoom’s (Nasdaq: ZM) number includes individual nonpaying consumers, the vendor has also signed paying business and organizational customers including IAC Group, Rubrik and Texas A&M. Microsoft Teams and Google Meet experienced growth spikes as well. The number of users on Teams more than doubled, from 20 million daily active users in November 2019 to 44 million in March 2020, including enterprises such as EY, SAP (NYSE: SAP), Continental AG and Accenture (NYSE: ACN). Google Meet grew by more than 25 times from January to the end of March and is adding 2 million new users per day, with customers such as Korean Air, Shopify (NYSE: SHOP) and TELUS (NYSE: TU). While Zoom’s total user growth is strong and its offerings are widely used, TBR expects Microsoft and Google Cloud will start to poach Zoom customers due to their value-add hardware and SaaS offerings Office 365 (200-plus million users) and G Suite (6-plus million users).

IaaS and PaaS leaders maintain their current positions in the public cloud market but face mounting competition

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Coopetition is growing among vendors to outcompete leaders in the public cloud market, and customers have responded positively by integrating multivendor environments. TBR expects this coopetition will enable multiline vendors to attain notable growth, but likely not until roughly 3Q20, after the COVID-19 pandemic abates, as enterprises manage remote workforces rather than undergo vast integrations.

Amazon Web Services (AWS), Microsoft, Google and Alibaba will continue to lead the global public cloud market, with Google and Alibaba driving the most significant total public cloud revenue growth among large vendors due to their smaller revenue bases. While these rivals battle globally, TBR expects competition will be greatest in Europe.

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. TBR’s 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.