Public cloud segment leaders projected to secure another 10% of market share by 2023

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TBR estimates total public cloud market size was $165 billion in 2018. Microsoft (Nasdaq: MSFT) led the overall public cloud market, while Amazon Web Services (AWS) (Nasdaq: AMZN) maintained a strong lead on the IaaS segment and Salesforce (NYSE: CRM) delivered enough growth to sustain a top-three position in both SaaS and PaaS market share. Microsoft and AWS are expected to jointly compose nearly 40% of the public cloud market over the next five years, while Adobe (Nasdaq: ADBE) and IBM (NYSE: IBM) — fourth and fifth, respectively, in total public cloud revenue in 2018 — will fall out of the top five by 2023 due to adoption headwinds and an inability to convert established enterprise relationships into revenue growth while Alibaba (NYSE: BABA) and Google (Nasdaq: GOOG) take share.

Trend to watch

An increase in multicloud environments will position some vendors to take segment leaders’ market share.

“In the SaaS market, Microsoft Adobe and SAP have joined forces under the Open Data Initiative to challenge Salesforce’s single vendor suite,” TBR Senior Analyst Meaghan McGrath said. “Meanwhile, Alibaba and Google will embrace their role, providing additional PaaS and IaaS services to enterprises that made early investments in AWS or Microsoft.”

Public cloud remains the largest, fastest-growing segment of the cloud market. TBR’s Public Cloud Market Forecast analyzes the SaaS, PaaS and IaaS performances of leading vendors and 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.

CSPs focus on supporting advanced use cases and network technologies to maximize IoT revenue

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Industry 4.0 will spark the adoption of advanced IoT use cases as well as the integration of network slicing and private 5G networks

TBR projects global CSP IoT revenue will increase at a CAGR of 24.9% through 2023 as the launch of mobile 5G services contributes to revenue growth acceleration starting in 2020, and operators, particularly in China, begin capitalizing on advanced use cases. As the 5G and digital ecosystems develop, advanced IoT use cases will emerge that can leverage the unique performance characteristics 5G offers, specifically high bandwidth and low latency. Connected transportation, AR/VR, and mission-critical IoT are all likely to be preliminary use cases for 5G technology, but the commercialization of these use cases will take a couple of years to unfold.

Though advanced IoT use cases that require the precision promised by 5G, such as remote surgery, are being explored, many of these services will not become commercially available until the mid-2020s at the earliest. Additionally, solutions such as remote surgery and V2X (vehicle-to-everything) automotive services will be burdened by significant regulatory and societal challenges.

TBR anticipates Industry 4.0, which includes mass 5G adoption globally, will ramp up around the 2022 to 2025 timeframe and result in heightened spend on ICT infrastructure as demand for new use cases, including advanced IoT solutions, increases. As Industry 4.0 progresses, leading enterprises in certain verticals such as manufacturing, logistics and warehousing will likely opt for private 5G networks that they buy, own and control. Private 5G networks will provide enterprises enhanced data security and the precision needed to support advanced IoT solutions. Private 5G networks will provide new revenue opportunities as customers will in many cases be purchasing these networks directly from telecom vendors rather than CSPs.

Though some larger enterprises will opt for private 5G networks, TBR expects most smaller companies will need to support advanced IoT solutions via a slice from a CSP. Though network slicing solutions will provide revenue opportunities for telecom vendors, adoption will be limited initially as most global operators will delay migrating to 5G core networks, which is essential to support network slicing, for another several years. Though many operators outside of China and South Korea will delay upgrading the 5G core because the system will be costly to install, early adopters will gain a time-to-market advantage capitalizing on advanced IoT use cases requiring the accelerated data speeds and ultra-low latency enabled by network slicing.

Cloud marketplaces are small in revenue impact but mighty in market impact

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Cloud marketplaces are more of a slow burn compared to pronounced market impacts in books, retail and music

To predict the impact of cloud marketplaces, it is worth evaluating how similar changes in go-to-market strategies have impacted other markets. Sears (Nasdaq: SHLDQ), Amazon (Nasdaq: AMZN) and Apple (Nasdaq: AAPL) are three very different companies that illustrate just how profound an impact sales motions can have. Sears rode the impact of its mail-order catalog for nearly 100 years in a wave of success that only recently petered out. Amazon and Apple have much broader business strategies, but both owe a considerable amount of their success — which has them jockeying for the title of the world’s largest company in terms of market capitalization — to their selling methods. Both Amazon and Apple entered well-established markets and disrupted them, not by competing on the merits of their offerings but by challenging the existing sales motion with a marketplace approach. Amazon’s online approach to the book market is a very pronounced example of marketplace disruption, as Figure 1 illustrates. Amazon began selling books online in mid-1995, overtook traditional market leader Barnes & Noble less than eight years later, and subsequently expanded and dominated the market. Today, Amazon controls over 50% of the total book market in the U.S., including both physical and digital titles.

Market overview: Online marketplaces, where customers can browse, search and then buy or subscribe to software titles, have been around for quite some time. Salesforce (NYSE: CRM) rolled out the first cloud app store in 2005, and a wide variety of new options have been introduced since. Despite their longevity, the impact of these marketplaces is still uncertain. Salesforce AppExchange is a standout success, but the impact is more nuanced for most other marketplaces and the industry overall. Marketplaces have not yet become a prominent distribution model for software and cloud services, but they play a niche role in overall go-to-market strategies that include traditional direct sales, partner-driven sales and customer self-service sales. Although marketplaces currently hold a small portion of overall cloud and software revenue share, trends could bolster their role in the market moving forward.

India-centric professional services firms jockey for position in the digital world

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Position as trusted advisers for enterprise customers’ modernization efforts

Technology specialists such as Salesforce and ServiceNow recognized the need of enterprises to have a trusted adviser for their modernization efforts and re-geared their service teams to capitalize on this opportunity. For instance, by verticalizing its service teams, Salesforce now provides industry-specific services to customers modernizing their infrastructure, architecting its portfolio against customers’ needs. While addressing customer needs around deploying Tier 1 provider solutions is critical to professional service firms, partnering with smaller technology specialists such as Tableau, Intuit and Epicor that lack the resources to become trusted advisers to prospective customers creates an avenue for growth in the digital realm. Within the applications space in particular, this represents a significant partner opportunity for professional service firms aiming to root themselves in the enterprise C-Suite undergoing digital transformation.

Where will tomorrow’s Greenfield opportunities exist?

The software-driven world has rapidly accelerated the presence of next-generation technologies in customer IT environments. Having software-defined architectures — from AI to blockchain — accelerates time-to-market for next-generation solutions. TBR believes this is especially true with containerized applications that technology vendors are increasingly targeting, evidenced by IBM’s acquisition of Red Hat for $34 billion, and VMware’s recent acquisition of Heptio.

However, rising adoption of hybrid architectures creates additional challenges for customers seeking to deploy containerized applications, as they must ensure the compatibility of on- and off-premises IT infrastructure with containers. This challenge has given rise to managed services around solutions like Kubernetes, with Platform9 announcing the first fully managed service for Kubernetes on VMware infrastructure in February 2019. TBR believes professional service firms that can foster relationships with various open-source container groups, or leading vendors like Red Hat, will be well positioned to work with enterprise customers seeking to deploy the solutions.

To date, India-centric services firms such as Cognizant, HCLT and Infosys have reference architectures, DevOps and advisory services related to leading containerized application frameworks, such as Kubernetes. While these services help educate prospective customers on the benefits of containers, TBR believes that without skilled headcount, such as senior DevOps application engineers, India-centric services firms risk missing out on the opportunity to partner with technology specialists with robust service teams like Microsoft and Google that are better positioned to guide prospective customers through deployments of emerging technology on their infrastructure. 

TBR reports quarterly on five India-centric IT services giants and includes analysis of their strategies and performances in the quarterly IT Services Vendor Benchmark. This special scenario has been drawn from and complements the most recent reports on these vendors. For further questions, see the TBR team.

WWT’s innovation center shines a spotlight on the company’s evolution from product reseller to outcome enabler

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The rise of the innovation center as a platform for digital storytelling

Enabling customers’ digital transformations has become the holy grail opportunity for companies across the technology ecosystem. In a world in which everyone from server and storage vendors to technical services providers professes to be a “technology solutions provider,” marketing alone is insufficient to convince customers to entrust their digital futures to just a run-of-the-mill technology company. TBR’s research on the private and public sector consulting and IT services providers that typically deliver the expertise necessary to enable transformation shows that to do digital effectively for customers, providers must be digital internally.

Being digital means engaging in self-disruption by integrating internally the same innovative technologies that customers demand externally. It means adopting cloud operating models, developing IP and embracing new monetization cycles. These are difficult tasks, and not all technology companies are up to the challenge. Those that let fear paralyze action face the prospect of becoming irrelevant as more adventurous competitors build credibility around customer zero use cases leveraging partner-developed technology and come to clients armed with their own digital transformation success stories. Customers do not always care about a provider’s platinum-level certification from vendor X, Y or Z, but they will likely find something compelling in a provider’s story about navigating their own self-disruptions.

If customer zero is the story that successful services providers tell clients, then innovation centers are the stage on which the story is told. Innovation centers, digital studios, design studios, centers of excellence: There are almost as many names for these centers as there are examples of companies integrating them into their sales and marketing efforts. While it began with the leading consultancies, the innovation center trend has proliferated across all corners of the IT sector. A key component of providers’ overall innovation programs, the innovation center is where technology providers make digital transformation tangible for their customers. Innovation centers offer a neutral space to discuss business outside typical office settings, bring stakeholders to the table to identify and find solutions to problems, and develop blueprints for a successful transformation, enabled by collaboration between provider and customer. Innovation centers, when run correctly, evolve the conversation from one between buyer and seller to one between equal partners co-invested in enabling a successful digital initiative.

TBR recently spoke with World Wide Technology’s senior vice president of public sector sales, Bryan Thomas, to discuss the technology solutions provider’s new innovation center in Washington, D.C., and its connection to the company’s Advanced Technology Center in St. Louis. The conversation focused on how these centers improve client engagement and enhance go-to-market performance, as well as the importance of expert talent and the shift toward a consulting-led model to meet the specific mission objectives of federal clients.

Webscale capex growth will decelerate, though dollar volume will continue to climb, as data center builds slow

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According to Technology Business Research, Inc.’s (TBR) 1Q19 Webscale ICT Market Landscape, webscale ICT capex for the Super 7 will grow at an 8.1% CAGR to nearly $58 billion in 2023. Most U.S.- and China-based webscales began pulling forward significant investment in data center and network capacity in 2018, which will lead to moderating — or even declining — capex levels for some U.S.-based players beginning in 2020. China-based webscales will continue to ramp ICT capex through the forecast period, however, to catch up to Western rivals in key areas, particularly public cloud.

The entrance of Rakuten, a Japan-based e-commerce company, to the mobile industry could be a game changer and provides a glimpse into what a digital service provider will look like. Rakuten’s mobile network will blanket Japan with LTE coverage by year-end. Not only will Rakuten’s network be agile, flexible and dynamic to provide digital services, it will also enable a dramatic reduction in the cost of connectivity. Rakuten’s ultimate intention is to be more than just another mobile network operator in the highly competitive Japan market; it aims to provide a foundational connectivity platform from which to sell a host of digital services. Rakuten’s acknowledgment that it needs its own network could lead to other webscales trying to take a more active ownership and control stance toward having a connectivity platform from which they can leverage their digital businesses. Alphabet, Facebook and Amazon, among other webscales, have all experimented with how to address last-mile connectivity, not only to bridge the digital divide but also to serve as a conduit to give them more control over their destinies without relying on communication service providers (CSPs) to provide the connectivity layer.

The OEM landscape continues to see disruption due in part to the power webscales hold over their suppliers. The vast number of suppliers taking part in Rakuten’s network build demonstrates that webscales hold the power when soliciting vendors for connectivity initiatives. When engaging with webscales, which have few legacy encumbrances, incumbent OEMs are being relegated to commoditized hardware and services. Should the 5G era bring about this trend in the CSP customer segment, incumbents will see more widespread disruption. Vendors must be wary of the webscale procurement model taking hold with their traditional customers.

Competition from MVNOs and smaller rivals limits subscriber growth for Tier 1 U.S. and Canadian operators

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Wireless revenue rose 2.2% year-to-year to $64 billion among U.S. operators covered in Technology Business Research Inc.’s (TBR) 4Q18 U.S. & Canada Mobile Operator Benchmark, driven by continued subscriber growth and adoption of premium smartphones. All benchmarked U.S. operators except Sprint were able to gain postpaid phone net additions in 4Q18 as opportunity remains to target first-time wireless customers in the country. Postpaid subscriber growth is also fueled by prepaid migrations as many subscribers are moving to postpaid plans for benefits such as bundled streaming services and increased LTE data limits for mobile hot spots.

Subscriber growth for U.S. Tier 1 operators is, however, threatened by the growing momentum of new mobile virtual network operators (MVNOs) entering the market. Comcast’s Xfinity Mobile and Charter’s Spectrum Mobile are attracting wireless customers via low price points and the convenience of being able to enroll in multiple services through a single provider. Altice also plans on providing wireless services in 1H19, giving the company the opportunity to cross-sell mobility services to its current residential base of over 4.5 million customers. TBR also anticipates Google Fi, which was rebranded from Project Fi in November, will gain further traction in 2019 as the brand is launching new incentives to attract customers including bring-your-own-device options for most Android and iPhone smartphone models.

Combined wireless revenue among Tier 1 Canadian operators rose 6% year-to-year to $6.9 billion due to continued subscriber growth spurred by shared data programs and expanding LTE-Advanced coverage. However, subscriber growth for Tier 1 Canadian operators is limited by mounting competition from smaller competitors. Tier 2 Canadian operators, most notably Shaw Communications’ Freedom Mobile and Quebecor’s Videotron, which now have a total of about 1.5 million and 1.1 million customers, respectively, are accelerating subscriber growth via their pricing promotions and network investments. TBR anticipates Freedom Mobile will further disrupt the Canadian wireless market in 2019 as the company will expand LTE coverage to an additional 1.3 million Canadians throughout the year in markets in British Columbia, Alberta and Ontario.

For additional information about this research or to arrange a one-on-one analyst briefing, please contact Dan Demers at +1 603.929.1166 or [email protected].

IBM helps customers extend IP ‘inside out’ to anyone, anywhere

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TBR perspective

After shifting the format from multiple events in years past to one major customer event in 2018 at a single venue, this year IBM (NYSE: IBM) moved its massive customer event, IBM Think 2019, from Las Vegas to San Francisco with far fewer logistical glitches than last year. Analysts were guided by a reinvigorated analyst relations team due in large part to IBM’s decision to shift Harriet Fryman from overseeing internal marketing functions to serving as VP of analyst relations.

In many ways shifting an IBM executive from internal marketing to this external-facing role aligned with the overarching theme of the event that coursed through CEO Ginni Rometty’s keynote speech. The theme last year focused on how the “axis has flipped” on business best practices, while this year the theme cascading throughout the sessions was “inside out.” IBM noted that until recently, much of the transformative power of technology had been dictated from an outside-in perspective in an effort to redesign customer-facing engagement. This, IBM asserts, is why only 20% of the data under management has been transformed to better inform enterprises and why the heavy work ahead will be from the inside-out perspective as enterprises choose which assets to transform beyond just sales and marketing elements. This theme plays well with IBM’s best-in-class reputation for building trust and for understanding the complexities large enterprise IT instances cause in terms of technical debt in need of refinancing and redesigning as enterprises strive to become true digital businesses, beyond the influence of outside-in feedback.

The theme last year focused on how the “axis has flipped” on business best practices, while this year the theme cascading throughout the sessions was “inside out.” IBM noted that until recently, much of the transformative power of technology had been dictated from an outside-in perspective in an effort to redesign customer-facing engagement. This, IBM asserts, is why only 20% of the data under management has been transformed to better inform enterprises and why the heavy work ahead will be from the inside-out perspective as enterprises choose which assets to transform beyond just sales and marketing elements. This theme plays well with IBM’s best-in-class reputation for building trust and for understanding the complexities large enterprise IT instances cause in terms of technical debt in need of refinancing and redesigning as enterprises strive to become true digital businesses, beyond the influence of outside-in feedback.

To address inside-out innovation, IBM’s marketing message tagline of “Anywhere” flows throughout its management control planes, analytics enablement technologies, and the emerging blockchain technology. Many businesses are now capable of transforming from the inside out, or from (oftentimes) Z-based on-premises instances out to the multicloud world. IBM’s “Anywhere” mantra is a big bet that resonates with existing accounts, and the challenge will be to simplify the access and interaction potential new accounts will have with IBM IP assets to prove that IBM understands all elements of the customer experience on a persona-by-persona basis, beyond trust, security and market making for emerging technologies.

IBM Think 2019 brought together tens of thousands of IBM partners, customers and employees to showcase recent portfolio expansions and updates that underscore the company’s continued innovation in cloud-based emerging technologies.

In an emerging world managed by bots, TELUS International’s culture tells us why humans still matter

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TBR perspective

Since the dawn of outsourcing, BPO has allowed enterprise buyers to trust third-party providers with the support of many internal and external processes. While in the past, the risk associated with managing IT and business assets was heavily weighted toward the buyer, in today’s age, where social media is leveraged as a sounding board for both positive and negative customer experiences, there is a heightened expectation for services vendors to deliver brand promises. During its 14-year tenure as an active participant in the CX support services market, TELUS International has successfully navigated the ever-changing dynamics of the BPO space by investing heavily in its employees. The company has an average annual attrition rate of approximately 25%, which is about 50% below the BPO industry average, as its employees and executives trade on trust and share a common goal of servicing customers. Deploying and managing learning and collaboration platforms globally as well as adopting many of the same technologies used to support clients, TELUS International’s approach to people, processes and technology shapes the company’s culture in the era of the machines. While the CX support space has been augmented by the increased use of AI-based technologies and one might consider the BPO industry to be highly commoditized from a labor arbitrage perspective, TELUS International continues to build a human-centric culture that empowers staff (most of whom are millennials) to take charge of their careers while also being brand ambassadors in their local communities. Touring TELUS International’s Las Vegas delivery site, which is one of the company’s 27 global hubs, during the event helped bring TELUS International’s strategy and vision around its employees and investments in innovation to life, further supporting the “from slides to code” trend TBR has observed in the industry over the past 18 to 24 months.

Moving forward, we expect TELUS International to continue executing on its standardized approach to customers’ digital enablement and to carefully select and manage its client base, including pursuing opportunities with enterprises that are also involved with approving TELUS International employee recruitment and training. As the BPO market evolves, the emergence of new pricing models, including outcome-, subscription- and license-based pricing, will compel the company to take on additional risk and retune stakeholders’ expectations around its P&L profile. As a result, TELUS International will need to continue its transformation into an increasingly automation-enabled organization with agent capabilities. 

At its inaugural Analyst Summit, TELUS International brought together industry analysts, company executives and clients. The company used the two-day event to prove why, according to President and CEO Jeff Puritt, TELUS International is the “best kept secret” when it comes to company culture, employee engagement and customer satisfaction in the highly competitive customer experience (CX)-enabled BPO market, especially in the area of talent.  

CSPs accelerate 5G deployments to realize the significant cost efficiencies that are inherent in the technology

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According to TBR’s 1Q19 5G Telecom Market Landscape, though a viable business case for operators to grow revenue from 5G has yet to materialize (with the exception of fixed wireless broadband), the main driver for operators to deploy 5G is realizing the efficiency gains the technology provides over LTE.

Operators in developed markets worldwide have accelerated their 5G deployment timetables over the past year, primarily because 5G is a significantly more cost-effective solution to handle rising data traffic in their traditional connectivity businesses but also to remain competitive in their respective markets.

TBR estimates over 80% of 5G capex spend through 2020 will be driven by operators in four countries: the U.S., China, Japan and South Korea, with the remaining 20% of spend through 2020 predominantly stemming from Europe and developed countries in the Middle East and APAC that have relatively small populations. Most Tier 1 operators in these countries have aggressive 5G rollout timetables and intend to leverage the technology for fixed wireless broadband and/or to support their mobile broadband densification initiatives. The seamless software upgradability of new RAN platforms to 5G will facilitate deployment at incremental cost, keeping overall spend scaling quickly but at a relatively low level compared to prior RAN generation upgrades.

TBR’s 5G Telecom Market Landscape tracks the 5G-related initiatives of leading operators and vendors worldwide. The report provides a comprehensive overview of the global 5G ecosystem and includes insights pertaining to market development, market sizing, use cases, adoption, regional trends, and operator and vendor positioning and strategies.