At a new Silicon Valley facility, Fujitsu hosted about 20 industry analysts and over 200 guests for a day of presentations on emerging technologies like quantum computing and AI. The following special report reflects conversations TBR had with Fujitsu leaders and highlights Fujitsu’s role in the technology ecosystem.

Fujitsu’s Superpower: Fusing Compute Power with AI

After a year of relentless hype about the promises of generative AI (GenAI), Fujitsu Research’s leaders structured their presentations during the Fujitsu ActivateNow Technology Summit around a relatively simple and compelling story: GenAI is fundamentally AI, and Fujitsu has successfully deployed a wide range of AI-enhanced solutions.

By observing which business challenges can be addressed with AI, and then developing and productizing AI-enhanced solutions, Fujitsu has built an amalgamation of AI solutions, a collection that is worth more than the sum of its parts. The latest fad, GenAI, fits within this collection. According to Fujitsu leaders, the company has delivered over 7,000 AI-enhanced solutions, providing a strong foundation to tap into as GenAI is more widely adopted. TBR recognizes the Japan-centric nature of the majority of Fujitsu’s AI uses cases but sees the value in playing to the company’s strengths.

Among these strengths, Fujitsu’s leaders noted that the company’s superpower (TBR’s word, not theirs) comes from fusing compute power with AI. One of the guest speakers reinforced that sentiment by noting that GenAI is feasible only because of the extreme computational power utilized. Fujitsu has recognized that being good at compute is absolutely necessary to be good at GenAI.

In TBR’s view, this potentially unique combination of compute power and AI, at scale, could separate Fujitsu from peers as enterprises begin the slow process of recovering from the unfulfilled promises of GenAI hype and implementing the changes needed to progress from pilot to scaled deployments. Fujitsu’s leaders explained that their strategy to accelerate that progress started with the launch of a free AI platform, dubbed Fujitsu Kozuchi (“magic hammer” translated from Japanese), essentially a GenAI sandbox, which the company has now begun to commercialize through a freemium business model.

Critically, Fujitsu has tracked activity within the sandbox to determine which AI use cases and associated technologies gained the most client traction and have significant revenue upsides for the company. Fujitsu has been transitioning these uses cases, smartly, from free to use to pay for scale. Fujitsu’s Kozuchi platform spans seven AI areas: GenAI, Predictive Analytics, for Text, AI Trust, XAI, for Vision, and AutoML.

In TBR’s view, Fujitsu’s experimentation with AI commercial models while marrying inherent compute power to the potential of GenAI only works because of Fujitsu’s extensive experience with AI and credibility with clients and ecosystem partners. Fujitsu needed a solid foundation in both compute and AI to be well positioned for accelerated growth around GenAI.

Additionally, Fujitsu’s broad-based portfolio, including its family of HPCs (high- performance computers) as well as the lower power consumption Fujitsu ARM-based processor — the latest version is scheduled to be released in 2027 — can help the company compete for managing AI workloads, specifically machine learning ones. With security built into the hardware, these processors can also help Fujitsu better appeal to clients in highly regulated industries, including the public sector, emergency response and public safety, healthcare and telco, among others. While built-in security is not a unique feature to Fujitsu, it is a necessary building block as it enables the creation of a strong tech-led AI story around developing and managing large language models.

Exactly the Right Time to be Strong in Analytics and AI

TBR’s Voice of the Customer research shows an additional component to Fujitsu’s potential GenAI-related growth. In TBR’s December 2023 Digital Transformation: Voice of the Customer Research, analytics topped the list for priority investments in technologies supporting transformation, displacing cloud and cybersecurity for the first time since TBR started tracking the data six years ago.

The report notes: “Analytics is now the top technology buyers choose to support their DT [digital transformation] programs, with AI tools and GenAI ranking in the top six, thus heightening buyers’ expectations for vendors to deliver timely ROI that is tied to ongoing business process and/or IT modernization transformation as implications of technology complexities extend beyond data science, thus creating opportunities for vendors that can manage broad-organizational relationships. Addressing multidisciplinary skills gaps will be key.”

Sustainability and Innovation

Fujitsu’s presence and history in the Silicon Valley, which spans 30 years, enabled the company to develop a deep innovation ecosystem. Fujitsu’s CEO of Research of America, Indradeep Ghosh, and Global CTO, Vivek Mahajan, discussed the expansion of the company’s innovation efforts and how Fujitsu has shifted toward sustainability impacts. At the company’s recently opened facility, Fujitsu remains in close proximity to its key partners, including technology vendors as well as smaller, more specialized firms, which can drive collaboration and innovation efforts.

Further, Fujitsu is able to work with universities including Carnegie Mellon University and the nearby Stanford University to deepen its AI, analytics, data utilization and digital twin expertise. Through its innovation efforts, Fujitsu looks to drive social change and leave a positive impact on society, in addition to gathering business intelligence.

To contribute to societal change, Fujitsu is prioritizing sustainability with a focus on slowing the impacts of climate change. Fujitsu leverages its expertise and insights to develop technologies and services that benefit the environment and society. Developing sustainability services and solutions in collaboration with U.S.-based universities and companies could encourage local enterprises to establish carbon and energy reduction goals.

While sustainability and carbon reduction initiatives have stronger traction in Europe, Fujitsu’s efforts will help transform local clients’ global operations. Fujitsu is considering the long-term impact, which will create new opportunities for the company to drive digital transformation projects across regions outside Japan.

Quantum

Quantum technologies have long been ingrained in Fujitsu’s portfolio and technologies, starting with its in-house development of computing and high-performance computing in the 1990s. Fujitsu has continued to expand the compute power of its quantum technologies enabling the company to address a wider range of challenges, with societal issues the most recent addition. Building out its base and capabilities, in addition to establishing itself as a global technology company, have helped Fujitsu explore the U.S. market. Fujitsu is pursuing two strategies around quantum that will give the company an edge over its technology-centric peers.

First, as CTO Mahajan noted during the event, “We [at Fujitsu] are very willing to transfer our IP.” The willingness to give away IP expands Fujitsu’s addressable market. This openness to IP adoption provides both Fujitsu and prospective customers with an advantage, as it raises awareness of the company’s platform and ability to expertly deliver, implement and manage quantum technology.

Second, Fujitsu’s plans include the capability to build a quantum computer at a client’s site, actually bringing the hardware to a client rather than providing quantum services from a Fujitsu site. By creating on-site hardware stacks, Fujitsu will be able to integrate with clients’ existing or preferred technologies, enabling the use of new capabilities. With the ongoing convergence of technologies, the ability to work across and with a variety of platforms will strengthen Fujitsu’s overall positioning within the space.

GenAI

Despite possessing the GenAI superpower of fusing the company’s compute power with its AI expertise, Fujitsu has, by its leaders’ own admissions, struggled to gain market recognition as a top player in the overall AI space. One approach Fujitsu has begun pursuing focuses on influencing the wealth of AI startups. TBR’s casual observance of the many startup-affiliated name tags at the ActivateNow event indicated this approach may have generated some early traction.

In TBR’s view, focusing on startups reinforces Fujitsu’s corporate culture and mindset, which view technology as central to everything Fujitsu does. The company’s leaders also stressed their efforts to leverage academic research and the broader technology ecosystem as a way to echo Fujitsu’s message of “converging technologies,” a concept that TBR believes hews closely to emerging trends (see TBR’s 2024 Professional Services Predictions and 2024 Digital Transformation Predictions).

Applying the company’s blockchain technology to its AI and GenAI assets could strengthen Fujitsu’s position in the space and grow its recognition outside of Japan. The need to regulate AI continues to expand with emerging use cases. Fujitsu’s expertise around blockchain, including Fujitsu Data & Security Technologies for Sustainability Transformation, aligns closely with data protection and regulation, creating the opportunity for the company to apply these capabilities to AI. Fujitsu’s blockchain solutions add a layer of identity and protection to verify real data and information, protecting against external threats.

Sustainability and Consulting as Critical Next Frontiers for Fujitsu

Notably, Mahajan’s first topic was global warming — as he stated, “boiling” — and the opportunity to apply technology to solve climate challenges. His comments conformed with Fujitsu leadership’s sustained message around competing globally and providing something valuable to clients, but TBR cannot recall a similar situation in which the global CTO of a technology-centric company led with global climate change.

For the rest of 2024, TBR will listen for similar emphases from CTOs and other C-Suite leaders at the start of technology events. Meanwhile, Fujitsu Uvance provides Fujitsu with resources to develop and deepen the company’s expertise within vertical markets as well as horizontal business areas, allowing the company to drive transformation projects further enhanced by ESG (environmental, social and governance) initiatives.

More specifically, Fujitsu can narrow its scope within markets as clients diverge and look to embrace sustainable solutions and achieve outcomes. Leading with the Fujitsu Uvance brand allows Fujitsu to integrate sustainable solutions within specific vertical markets including sustainable manufacturing.

Lastly, with increasing client concerns around trusted partners and technology, Fujitsu Uvance’s AI Ethics and Governance Office can help the company establish digital trust in digital transformation projects and help secure Fujitsu’s relationships. Focusing on trust and ethics for the use of AI technologies will allow Fujitsu to use AI more effectively both internally and with clients.

Amalgamation of AIs and Connected Technologies Help Tell Fujitsu’s AI Story

TBR came away from the Fujitsu ActivateNow Technology Summit with two new ideas about Fujitsu and a few questions:

• First, TBR appreciates that Fujitsu’s combination of compute power and proven AI expertise makes the company a significant competitor and/or alliance partner for nearly every player fighting to turn GenAI hype into revenue. Second, Fujitsu’s vision of “converging technologies” aligns exceptionally well with the more tectonic trends TBR has been observing in the technology space, indicating that Fujitsu’s market positioning is more strategic than transactional or opportunistic.
• Going forward, will Fujitsu be able to leverage AI startups to shift enterprise buyers’ perceptions about Fujitsu as an AI company? Can Fujitsu successfully bring Japan-centric AI use cases to clients in Europe and North America? And will Fujitsu develop an alliance strategy that plays to its strengths in compute power and emerging technologies while leveraging ecosystem partners’ strengths in other critical component areas for enterprise buyers?

TBR anticipates that Fujitsu’s concept around the amalgamation of AI solutions will become a widely shared approach to GenAI. As the hype slows down in 2024 and buyers look to trusted vendors with both scale and proven use cases, as well as the ability to connect existing technologies — especially existing AI-enabled solutions — to GenAI deployments, many of Fujitsu’s peers and alliance partners will be talking about a broader understanding and framing of AI within the enterprise.

TBR covers Fujitsu in quarterly reports and as one of 30-plus vendors in TBR’s quarterly IT Services Vendor Benchmark. In addition to this event perspective, TBR has published numerous special reports on Fujitsu events and developments over the last decade.  

 In March 2024 Infosys hosted industry analysts for its U.S. Analyst and Advisor Meeting. The packed agenda included client stories and technology partner presentations to reinforce Infosys’ role in the IT services and cloud market. Infosys executives consistently returned to a few main themes, including delivering business outcomes, maintaining trusted relationships, and focusing on speed, agility and commitment.

Infosys’ Maturing Strategy, Backed by Localization, Training and Partners, Allows the Company to Sustain Client Trust Measured by Business Outcomes

Across an afternoon, Infosys (NYSE: INFY) leaders hosted a steady stream of clients and technology partners who discussed how they have worked with Infosys to apply technology to business problems and generate both cost savings and growth opportunities. Notably, every panel included at least one client, coming from a wide range of industries and describing a variety of problems addressed — and solved — by Infosys.

In the latter half of the afternoon, Infosys shifted the event’s focus to Oracle (NYSE: ORCL), including holding panel discussions with several Oracle and Infosys executives, most notably Amy Lewis, VP of Strategic Alliances, Oracle, and Oracle’s VP of Strategic Alliances and Sreekumar Sreedharan, VP and Global Lead Oracle Services, Infosys. TBR believes Infosys’ decision to persistently turn over the stage to clients and partners reflects the company’s confidence in its message and capabilities and a maturing of Infosys’ strategy, centered on commitment.

In opening remarks followed by a panel discussion about Infosys’ localization strategy, Infosys EVP Rajesh Varrier, VP Deverre Lierman and Associate VP Ranjana Venkatesh Joshi provided an update on the company’s six U.S. hubs. The six Technology and Innovation Hubs are focused on innovation, technology and education, with a few explicitly tied to universities and all focused on a core set of offerings, such as AI, machine learning and user experience design. Complementing these hubs, Varrier and the other panelists described the company’s 21 Proximity Centers as a foundational investment in Infosys’ effort to embed localization into the company’s overall strategy. Additionally, the panel elevated the value of Infosys Living Labs and tied the discussion to the era of generative AI (GenAI).

Overall, the panel’s description of Infosys’ commitment to developing talent through university programs, apprenticeships and professional training confirmed Infosys’ focus on the U.S. market and dedication to the company’s employees. This commitment is further amplified through Infosys’ use of AI and proprietary knowledge management platforms such as Wingspan.

In TBR’s view, IT services vendors like Infosys, whose India-based talent pool is necessary to its business model, must smartly balance low-cost delivery with on-site, highly trained, localized professionals who can go beyond clients’ technology and into their core business challenges. Clients and Infosys executives further solidified the role of the Innovation and Technology hubs, using the tagline, “Experience the Commitment.”

Infosys’ Data Capabilities and Humble Approach to Clients’ Data Issues Allow the Company to Build a Strong Foundation for GenAI Success Backed by Cloud

For the remainder of the afternoon, Infosys’ presentations included sessions on Infosys Topaz; Infosys Cobalt; Oracle transformations; ways customers and partners are tackling supply chain transformation; and testimonials from clients in the energy, telco, banking, automobile and retail industries.

The common theme among client use-case discussions revolved around data. It is easy to jump into a GenAI discussion and win a deal or two, but Infosys understands that without the right data, GenAI models are only as good as the data you feed them, reflecting the company’s humble position in the market. And Infosys’ data work went beyond data cleansing and data wrangling, often including data strategy, providing a strong use case that elevates the company’s value proposition with clients and alliance partners.

For example, Infosys helped a retail client create a data foundation supporting the client’s digital journey, which included bringing customer data from various sources together to develop personalized experiences and using AI models to generate recommendations that would help associates in stores and online. As Infosys helped with building the data foundation, the company also accounted for developing responsible AI applications because, as the client posited, “Customer data will not change, but how to interact with the customer might change.
 
And for any of this interaction to happen, people have to trust the data to interact with the data.” In another example, an infrastructure client replaced an incumbent with Infosys because of Infosys’ “transparency, technology and business knowledge, and innovation.” Infosys helped the infrastructure client with data strategy development and execution, once again highlighting the company’s commitment to service quality and execution and its willingness to think about foundation services before the potential additional opportunity in its client approach.

The sample of use cases at the event strengthened our understanding of the type of company Infosys is, as it continues to invest across its core portfolio offerings. For example, since the launch of Infosys Topaz, the company’s suite of AI services and solutions, in 2023, Infosys has already conducted over 250 experiments with clients around the use of AI, as many have begun to scale their deployments, supporting clients’ efforts to accelerate growth while reaching operational efficiencies. Infosys Technology and Innovation Hubs have played a critical role in demonstrating Infosys Topaz’s value in enabling the company to scale experiments.

Relying on its industry playbook and ecosystem of partners, both strategic and specialized ones, with the goal of delivering business outcomes has helped Infosys thrive in client conversations, as according to Infosys, the company continues to also apply GenAI to its own operations, rolling out new capabilities every six weeks.

Meanwhile, Infosys Cobalt remains the linchpin in Infosys’ cloud and overall digital transformation story as the suite continues to support clients’ evolving needs. From migrating clients to cloud to delivering industry cloud to now providing the foundation for AI, Infosys Cobalt and cloud in general, as Infosys EVP Anant Adya positioned it, have become the operating system (OS) for enterprises.

It is a tall order, but Infosys, drawing on its abilities to stitch digital assets together and then execute on clients’ transformation programs, has earned the trust of clients and partners seeking to capitalize on the opportunity cloud and AI present. One could argue that some of Infosys’ peers have similar strategies of bringing cloud and AI together. Infosys’ ability to stay faithful to its value proposition and committed to all parties separates the company from just being willing to take risk to actually carrying the burden through its commercial and SLA agreements. In short, Infosys facilitates transformation and innovation, with a commitment to delivering business outcomes.

Infosys-Oracle Relationship Provides a Strong Use Case of Trust, Transparency and the Future of Ecosystems

Building on almost three decades of experience, executives and joint clients from Infosys and Oracle brought the relationship to life, demonstrating the commitment and trust between the two organizations. We recognize it is not easy for Oracle and Infosys to be present at each other’s conference and/or speak on the other’s behalf, given their broader partner ecosystems and need to maintain neutrality.

But having a dedicated track to discuss the value of the relationship — as Lewis described it, “Infosys is a partner for complex transformations” — sends a strong message to clients seeking to work with transparent partners who understand each other’s portfolios and go-to-market motions. The success of the relationship requires leadership alignment, commitment and sustained investment in training, and, according to Oracle, Infosys is its No. 1 partner in terms of certifications.

The strategic alignment helps, as Oracle does not need to ask, “Why Infosys?” because Infosys is in the verified space, especially as it pertains to executing complex transformation programs at scale. Meanwhile, Oracle’s constant portfolio innovation has also helped Infosys elevate the value of the relationship in dealing with both existing and new clients.

Deploying a three-in-a-box governance model, including Oracle, Infosys and a customer, not just at a project kickoff but at every milestone, provides an opportunity for each party to share feedback around portfolio and client management. These motions are often tested in Oracle’s workshops days, during which Infosys discusses the art of the possible of Oracle cloud with existing Oracle clients seeking to embark on cloud transformation programs. The trust-but-verify approach Oracle has taken — which has included elevating Infosys to become one of the few cloud services providers on Oracle’s partner roster by conducting a third-party audit of Infosys’ cloud practice to ensure strict standards are met in procuring Oracle software on behalf of the client — highlights how serious each company takes the relationship.

Several joint clients’ use cases were presented at the event, adding the necessary details to reflect the depth of the relationship. One client spoke about the importance of delivering IP for niche areas, reference architectures and accelerators as being critical to Infosys’ industry model. Another client discussed switching to Infosys after selecting an out-of-the-box systems integration vendor because of Infosys’ flexibility and demonstrated change management capabilities for the implementation of the Oracle HCM solution. As both Infosys and Oracle evolve their portfolios and go-to-market strategies, accounting for the implications of GenAI while remaining flexible yet connected to the broader ecosystem will be critical to success.

By cozying up to other hyperscalers, Oracle aims to bring more database workloads to the cloud and take back waning database market share. For example, the Oracle-Microsoft (Nasdaq: MSFT) multicloud alliance continues to evolve. Given their large respective database and application footprints, Oracle and Microsoft have always had a unique opportunity to partner and address the requirements of joint customers looking to run the right workload in the right environment.

At the center of this partner opportunity remains a series of interconnected cloud regions that offer a low-latency connection between Oracle Cloud Infrastructure (OCI) and Microsoft Azure, which we suspect is largely appealing to customers who want to build and run Microsoft applications and connect them with Oracle Database on OCI. However, since the 2019 launch of Oracle-Azure interconnected regions, Oracle has formalized its commitment to a multicloud strategy and is pursuing new opportunities with Microsoft that should help both vendors meet their respective goals, which for Microsoft is driving Azure usage and for Oracle is all about migrating legacy databases to clouds outside OCI to take back database market share from born-in-the-cloud peers.

Building off the Oracle Database Service for Microsoft Azure offering launched over a year ago, Oracle recently announced Oracle Database@Azure, a broader portfolio initiative that expands the availability of Oracle database services, including Autonomous Database and Exadata, in Azure data centers. In addition to expanding service availability and ensuring customers can deploy their Oracle database workloads within a single data center, Oracle is taking steps to simplify both the procurement and support processes for customers. For instance, customers can purchase Oracle Database@Azure via the Azure Marketplace using their existing Azure commitments and take advantage of a joint support model from both Oracle and Microsoft.

In TBR’s Top 3 Predictions for Digital Transformation in 2024, we wrote:

“The launch of multiparty alliances beyond the traditional, preferred two-dimensional relationships and the rise of cobranded facilities can help promote these relationships and bring DT to customers in a package rather than in multiphased approaches. While GenAI will be the tool that forces vendors to establish better data strategies, the rise of the superpowers will also force vendors to rethink their go-to-market, sales and portfolio efforts centered on mutual accountability and portfolio knowledge.

“Prioritizing the needs of partners and enterprise buyers over internal growth aspirations will position vendors across the ICT value chain as leading ecosystem participants. It sounds like an idea born in marketing, but digital transformation outcomes will require multiparty business networks that bring together the value propositions of players across the technology value chain.”

We see Infosys as the right partner to pursue such a multifaceted approach, especially as the company understands the value of its core competencies and, more importantly, knows its partners’ strengths. Deploying multifaceted alliance frameworks requires establishing strong governance models rooted in accountability, especially as expanding wallet share from existing accounts by pitching new capabilities can be much harder than hunting new logos.

During a similar event in 2023, Infosys had SAP (NYSE: SAP) on stage. Given Infosys’ pattern, we would not be surprised if the company invited Microsoft along with Oracle or SAP next year. Time will tell, but given how buyers look to the ecosystem to procure services, such a move would not be out of the ordinary.

TBR’s Extensive, Ongoing Coverage of Infosys

TBR will continue to cover Infosys within the IT services, ecosystems, cloud and digital transformation spaces, including publishing quarterly reports with assessments of Infosys’ financial model, go-to-market, and alliances and acquisitions strategies.

For comparison with Infosys’ peers and other IT services vendors, TBR includes Infosys in our quarterly IT Services Vendor Benchmark; our semiannual Global Delivery Benchmark, Cloud Ecosystem Report, and Adobe & Salesforce Ecosystem Report; and our annual Decarbonization Market Landscape and Innovation and Transformation Centers Market Landscape. TBR is also planning to include Infosys as part of our Oracle, SAP and Workday Ecosystem Report, which is scheduled to be published in the summer of 2024.

Federal IT Vendors Navigating AI Hype

Since OpenAI’s ChatGPT garnered mainstream attention and media coverage at the start of 2023, it feels like every federal IT services vendor has been spurred on to disclose what they are doing with AI out of fear of being left behind by their competitors.

While Booz Allen Hamilton (NYSE: BAH) and Leidos (NYSE: LDOS) were innovators that were actively investing in early state generative AI (GenAI) prior to the pandemic, plenty of other vendors in the federal IT space have become increasingly active in regard to discussing their AI-related activities and how the technology will factor into their respective go-to-market strategies.

For example, General Dynamics Information Technology (GDIT) (NYSE: GD) touts AI for IT operations and AI for mission applications as two of its core digital accelerators. ManTech recently unveiled its own Data Analytics and Artificial Intelligence Solutions Practice, and Maximus (NYSE: MMS) has also been getting involved.

While Maximus had been signaling that it viewed AI as a strategic growth opportunity since earning its seat on the Department of Defense’s (DOD) Joint AI Center Data Readiness for AI Development program in 2022, the company’s AI-related announcements ramped up in 2023. Maximus brought on Kathleen Featheringham as its VP of AI Consulting Services for U.S. Federal Services in March after she played a prominent role in establishing Booz Allen Hamilton’s strategy to further penetrate the U.S. federal IT sector by utilizing AI. Additionally, Maximus became talkative about how it was experimenting with AI internally.

AI is an opportunity for Maximus to augment its customer service representatives, easing their workloads while enhancing the customer experience. The company wants to train its new hires in scenarios with AI to speed up their development process and ensure they are capable of assisting clients. Booz Allen Hamilton is doing something similar with its workforce through its new alliance with Workera. One of Maximus’ long-term goals, though, is to train AI on historical data to the point that it can analyze an agent’s ongoing conversation with a client and provide potential remedies.
 

The Likelihood of an AI-centric Contract in Federal IT

As vendors of all shapes and sizes continue accelerating their efforts to harness AI, many analysts and market watchers are asking: When will we see a government agency award a vendor a revolutionary AI-centric contract? According to TBR’s research, in all likelihood, we will not.

While GDIT’s “Seeds of Change” study published in 3Q23 showed that 28% of government agency respondents either had AI solutions in use or anticipated that they would be in use within the next year, it is not so simple to have a massive contract vehicle focused solely on AI. The main reason for this is that many government agencies still need to address their aging IT systems. Far too many federal IT infrastructures are still running on monolithic mainframe systems and have archaic software and out-of-date programming languages. As my colleague, John Caucis, frequently quips to clients: “They can’t put AI on COBOL.”

Federal IT spending has been accelerating at a rapid rate over the last few years to support agencies undertaking their digital modernization journeys. To capitalize on this surge in available funding, vendors have been leveraging their partner networks to show agencies how they can help clients complete a litany of tasks like setting up hybrid cloud environments, improving their cybersecurity and introducing data analysis tools.

Some vendors, like Peraton, have been positioning themselves as cloud services brokers as government agencies look to customize their own cloud platforms with third-party services. As one might expect, demand for these services will steadily expand as agencies increasingly look at incorporating AI-powered tools into their environments.

Before these agencies can begin utilizing these tools, though, they first need to gather their data and then understand it. This is where vendors like ManTech are stepping in. ManTech’s consultants are helping agencies identify where they are in their digital transformation journey. From there, ManTech works with the client on planning, designing and delivering solutions that allow these agencies to reap the benefits of the technology. As more agencies name their chief AI officers and outline their AI strategies, there will be plenty of opportunities for vendors to get involved.

How Federal IT Vendors Will Find Success in AI

Vendors will need to onboard AI experts while also upskilling employees and ensuring they can utilize the technology in a responsible manner. For example, SAIC (Nasdaq: SAIC) is showing a willingness to take a margin hit and deploy its free cash flow to internal programs to cross-train and upskill its entire workforce on AI during 2024.

As vendors seek to capitalize on the growing demand for AI services, their relationships with technology giants like Amazon Web Services (Nasdaq: AMZN), Google (Nasdaq: GOOG) and Microsoft (Nasdaq: MSFT) will also become increasingly crucial. Successful vendors need to deepen their partnerships and demonstrate how their technologies can augment the hyperscaler platforms that agencies use. Having access to these giants lends vendors credibility while giving them access to the robust technologies and insight into how those technologies are being best used in the commercial space.

Additionally, vendors hoping to capitalize on AI solutions will need tangible use cases — for example, offering a customer-zero approach where vendors can show instances of how the technology has been applied internally. Rather than buying into the hype around AI, clients will want to see how the technology has been successfully and responsibly applied and know that they are not the testing ground.

For example, before making CGI PulseAI publicly available, the platform was developed for CGI’s (NYSE: GIB) own internal use. As stated in a March 2024 TBR special report, “[Global AI Enablement VP Diane] Gutiw described CGI’s take on this idea, noting that the company innovates, develops and tests GenAI-enabled solutions internally, like other vendors, but ensures clients understand that CGI views this investment as a way to save clients’ money: ‘We always talk about fail fast. We’re doing that on our dime because we would not fail fast on your dime.’”

Conclusion

AI obviously offers ways for various agencies to improve their productivity in the short term. It presents a chance for healthcare agencies to not only gather their data but also better understand it and meaningfully utilize it. However, this will require more than just an AI-centric contract vehicle.

For example, as discussed in a 2022 TBR special report, the DOD’s vision for Combined Joint All-Domain Command and Control (CJADC2) is to create “a cloudlike environment that enables the rapid receipt and transmission of intelligence, surveillance and reconnaissance (ISR) data to interconnected networks. By developing a unified network that enables sensors on Internet of Military Things (IoMT) devices to instantly pass on mission-critical information to leaders, more informed and coordinated decision making is possible across the U.S. military’s branches. Decision makers can act faster and establish more cohesive battlefield tactics, factoring in land, sea and air threats with additional support from each other’s assets due to this common operating picture (COP).”

AI would play a prominent role in enabling the DOD’s CJADC2 vision — from immediately relaying this COP to even tagging threats and suggesting the optimal weapon to be used given the situation. Yet to even get to that point, the U.S. military branches would need to invest in an antifragile cloud environment underpinned by 5G technology and have robust cybersecurity measures in place.

AI will eventually be a valuable tool for agencies, but it will not be delivered to them through a single AI-centric contract vehicle.

Overarching Takeaways from Mobile World Congress 2024

Mobile World Congress 2024 (MWC24) brought together more than 2,700 exhibitors and 101,000 attendees from across the global ICT sector, including representatives from many other industries that are pursuing digital transformation. TBR notes that MWC Barcelona is closing in on the pre-pandemic high-water mark for attendance and exhibitors set in 2019.

The MWC ecosystem has proved resilient, confirming MWC Barcelona’s role as the most important, must-attend event in the world for all things related to mobile technology. The most popular topics discussed at MWC24 included generative AI (GenAI), traditional AI, network APIs, private networks, satellite connectivity, sustainability and cloud transformation.

TBR notes that hyperscalers (particularly Amazon Web Services [AWS] [Nasdaq: AMZN], Microsoft [Nasdaq: MSFT] and Google [Nasdaq: GOOGL]) kept a lower profile at MWC this year, a marked change from the loud and flashy presence they had at MWC23. Hyperscalers also continued to double down on positioning themselves as partners with communication service providers (CSPs).

Additionally, TBR notes that the AI/GenAI hype feels tangible and is unlikely to fall by the wayside like the metaverse, crypto, blockchain, and other hyped-up concepts and technologies that have come and gone in years past. Many use cases and business cases for AI and GenAI in the telecom industry make logical sense and have the potential to produce profoundly significant business outcomes, especially related to cost efficiency. Technological readiness for and commercialization of AI and GenAI are in process, and much more innovation is in store.

One of the most interesting takeaways TBR analysts observed from MWC24 was how little 5G, 5G-Advanced and 6G were discussed. While AI/GenAI, network APIs and private networks dominated mindshare at the event, as was widely expected, the lack of content about cellular technology market development was striking and underscores the challenges the telecom industry continues to face with revenue growth and ROI. This lack of discussion also underscores how CSPs are loathe to make further investments in 5G, especially 5G-Advanced, pending measurable ROI, and that vendors see this and are concerned 5G-Advanced will not generate significant revenue.

Though CSPs continue to talk a big game about B2B use cases, network slicing, private networks, cloud-native transformation, AI/GenAI and network APIs as key enablers of the digital economy and new revenue for themselves, their loud, echoing chorus rings hollow and is losing credibility as they do not have anything of significant, sustainable value to show for their efforts in these areas. This is forcing the vendor community, hyperscalers and some enterprises to hedge their bets and seek alternative routes to meet their business objectives.

TBR notes that the situation CSPs find themselves in is becoming increasingly dire, and as an industry CSPs are reaching a point where they will have to reckon with two decades of underachieving on transformation initiatives and weakening business metrics. Additionally, with the cost of capital now at levels last reached nearly 20 years ago in most major markets, CSPs’ financial pictures are worsening, and this will likely prompt a new wave of M&A as well as bankruptcies and structural reorganizations. CSPs also have a people problem, which is arguably the primary reason CSPs have been unable to realize their objectives of shifting from telcos to techcos.

TBR’s research indicates that the telecom industry has entered a period of rationalization and that the operator and vendor landscape, as well as the telecom business model, will fundamentally change over the next decade. The anti-pragmatic, restrictive and often hostile regulatory environment, coupled with macroeconomic headwinds (especially the relatively high cost of capital), and the inability for CSPs to truly transform into cloud-native digital service providers have brought the industry to this precipice.

By the end of this decade, TBR expects the telecom industry to look much different than it looks now, with fewer, but larger and stronger, CSPs and vendors remaining and new business models for network connectivity and related technology enablers disrupting the status quo enjoyed by the industry for decades.
 

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Impact and Opportunities

AI Will Help CSPs Significantly Reduce Costs

Myriad use cases for AI and GenAI were discussed at MWC, spanning all aspects of a CSP. Use cases related to call centers and customer lifecycle management present the biggest opportunity to move the cost savings needle. OSS and BSS, which underpin customer lifecycle management, will be key domains through which AI/GenAI evangelization will take place within CSPs. Network-oriented use cases for AI/GenAI are also numerous but will take a bit longer to materialize compared to call center and customer lifecycle management use cases. The bigger issues surrounding AI/GenAI pertain to governance, privacy and societal considerations, any of which could stifle market development.

Labor will ultimately be significantly impacted by AI/GenAI, but TBR expects gradual attrition, with vacated positions not being filled, rather than abrupt, large-scale layoffs at CSPs. Importantly, the AI and GenAI outputs shown in use cases demonstrated at MWC24 essentially all required vetting by human resources, at least at this stage of market development.

CSPs Have a People Problem

Shifting from a telco to a techco requires cultural, talent and mindset changes at CSPs. For example, to become a techco, CSPs would need to think and behave like a techco and have a workforce that understands techco concepts such as CI/CD (continuous integration, continuous delivery) pipelines, agile workflow methodology, cloud, APIs, software engineering, computer programming languages like Python, as well as containers and microservices.

Change management initiatives, including at the senior management level, are likely to become more prevalent as leading CSPs attempt to cross this chasm, and management consultancies are poised to play a key role in facilitating this change. Though the presence of unions among some CSPs could stifle this shift, CSPs have had more than a decade to make progress toward this human resource transition.

Upskilling and reskilling are viable, partial solutions to address these issues, but these types of initiatives need more formalized structure, investment, and executive sponsorship and oversight to deliver relevant and meaningful results. TBR also expects more CSPs to adopt “cap and fizzle” or “captive” strategies to make this shift from telco to techco, whereby the legacy is wound down and separate entities are stood up in a more techco-oriented structure.

Still No “New Deal” or “Digital Single Market” for Europe’s Telecom Industry

Europe-based operators continued to use MWC as a mouthpiece to plead with governments and related institutions on the continent for regulatory reform (especially regarding consolidation, spectrum policy and evolving outdated regulations, some of which date back many decades). However, while some additional M&A is likely to be approved that may not have been allowed pre-pandemic (such as the Vodafone-3 U.K. and MasMovil-Orange Spain deals), no significant changes are visible on the horizon.

Using history as a guide, structural changes at the level hoped for by the telecom industry will likely only occur when macroeconomic deterioration forces governments into action and drives broader restructuring and change management at organizations. Said differently, the only way Europe’s telecom industry (and quite frankly, the global telecom industry) will see broad regulatory and structural changes is amid a catalyst moment, which tends to occur during periods of unprecedented economic stress.

For example, the last significant, large-magnitude industrial changes across major societies occurred during the Great Depression of the 1930s, which reshaped labor and industrial dynamics, and the Great Recession of 2007-2009, which reshaped the financial services industry. Telecom will, unfortunately, need a similar economically driven crisis to bring about the structural changes that the industry seeks.

Telco-led Initiatives Are Unlikely to Have Staying Power

CSPs continue to attempt to band together in key areas, such as network APIs via CAMARA and the Open Gateway API program, and on telco-specific large language models (LLMs) via the Telco AI Alliance, a recently created consortium spearheaded by SK Telecom and joined by several other major CSPs.

Using history again as a guide, initiatives such as these are unlikely to gain critical mass due to competitive, cultural and resourcing reasons, both between CSPs and within CSPs. For example, the recent past has seen AT&T’s (NYSE: T) Enhanced Control, Orchestration, Management & Policy (ECOMP)/ONAP (Open Network Automation Platform) and Deutsche Telekom’s (DT) MobiledgeX initiatives falter, with both being taken over by hyperscalers (Microsoft took over ONAP via its strategic arrangement with AT&T, and Google acquired MobiledgeX). The last major telco-led initiative to gain broad, global traction and yield significant benefits across the industry was the SMS initiative over 20 years ago.

TBR continues to believe that the best-suited players to make network APIs and LLMs relevant and outcome producing at scale are the hyperscalers, with CSPs likely to partner with hyperscalers for their boundarized portion of the overall market opportunity. Most CSPs are likely to remain technology consumers instead of technology producers, keeping them confined to connectivity providers and dependent on the vendor community and other players like hyperscalers for innovation.

CSPs Continue to Put the Cart Before the Horse with Enterprise Use Cases and Lack Focus on More Promising Consumer Opportunities, such as FWA

Most CSPs still have not deployed 5G standalone (SA) at scale, and those that have are not running truly cloud-native, microservices-based 5G cores. New enabling technologies, such as network slicing, are dependent on the adoption of cloud-native 5G core in a 5G SA architecture. This means that most CSPs globally are still not prepared to deliver on the promises of 5G for enterprise or to capitalize on the technology’s benefits.

CSPs can and should focus more on consumers, where fixed wireless access (FWA) is a proven, ROI-positive and scalable use case that is broadly relevant in most countries worldwide. CSPs’ current 5G non-SA networks and noncloud-native 5G SA networks are capable of supporting 5G FWA at scale, and this use case should be garnering more investment to drive more immediate revenue growth.

FWA Remains the Largest Revenue-generating Use Case for 5G and has Room to Scale

Though CSP deployment of 5G FWA is growing, most CSPs continue to underestimate the potential of the technology, likely because FWA ties up a lot of spectrum resources for relatively low average revenue per user (ARPU). TBR continues to believe that FWA represents one of the biggest opportunities for mobile network operators to monetize their 5G investments and drive scalable revenue growth.

Technological innovations currently available (e.g., multiband carrier aggregation, beamforming, extended range millimeter wave) and coming in the not-too-distant future (e.g., New Radio Unlicensed [NR-U], integrated access backhaul, silicon advancements) are likely to bring dramatic improvements in network performance, energy efficiency, and the usability of spectrum to support services such as FWA at large scale.

TBR maintains that 5G FWA should be thought of as wireless fiber and that the notion of having to deploy fiber to every business and residential premise globally is not only economically unfeasible but also unrealistic from a pure time-to-market standpoint to meet digital equity initiatives. 5G FWA can address these challenges and is a far more realistic and economically feasible technology to help the world bridge the digital divide, bring more competition in the global broadband market and support new use cases.

Finance Industry Indirectly Drives Investment in Private Cellular Networks

TBR analysts learned at MWC24 that the financial services industry is indirectly driving investment in private cellular networks. For example, the ability to track and obtain information from disparately located assets using IoT connectivity, such as heavy machinery and automobiles, is enabling businesses such as agriculture companies, fleet operators, mining companies, logistics companies and auto manufacturers to become eligible for various financial products, such as asset insurance and extended warranties, as well as lower premiums on existing insurance policies. Situations such as these are incentivizing the aforementioned types of businesses to invest in their own private cellular networks or pull CSPs into hybrid network situations.

Conclusion

The telecom industry is entering a new, more precarious phase of uncertainty. What CSPs and their vendors should be doing, they have been unable to do (or are moving far too slow), and what they should not be doing, they continue to cling to and do. If structural changes do not occur in the telecom industry in the next couple of years, the probability grows that other players (e.g., hyperscalers, software-centric vendors) will increasingly circumvent CSPs to pursue their own digital transformation-related interests.

The only players TBR has seen that have the financial and talent wherewithal, ability and credibility to deliver digital transformation and technological innovation at scale in the industrial internet era are hyperscalers and is likely to remain exclusively hyperscalers.

On Jan. 3, 2024, SoftwareOne announced its acquisition of Novis Euforia, a Spain-based SAP and cloud services boutique. This special report reflects TBR’s discussion with Pierre-Francis Grillet, SoftwareOne’s global lead for SAP Services, immediately following the announcement, as well as TBR’s ongoing analysis of SoftwareOne and the SAP landscape.

With New Talent and IP, SoftwareOne Extends Into SAP S/4HANA

According to Grillet, SoftwareOne intends to improve its position in the overall SAP ecosystem by moving beyond helping clients with cloud migrations into a more comprehensive SAP S/4HANA transformation role. To meet that aspiration, SoftwareOne’s acquisition of the Spain-based SAP boutique Novis Euforia adds experience and competencies around technically driven SAP S/4HANA migrations and positions SoftwareOne to better address growing client demand for modernization with minimal disruption and transformation through the journey to SAP S/4HANA.

While only a 35-person company, Novis Euforia marks about an 8% increase in SoftwareOne’s SAP practice, which Grillet said would be further bolstered by 15 senior functional data architects who are focused on finance and supply chain as well as ongoing growth in traditional SAP technical areas. Grillet believes the Novis Euforia acquisition and the new hires will significantly improve SoftwareOne’s SAP revenues, adding to his assessment that SAP has high growth potential for SoftwareOne.
 

Pragmatic Alternative to Complexity

Expanding on clients’ current concerns around SAP, Grillet noted that larger-scale competitors, such as the global systems integrators (GSIs), have increasingly embraced clean core as a means to rein in the rampant customizations often blamed for slowing migration to SAP S/4HANA and limiting innovation on SAP.

In SoftwareOne’s experience, according to Grillet, customizations fall into three categories: unused and therefore nonconsequential; used but no significant remediation required; and used with more complex remediation required. Notably, Grillet added, “a good part of remediations can be automated, further reducing the impact of customizations on the conversion to SAP S/4HANA effort.” A GSI’s greenfield engagement can be relatively expensive, in Grillet’s view, in contrast to SoftwareOne’s focus on preparation prior to a pragmatic and manageable approach to SAP modernization.

Further, Grillet said SoftwareOne has positioned itself well for negotiating a client’s best deal with SAP, given SoftwareOne’s vast experience around licensing and usage. Massive-scale enterprises undoubtedly need GSIs’ capabilities in complex SAP transformations, but many large and most small and midsize enterprises, in SoftwareOne’s view, can be better served through an incremental approach to transformation, framed by a deeper appreciation for customizations’ true hurdles.
 
Grillet also noted that, “Data, in particular, is relevant in the context of the Novis acquisition, as SNP automates the data transformation and conversion from ECC (ERP Central Component) to SAP S/4HANA, enabling, for example, company code and chart of account rationalization when moving to SAP S/4HANA.”

Gorging on a Massive Pie

The services opportunity around SAP S/4HANA transformations is immeasurable as credible estimates vary widely and, to some degree, do not matter. Services vendors with the available talent and credibility will not lack customers seeking help, especially as SAP’s self-imposed 2027 ECC deadline relentlessly approaches.

SoftwareOne’s latest acquisition helps the company address a larger range of client challenges and expands its footprint in Spain, with expectations of extending into Latin America and South America. While SoftwareOne’s SAP practice, at 500-plus SAP-trained professionals, lacks the scale of the largest GSIs, the vast majority of clients are not dismissing potential services providers because of scale — if you have the talent available now, you are hired. (OK, it is not that dramatic of a seller’s market now, but it will be before the end of 2027.)
 
Grillet also noted to TBR that one of the company’s “biggest assets is the fact that most of [SoftwareOne’s] professionals are dual-certified and also hold certifications for the three main hyperscalers: Microsoft, AWS and Google. They have a deep understanding not only of the SAP systems but also the platform they run on.”

In TBR’s view, SoftwareOne has consistently played to its own strengths, such as a deep inside view of midsize and large enterprise IT environments, to include spending and actual software usage. This recent acquisition continues that strategy, comes amid a slow-growing rush to add talent around SAP S/4HANA, and should allow SoftwareOne to extend its client base for SAP services over the next few years.

With six successful acquisitions in recent years, SoftwareOne has proven to be adept at integrating capabilities and leveraging IP. This seventh will continue SoftwareOne’s good fortune and make the vendor a must-watch competitor in the SAP space. Success will also depend on SoftwareOne’s ability to use the 15 senior functional data architects it is gaining as a bridge between existing cloud migration capabilities and SAP S/4HANA business transition opportunities, thus helping the company elevate the brand’s permission around SAP, a necessary step to avoid getting stuck in the increasingly commoditized migration services space.
 
Grillet summed up SoftwareOne’s position by noting that, “The ability to bridge between cloud migration to SAP S/4HANA conversion will depend on more than just these 15 new resources. It will be achieved through the extension of the services portfolio and its [the portfolio’s] underlying tools and IP — including adoption and embedding of the SNP tooling — successfully engaging in the early advisory and preparation engagements, and building an ecosystem of culturally aligned, functionally oriented partners in the various markets where SoftwareOne delivers its SAP services.”