TBR’s Public Sector Senior Analyst John Caucis joins the podcast to share how the very real concerns have led to net-zero impact on federal systems integrators’ financial performance in the last fiscal quarter, with some leading services firms revising guidance upward. Are the fears going to be substantiated into the next fiscal quarter, or will demand for IT modernization within the U.S. federal government remain?
Public Sector Analyst James Wichert also joins Patrick this episode for a discussion on the realities of Department of Government Efficiency’s impact on vendors and the market.
TBR Talks is produced by Technology Business Research, Inc.
Edited by Haley Demers
Music by Burty Sounds via Pixabay
Art by Amanda Hamilton Sy
DOGE Disruption in Federal IT Services: Zero Financial Impact, Despite Uncertainty and Low Expectations
TBR Talks Host Patrick Heffernan: Welcome to TBR Talks. Today we have a special bonus episode with John Caucis and James Wichert to talk about what’s happening in the federal space.
Upcoming and existing analysis
John Caucis, TBR Senior Analyst: Thanks Patrick, there’s a lot going on. As I’m sure everyone’s aware, there’s no shortage activity these days as the Trump administration and their Department of Government Efficiency has and continues to upend the market. Where we stand right now with our research in the federal IT market, we’ve published three special reports over the last several weeks, detailing first the sphere of companies that we track, systems integrators or FSIs as we call them, federal systems integrators, how we see them positioned to contend with the challenges stemming from DOGE, the Department of Government Efficiency, how we see them in terms of strengths and weaknesses, areas of opportunities. That was our first special report. We followed that up now with a series of reports that we’re- a series of blogs, I should say, that we’re going to refer to as the DOGE Impact Series, the first two of which, and they’re following the earnings cycle of the companies that we track in federal IT, the first two blogs, went to press recently. SAIC released their fourth quarter earnings a couple of weeks ago, and we put together our thoughts on the impact of DOGE on SAIC, which I’ll talk more about in a few minutes, as well as Accenture. Accenture Global released their earnings for, I believe, what’s essentially the first calendar quarter of 2025, their fiscal year is somewhat offset the calendar. So, we got some insight from them on how DOGE is affecting their federal business. So, you can expect to see additional blogs come out, you know, within a week or two of the company earnings. We already know when General Dynamics, for example, is going to be releasing their next earnings. CACI will be around the same week, this is in and around the week of the 21st of April. So that’s upcoming.
What have we seen so far
What we have seen thus far: zero impact. And our next federal benchmark will be out in about a week or so, covering the fourth calendar quarter of 2024. And there was for all intents and purposes, zero real impact on the companies aside from the uncertainty that has descended upon the market. We didn’t see any impact financially. None of the companies that we track, you know, they’re still on track, Booz Allen and CACI and none of the companies that reported their fourth quarter earnings dialed down any aspect of their earnings, growth or profit wise, as a result of expectations with respect to DOGE. In fact, Booz Allen, CACI, they elevated their guidance for their fiscal 25. Booz Allen’s fiscal 25 just ended on the 31st of March, CACI’s fiscal runs to June 30th. We haven’t heard although we will be keeping an eye, obviously, on their first quarter results to see if that changes. So, no impact in the fourth quarter aside from the election itself. And, you know, the qualitative uncertainty that has descended upon the market.
James Wichert, TBR Analyst: I think based on our last podcast discussion, all of my vendors had already shared their earnings. So, not too much to talk about on that front updates wise. But what I would say is interesting is now that the quarter is over, and I’ve been filling out reports and everything, it would seem like award activity slowed down in the first quarter compared to prior years. And, you know, maybe that’s part of the uncertainty with DOGE. I would certainly say the newsrooms for several companies have slowed down. They’re less willing to share information at this point. Like, John said, a lot of the tangible disruptions, like, you’re not going to see it in 4Q and we’ll certainly hear about it in this upcoming earnings cycle. I think the tangible disruptions to a lot of vendors, and they’re certainly undergoing chaos, but it won’t be as drastic as I think a lot of people are thinking. So, looking at all the contracts that have been canceled, Peraton’s had something like $20 million canceled just in the first quarter. It was all work with, I think it was the CDC. And then you dig into that, but it was like the total contract value of all their opportunities canceled. But then you dig into it and each of the contracts are already largely done. Most of the funds are already obligated. And then, you know, that’s a similar story with a lot of the other vendors I track, like, you know, the total contract value is like, you know, relatively high, you’ll see like $100 million for some of them. And then you dig into it, and a lot of these contracts are already, you know, the work’s been largely completed. You know, most of the funds are obligated. So, you’ll certainly see an impact.
And, you know, maybe some guidance’s, I know some people elevated their guidance in the last quarter. Maybe we see a little pullback on that just given all the uncertainty all around, but I think the tangible disruption for several of these vendors, it’s not going to be the -10% or something that the market’s expecting for this quarter.
John: But ICF, James, I believe is one of the companies that had dialed down its guidance.
James: Yes.
John: But did they or did they not cite DOGE as a reason for that or?
James: So, for ICF dialing down their guidance, a lot of that was at the time USAID was being heavily disrupted and they already had some substantial- like, ICF is one of the smaller vendors we cover, and so, they had like an over $100 million contract with USAID to do, I think it was demographic surveys, and that alone got caught up in that, they had additional work with USAID. So, it significantly messes with their estimates for the federal part of the business. There’s also the uncertainty of a large part of DOGEs disruptions have been in the federal health space, which is pretty much where a huge chunk of ICF’s federal business is. I think 25% of it in 2024 was HHS alone. So, for them, the worst case is 10%. Assuming, all their big fears come true. I think their best case they were saying was flat. And I think Maximus was in a similar spot. Not nearly as drastic, though. So, I think Maximus is forecasted maybe, and, you know, correct me if I’m wrong, I think it was plus 1% and then -3% overall. But the federal business wasn’t expected to drive it down at the time.
And, all right, this is certainly like a tricky situation. There’s a ton of uncertainty and everything’s changing from day to day. I mean, the big update I saw like a day or two ago was Musk maybe taking a step back from DOGE and, you know, his, like, special government employee status is set to expire around May or June. And, you know, they believe they’ll be able to reduce the US deficit by like $1 trillion in that time frame. And then now very recently he’s like, it was either last night or this morning, he’s saying like it’s not happening. It’s fake news. But it is an interesting situation, like what happens next if he does go away, what happens to DOGE. And you know, if the department does stick around, that Hulk Smash approach, it’s nearly over. It could really be an opportunity for consultants and FSIs to get in there and start working with them. There’s only so much they can probably hack away at from agencies’ budgets and, Patrick, I know you’ve talked about how government is services before, and if you cut government you cut services. So, when you cut government spending, you’re saying essentially that service isn’t worth it. And at this point, maybe the vendors have a chance, if he does step away and DOGE sticks around, and it’s changing its approach. It does have a way to pinpoint the remaining areas to trim down on spending, but the bigger opportunity would be how they can offer modernization services that enable operational efficiency. You know, especially it’s like tens of thousands of employees, if not like hundreds of thousands of federal workers are, you know, their jobs are cut. And HHS has already begun the process of slashing 10,000 jobs.
Patrick: Yeah. I’m glad you said the word uncertainty 4 or 5 times there. And that’s exactly where we’re at. John, any other last thoughts?
John: Well, James makes a good point with respect to what services are expendable, what services aren’t. I think that’s still up in the air. And he makes another good point that I want to dovetail on, which is the amount of modernization work that still needs to happen. Yes. Five years ago, the pandemic really put the spotlight on the need, the dire need in the civil space, in many cases for IT modernization. The DoD, the intelligence community, they’ve been much more- they’ve been ahead of the game in terms of modernizing, as you would expect. You know, we have nation state rivals that we need to stay ahead of, or at least on par with technologically. And so, they’re much more mature when it comes to cloud computing when it comes to AI, GenAI, agentic AI, quantum computing, etc. But even with the acceleration and modernization that the pandemic drove, it sped up what was already a snail’s pace in terms of the speed of modernization. It did speed that up somewhat, but not- there’s still so much work that needs to be done. I mean, it’s hard to gauge that.
Patrick: Right.
John: But, if you- one way of perhaps looking at this is if you look at the federal IT budget in the last year of the Trump administration 1.0, it was about $92 billion. In the last year of the Biden administration, it was roughly, I think, with the numbers that we’re seeing now, are between and $130 and $135 billion. The increase over that four-year period is roughly $85 billion. If you look at the increase in cloud spending, it’s not following the same trajectory. So, we’re trying to figure out, well, where did that $85 billion in additional spending go? Did it go to people? Did it go to technology. Did it go to software and hardware? And maybe that’s what DOGE has been looking at, you know, saying we had expected, you know, greater investment in technology, hardware, software. And we know that there has been some certainly, you know, certainly in the DoD and the intelligence community. But has there been enough investment there, or has it just been you investing in expanding IT staffs? We don’t know. That’s another area of uncertainty. But the bottom line is this, the volume of modernization work is still- there’s still a lot that needs to be, and there’s a lot of work to be done there.
Patrick: Right, that’s super helpful John because it’s sort of putting- there’s how the federal government has to actually continue to operate, you know, things that- you still gotta keep the lights on, you still gotta pay the bills. And then there’s the federal government actually does need to modernize a lot of its IT systems. And then to James’s point about, you know, flat or, you know, the worst-case scenario for a lot of these companies, that middle section that I just said, that modernization, that’s going to provide them with the opportunity even if there’s chaos and uncertainty in terms of everything else going on.
Final thoughts
So, gentlemen, thank you very much. We will do this again, I suspect, in the near future because change is constant at the moment and chaos rules. So, talk to you guys, probably in a couple of weeks.
John: Thank you.
James: Sounds good.
TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms
Join TBR Principal Analyst Patrick Heffernan weekly for conversations on disruptions in the broader technology ecosystem and answers to key intelligence questions TBR analysts hear from executives and business unit leaders among top IT professional services firms, IT vendors, and telecom vendors and operators.
“TBR Talks” is available on all major podcast platforms. Subscribe today!
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What challenges will IT decision makers face in the current macroeconomic environment and amid the need to manage enterprise data, workload migration and ongoing services? In this episode, titled “Cloud Workflow Predictions for 2025,” TBR Principal Analyst Allan Krans shares his analysis of and predictions for cloud market share in 2025, including expectations for generative AI (GenAI) spend and the impact the technology will have on the market.
Patrick and Allan also dig deeper into anticipated ROI for recent GenAI investments, compared to more common digital transformation engagements for cloud players such as Microsoft’s Azure, Amazon Web Services and Google Cloud Platforms
TBR Talks is produced by Technology Business Research, Inc.
Edited by Haley Demers
Music by Burty Sounds via Pixabay
Art by Amanda Hamilton Sy
Cloud Workload Predictions for 2025
TBR Talks Host Patrick Heffernan: Welcome to TBR Talks, Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms, where we talk business model disruption in the broad technology ecosystem from management consultancies to systems integrators, hyperscalers to independent software vendors, telecom operators to network and infrastructure vendors and chip manufacturers to value added resellers. We’ll be answering some of the key intelligence questions we’ve heard from executives and business unit leaders among the leading professional IT services and telecom vendors.
I’m Patrick Heffernan, Principal Analyst, and today we’ll be talking about 2025 predictions for Cloud Market Share with Alan Krans, Principal Analyst for TBR Cloud and Software Practice.
GenAI ROI skepticism
Allan, thanks for coming in, always good to chat about predictions for 2025, what you thought in 2024 which now as we get into 2025, you might be changing your mind already. We’ll see. We’ll find out. I’m curious, having read the predictions document that that you put out last month, there was some skepticism around the return on investment on generative AI. And I’m curious if that skepticism that runs across the entire ecosystem, including the clients, is that fueled by some overspending on earlier technologies? Is it a result of sort of the relentless hype around generative AI in 2023 and 2024? Is it a realization that most enterprise’s data is just too messy to get a return quickly? Like, what’s the biggest reason why there’s this persistent skepticism around the return on investment?
Allan Krans, TBR Principal Analyst: Sure. Yeah. And I think it’s a lot of those things rolled all up into one. And so kind of starting with the general landscape of buyers in, you know, late 2022 going into 2023, looking at cost optimization. Right. A lot of uncertainty in their markets and geopolitical situations. And so that makes saving money, spending less, really top of mind. And so, with the cloud market, you know, when it was first growing, it was such a small portion that it was a cost saver. It was a way to reduce IT expenses, but that’s no longer the case. It’s such a large portion of most enterprise IT budgets that if you’re going to save money overall, you have to look at optimizing the cloud environment. And so, a lot of the generative AI has inherited this, you know, focus on cost. Really looking at the financial metrics for the justification for these investments. And so that’s kind of leading in, you know, what’s- leading to some hesitancy around large investments. That’s the other thing. It’s tough to really get enterprise production use cases for GenAI without not only spending a lot on the technology itself, whether that’s provided from a cloud provider, whether that’s going to be something that’s on prem. And obviously there’s a lot of infrastructure and facility costs that go into that. You know, to really get those financial returns requires a bit of a leap of faith. And it’s in some ways tough to ask enterprises to go forward with that when there’s a lot of economic uncertainty for them.
And then also there’s the general shift in terms of how are we going to manage it? Do we have the skills to do this properly? Are we secure? And then dealing with the state of the data that already most enterprises would have said, we need to do a refactoring, a data cleanse, to make sure that we’re not just getting outputs that are resulting from improper data management practices. So, there’s a big investment there in terms of the underlying data that will be used in this, in order to really get the best out of it.
And so, you know, with all that said, a lot of enterprises felt like they had to move early.
Patrick: Right
Allan: And get started with it. And so they’ve done that. They’ve spent, in some cases, you know, pretty significant increases from other areas of the budget, thinking of it, kind of in an R&D, a way to kind of secure their, place in this new world where AI is going to fuel a lot of business processes and help them automate and make better decisions, and part of the issue with those early use cases is there’s a kind of gray area of return where just because you’re more productive doesn’t mean that you’re going to either realize more revenue or be able to reduce your expenses in certain operational areas.
Longer term, I think there’s a large promise in terms of what it can deliver to enterprises. It’s going to take a long time to get there. And so, I think there is this kind of trough of, you know, looking at the early investments, but thinking that they’re going to need to do a lot more over the long term. And that’s, a little bit daunting when you start to think about the change that that brings.
Patrick: Yeah. And so, you said a couple things there that we’re so used to in the technology space, like talking about use cases, talking about investment, talking about long term, talking about the way that, cloud maybe was a necessary investment and a cost saver initially and at some point it hit an inflection point. You also said a couple things that we never talk about in technology. Leaps of faith, like that does not often happen. And then also, I love the idea of a gray area on return on investment because I think that’s what we’ve seen more than anything else where a lot of companies have been looking for. What’s the percentage of productivity improvement that I’m going to get? What’s the percentage of cost savings I’m going to see? And early on, those use cases at scale, at least they’re not proving that out.
Cloud vendors’ future GenAI investment
But all of that skepticism aside, or maybe, thinking even through all of that skepticism. In the report, you make the case that the cloud vendors themselves are continuing to invest very heavily. They see the future of GenAI, perhaps better than their enterprise customers do. Is there is there a particular reason for that, or is it just simply that’s the big bet that they’ve all made?
Allan: I mean, I think that’s the big bet that they feel is going to be the future of growth in the cloud market. When you think about net new workloads, you know, we’ve been through a lot of enterprises have moved what they feel like is an appropriate workload into cloud already. So, there’s some growth in terms of additional usage, as you know, there’s more data, there’s more transactions. However, you know, you get addicted to that big bump of, the next SAP environment, the next big workload. There’s a dearth of those now, and so GenAI is one big workload that the cloud providers can monetize. And it matches well with the scale of what they can make in terms of investments because there’s different data centers, different environments, very expensive processors and infrastructure that need to go in to support that. And so, they’re on a scale where they can do that, a lot of the even large enterprises, it’s a big commitment from them. Certainly, for the SMB and smaller customers, you know, they’re just never going to be hosting their own GenAI model doing the training and everything that they need to do to do it themselves. So, it will drive demand for hosted services from the cloud providers, to kind of GenAI capabilities out there in mass to the entire market.
Patrick: So, they can see that demand coming, so they’re willing now to invest, to invest heavily in things like infrastructure to the point of, you know, nuclear power plants and stuff like that. I mean, it’s kind of shocking the way that that part of the market has changed in the last couple of years. We did not three years ago talk about Microsoft and AWS and Google like building their own little mini nuclear power plants. But that’s where we are now.
Allan: Yeah. I mean, it’s pointed out the bottleneck in the supply or for how to deliver this at scale. Energy is a huge factor. There’s all of the commitments around carbon reduction and meeting those commitments environmentally that it’s causing stress to. So, I think it forces vendors to get creative and nuclear certainly is part of that.
Microsoft and AWS
Patrick: So, another thing you point out, one of the big predictions in the report is about Microsoft and AWS. And you make the case that Microsoft will surpass AWS in revenue in 2027. So, my question reading that is then, okay, Microsoft will surpass AWS in 2027 unless AWS does, fill in that blank, does what?
Allan: I think changes the landscape for the GenAI portion of the market. If they can, you know, capitalize- so, instead of being as beholden and partnered with OpenAI, they’ve been doing a lot with their own innovation with being open to multiple model providers. So that’s been their best strategy to date. Microsoft had an early advantage with their partnership and investment in OpenAI, and so that’s propelled them to some degree.
They were already growing faster than AWS.
Patrick: Yeah.
Allan: I think it’s, you know, part of their kind of broader set of capabilities around the, Software as a Service side of the market, being able to leverage that from a go-to-market model. The partner distribution has been part of their strong suit for the entirety of their business, and so that portion of the go to market is really caught up and is propelling them a little bit faster than AWS. We do expect to see kind of a refocusing of the sales strategy from AWS as they’ve had a change in leadership and really start to look at driving a go-to-market model that relies on an ecosystem, and is really pragmatic about where they’re investing rather than just, you know, growing because they were the earliest cloud platform in the cloud space.
Corporate cultural shift
Patrick: Right. How much of that is a culture change? And I’m asking that question knowing full well that here at TBR we’re all about the data, we’re all about looking at the numbers. We’re all about looking at the financial performance, and we’re all about looking at, you know, analyzing in a- not in a wishy-washy way, but in an analytical way. And yet when you talk about culture, sometimes corporate culture, sometimes you get into something that’s a little hard to measure. But is there going to need to be a cultural shift in AWS for them to either maintain their lead or at least not get surpassed in a meaningful way?
Allan: Yeah, and I think we’ve already seen that. I think a slowdown in growth will cause you to look inward pretty quickly. And so culture is going to be something that is adjusted as they look to, you know, optimize their financial performance and they can’t keep with the same sales and marketing strategy that was good for them, you know, for the early onset. There needs to be a shift. And so, I think the performance is causing them to take a look and start, you know, you already see it with the leadership.
Patrick: Yeah.
Allan: Looking at, someone who’s focused on sales and marketing rather than innovation or just being, you know, part of the retail side of the business. So, it is a fresh perspective.
Repatriation
Patrick: So, I’m going to go a little bit out, away from what we normally talk about when we’re talking about cloud and hyperscalers and all that, except it’s a question that comes up on the services side in particular, where the question is, what kind of workloads are going to get repatriated back to on prem, and in the predictions report you mentioned that briefly and you basically dismiss it. And I’m curious, is that where you think it’s going to go? There’s never going to be like significant portion of the workloads that get repatriated back to on prem, based on everything you’ve talked about, especially when you when you mentioned sort of the vast investments the cloud companies have to make in terms of being able to provide for SMBs and others that aren’t going to have it. If the option is, instead of going with Azure and putting it, putting- running your GenAI miles on the cloud, is repatriation a real issue or is it just going to remain a tiny percentage?
Allan: I think it’s going to be a small percentage. I think the situations where it makes sense, a lot of times it has somewhat to do with the workloads. If there’s a stable workload that you believe isn’t going to change over the next 5 to 10 years so the environment can remain consistent. You can run it. And if the focus is on cost, and you have the internal IT resources and team to feel like something that you can manage and deploy on prem, you can do it cheaper.
Patrick: Yeah.
Allan: And so, for organizations where that’s important or for things that are big enough that makes a big impact in terms of the overall level of spending, I think that’s where you’ll see it. I also think that in most cases, those are the workloads that wouldn’t have gone to the cloud in the first place. So, part of it could be you go back to culture, if there was a cultural shift. Cloud first, cloud, everything. If you know, as that changes and you get new leadership that takes more of a financial or a traditional look at the IT strategy. Yeah.
Patrick: Okay.
Allan: We will see that, but I think it’ll be, you know, in the single digits.
Use cases
Patrick: Yeah, it’ll remain small on that, and that’s important. If you’ve sort of made the mistake of sending something to the cloud that then you realize you need to bring it back, but you need to bring it back under the right conditions, where like you said, you have the you have the infrastructure in place and you also have the people in place to be able to handle it.’
All right, last question, and to get back to sort of the big GenAI picture, one thing we hear again and again- the question is always what are the use cases that are resonating with clients? Whatever, it depends on the client. It depends on their industry. It depends on their size. Blah blah blah.
The other thing that I think is more interesting, are what are the use cases that you have heard about, maybe at a pilot level or maybe even a, you know, just proof of concept level that you think, okay, in 2025, these are the use cases- this use case is going to explode because it’s truly innovative. It truly addresses a business problem in a way that AI hasn’t addressed before. Or it just sounds cool. Like what are the- what’s a use case that has kind of has jumped out at you in the last couple months that you think will be significant, that people will be talking about by the end of 2025. Allan: Sure. Yeah. So, I think there’s a lot- it gets very nuanced. So, it gets focused down on the industry. One thing that was kind of interesting that I just heard about is automated vehicle inspections. So, in New Hampshire we go through a physical inspection of the vehicle every year.
Patrick: Right.
Allan: With a mechanic and every garage does them for a certain fee. This uses, computer vision, so a combination of a visual inspection as well as mining the data from the vehicle to not just do a “well, you need to fix this or that” to kind of do a holistic view of the state of the vehicle. So, that was kind of an interesting thing. And I think there’s a lot of other- you could go into real estate and other ways of combining different inputs, data, visuals, could be temperature. So much data could be mined. And then to have- a little bit novel. So, what’s the return on that? It’s a bit difficult to tell, but, things like that where it gets really down into the specific industry, are some of the things where there will be markets. And so being able to provide a solution that can be used by the entire industry and having that scale, I think, provides some of the promise for not just, a novel solution, but something that can really be a standard across multiple different markets and actually have a viable business model.
Patrick: And it all depends on the data, to get back to the sort of data is messy and then certain enterprises are not prepared to cope with that. And then the data has to go somewhere, be stored somewhere, or be analyzed somewhere, spit back out somewhere. And that requires again, we’re back to the nucelar power plant.
Allan: Yeah. Right. All those things.
Final thoughts
Patrick: Alan, thank you very much for coming in. Really appreciate it. We will chat again I’m sure in a few months.
Allan: Sounds great. Thanks.
Patrick: Next week I’ll be speaking with TBR SVP Dan Demers about TBR 2025 predictions for Generative AI. Don’t forget to send us your key intelligence questions on business strategy, ecosystems, and management consulting through the form in the show notes below. Visit tbri.com to learn how we help tech companies large and small, answer these questions with the research, data and analysis my guests bring to this conversation every week.
Once again, I’m your host, Patrick Heffernan, Principal Analyst at TBR, thanks for joining us and see you next week.
TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms
Join TBR Principal Analyst Patrick Heffernan weekly for conversations on disruptions in the broader technology ecosystem and answers to key intelligence questions TBR analysts hear from executives and business unit leaders among top IT professional services firms, IT vendors, and telecom vendors and operators.
“TBR Talks” is available on all major podcast platforms. Subscribe today!
https://tbri.com/wp-content/uploads/2025/04/cloud-workload-predictions-for-2025-cover-scaled.jpg25602560TBRhttps://tbri.com/wp-content/uploads/2021/09/TBR-Insight-Center-Logo.pngTBR2025-04-04 10:40:212025-04-04 10:40:24Cloud Workload Predictions for 2025
From post-proof of concept use cases of generative AI and adoption rates of fixed wireless access to missed ROI opportunities of 5G and the vision of 6G, in this episode of “TBR Talks” Telecom Principal Analyst Chris Antlitz joins Patrick to highlight his top takeaways from Mobile World Congress 2025.
Chris considers the implications for the global telecom market and how the market must change. Additionally, he discusses the foundational challenges of global telecom operators and traditional telecom vendors, where governments must interview, and what role hyperscalers will play.
TBR Talks is produced by Technology Business Research, Inc.
Edited by Haley Demers
Music by Burty Sounds via Pixabay
Art by Amanda Hamilton Sy
The Telecom Market Must Change: Mobile World Congress 2025 Recap, Featuring Telecom Principal Analyst Chris Antlitz
TBR Talks Host Patrick Heffernan: Welcome to TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms, where we talk business model disruption in the broad technology ecosystem from management consultancies to systems integrators, hyperscalers to independent software vendors, telecom operators to network and infrastructure vendors and chip manufacturers to value added resellers. We’ll be answering some of the key intelligence questions we’ve heard from executives and business unit leaders among the leading professional IT services and telecom vendors.
I’m Patrick Heffernan, Principal Analyst, and today we’ll be talking about this year’s Mobile World Congress with Chris Antlitz, Principal Analyst for TBR’s Telecom Practice.
The good news from MWC 2025
You’ve been many, many times now. How many is it, Chris?
Chris Antlitz, TBR Principal Analyst: This was the fifth.
Patrick: The fifth time. So, let’s start with the good news. What did you hear, what did you see that was exciting about what’s happening in the telco space right now?
Chris: Yeah. So, the good news is the event was well attended. It was, in some cases they had record high levels of certain metrics. Second highest attendance ever in the show’s history, so that’s really good.
Patrick: Right.
Chris: From a content standpoint, there were two things that really stood out to me that were good. One is that, for AI, I noticed there’s meat on the bone this time, this time around. Last year when I saw demos and heard people talk about AI, it was more conceptual, more theoretical. This year it started to- some of that started to transition to we’re actually doing some of this with live traffic, like we’re testing some of these things with actual customers that are on telecom networks. And were starting to see outcomes coming from that in terms of KPI improvement, how people are interacting with these things. So, I definitely saw progress over the last year in AI.
Patrick: Okay.
Chris: The second thing that I saw that was good is around fixed wireless access, FWA, and this is about wireless fiber and bringing that to, as a broadband option to, people and businesses, to households and businesses. And it’s a much faster time to market. You don’t have to dig up the ground to put fiber in the ground.
Patrick: Right.
Chris: It’s not as good as fiber, but price for value and the time to market advantage makes fixed wireless access an incredible opportunity for the telcos. And we continue to hear about, you know, adoption rates. We hear about technologies that make FWA better, addresses some of the limitations that the technology originally had and just makes it a much better value proposition all around.
Network API, edge computing, and network slicing opportunities
Patrick: Right. I’m glad you brought up both fixed wireless access and AI, because those are two areas I want to go in detail here. And I think I want to dive kind of into the weeds on some of this based on what you wrote in the special report that was released just recently coming after the event. So, I want to talk about those two things. I want to talk about sort of where things are headed next. But let’s start with one thing that caught me in the write up that you did, and it was talking about network APIs, edge computing, network slicing and some other technology areas where the expectation was that there was going to be growth, there was going to be revenue growth, and it hasn’t been what was expected. And a lot of that revenue you described as cosmetic, that is, it isn’t at scale and it’s not a great margin. Is that- are those areas going to change at all? Do you see where networks slicing, where edge compute, where network APIs is going to become a substantial revenue stream for these companies or no?
Chris: I think it will, but I personally believe that the hyperscalers are going to take those opportunities and they’re going to run with it. So, I’ll give you an example. Cloud computing, right? The cloud as we know it today is centralized computing. You have mega data centers that are doing the processing. That is evolving to distributed computing. Everything from the mega data center all the way out to the device, the endpoint device, and everything in between. Who’s going to own that aspect, that full architecture, right? That framework.
Patrick: Right.
Chris: And it’s highly likely that that’s going to be a full hyperscale game. The telcos might have some opportunities here and there, but from large scale opportunity where it’s generating good margin and growth for the telcos, I’m not convinced.
Patrick: Not going to see it. So, is there a reason why the expectation was different a few years ago where companies thought they were going to actually get significant revenue growth or significant revenues out of those areas, or was it just- did they miss time in the market, or did the hyperscalers, I guess, maybe better time the market?
Chris: So, if we go back in time to the beginning of LTE in the 2010’s, that time frame, this is a recurring theme in the telecom industry, that they find a new thing, that they want a new shiny thing that they want to sell and they’re going to grow from. And the telcos don’t wind up realizing that opportunity. It’s someone else. And it’s usually the hyperscalers that realize it. So, what we’re seeing is history repeating itself yet again now, with all these technologies, edge computing being one example, where this is a hyperscaler game and we are seeing we actually we cover this in my group, we have research on this like, where the telcos are at in this market opportunity and where the hyperscalers are at and where they’re thinking down the road.
Patrick: Right.
Chris: It’s also where this is going.
Patrick: Right.
Chris: And everything that we see suggests that this is a hyperscale game. They’re going to get the vast majority of the benefit from the enabling technologies of these types of things like network slicing, edge computing, etc. APIs.
Patrick: Right.
Chris: And the telcos will participate in the opportunity, but their portion of that value chain is very small relative to what others are taking.
The bright spot of GenAI
Patrick: I’m glad you framed it up as both a historical trend and also the bright shiny thing, because that’s the second thing I wanted to get at, which was artificial intelligence and GenAI in particular. So, in your write up, you talk about where you are seeing, and you mentioned at the beginning, sort of the bright spot of these applications, I like the way you put it, there’s sort of actual meat on those bones where we’re now year three into the GenAI hype cycle, and return on investment, like actual contribution to revenue growth, business growth, is finally starting to come around. We’re starting to see things at scale. But across not just the telco space, but across all of the applications of AI, we see that sort of low hanging fruit of, you know, customer service, and sales and marketing. Those are things that sort of everybody is doing. So encouraging to see the telcos are doing it as well. Were there any examples of things where you sort of took a step back and said, wow I had not thought of an AI application there, an AI solution- enabled solution there? And this is an area where maybe AI is going to make a difference for some of these telcos?
Chris: So, for RAN, there will be a lot of transformation in that domain. But not yet. It’s going to take some time. Right now, we see AI being applied for energy management, energy optimization, sustainability at the radio layer. The RAN is the biggest hog of electricity from a telco network standpoint. There are ways to mitigate that. You know, I’ve seen some- in some cases telcos can get up to 15% energy reduction in the network. That’s a lot if you think about scale.
Patrick: Yeah.
Chris: So, but that’s what I consider to be a preliminary AI use case for that domain. But I heard about some things for like RAN planning, propagation analysis, Ray tracing, simulation analysis like using like meta data, like heavy duty modeling, where you can really drive incremental improvement, but incremental at-
Patrick: A massive scale.
Chris: At a massive scale, it becomes meaningful.
Patrick: Right.
Chris: So that’s the domain, I would say. But from a telco perspective, a lot of them are talking about AI and other domains. But like you said, it’s mostly- what they’re actually doing at a-where there’s the meat on the bone, if you will, is in the call center and the OSS BSS domains.
Data readiness for AI
Patrick: So, in all of the other industries that we cover, the sort of- everyone is ready for AI accept their data. Like that is always the- and for every single enterprise, that’s the biggest stumbling block. It’s not the business case, it’s not the cost, it’s not the lack of capability, and it’s not the lack of people to do it. It’s the data. Is that true in telcos too, or do they have a better data story?
Chris: They might have the worst. *laughs*
Patrick: *laughs*
Chris: So- well, maybe the government, maybe the government.
Patrick: Did not expect that, okay.
Chris: The telcos are very siloed. And they say they have data lakes. But the reality is they are very siloed.
Patrick: Yeah
Chris: Almost all of them. And they- where things get interesting is the idea of agentic AI and the orchestration of agents.
Patrick: Right.
Chris: Because it’s okay to have those silos if you have an overlay, if you have an agent model assigned to that silo.
Patrick: Right.
Chris: But if that agent is able to talk to another data silo agent and they can talk together, you’re actually breaking down the silo in a way, because you’re getting the outcome that you want, even though you internally are set up where you have data silos. So, like when I talk about the interconnection between call center OSS and BSS, you could have a variety of agents inter playing in that mix depending on the chain that you need to do, like what the customer needs in that call. There’s some vendors that are doing a lot of work around this stuff and yeah, I saw some really advanced like sophisticated stuff that is being worked on, and it’s come a long way. The telcos usually move slow on this stuff. So, this time around I’m seeing speed on the call center OSS and BSS areas specifically.
Patrick: Yeah, yeah. Well it’s fascinating too because the silos are- what we found early on is that the silos are super helpful when you want to try and cleanse a limited amount of data and then do something with it, be able to actually use an AI enabled solution to generate some sort of return on that investment. It’s easier when it’s siloed, but it also doesn’t scale across the enterprise. And that’s where the agentic part comes in.
Fixed wireless access
I want to pivot to fixed wireless access, because you talked about it in your piece as being an area where the CSP’s in particular have sort of misunderstood the opportunity that’s there. And you said that the industry as a whole is going to change the way it thinks about fixed wireless access, FWA, and that it’ll be an important component of the broader picture going forward. So, does that- is what you’re saying that the CSP’s have misunderstood the opportunity and will continue to miss out on the opportunity going forward? Or is there way for them to sort of play catch up and pivot their own strategies to be able to take advantage of what you’re describing is going to happen with FWA?
Chris: Yeah. So, there are some telcos in the world that are- have taken that opportunity and they’ve been running with it. T-Mobile, Verizon, the India telcos are probably the poster children for doing that at very large scale.
Patrick: Really.
Chris: There has been- so, T-Mobile was a thought leader here. They were one of the first to say we see that opportunity and we are going full speed ahead. And they did it. And they’ve been very successful with this. A lot of the- most of the industry, this is five years ago, most of the industry said ain’t going to happen. It’s going to be fiber. It’s going to be DOCSIS. And they just didn’t believe it. They didn’t believe it. And they said there’s this problem, there’s that problem, there’s this problem. But they failed to see the solutions that were being developed. There is tremendous innovation across the technology stack to do, on the spectrum side, on the radio side, on the backhaul side, to do these things at scale and to dramatically reduce or completely eliminate some of the original challenges that were around to actually do that technology. So, T-Mobile saw that early on. I give them a lot of credit for this.
Patrick: Right.
Chris: We are seeing gradually other telcos are also waking up and they’re saying, wait a minute, we need to relook at FWA. And we are at, we’re seeing this now, we see this in our research. We see telcos now, that just a few years ago they said, absolutely not. We’re not going to do FWA, we don’t need to, because everything is going to be fiber. Everything is not going to be fiber. It is cost prohibitive.
Patrick: Right.
Chris: It doesn’t make logical sense to have everybody wired with fiber. And for whatever reason, it could be societal reasons, there could be topography reasons, like you might have a house at the top of a mountain. How are you going to get the fiber up there? Like it- just things like that
Patrick: Cost alone. Yeah, just the cost
Chris: Yeah, the cost. And it’s like there needs to be a rethink and a reassessment. Yes, there’s going to be a lot of fiber connecting a lot of premises, but it’s going to be- a portion is going to be fiber, and you’re going to have other portions that are other broadband technologies that are fiber-like and that provide more than enough broadband speed and bandwidth and everything else to the end users, latency as well.
Satellite
Patrick: Right. Okay. And then I’ve got to- just because of everything you just said, I need to ask one more question before we wrap. And that’s in that piece about- in your in your comments about FWA in the piece and then you mentioned it briefly here, there’s still- there’s satellite, there’s a term for it like non terrestrial network. So, and I know our colleague, Boz, has been talking about the space opportunities here for quite some time now. What’s your sense- is that going to be something that the CSP’s and others treat the same way they treated FWA? That is, they don’t see the opportunity that’s going to be there, that’s coming right around the corner, because the sense is that that’s coming really fast, right?
Chris: Yeah. So, this is a similar idea because if we go back in time 5 or 6 years or so, probably like right around the time Starlink was really starting to get the satellites in the sky. Tremendous skepticism. “Satellite aint going to work. You can only send text messages. You can’t do calls through satellite on a regular smartphone. Will never happen.” I can’t tell you how many people have told me that.
Patrick: Right.
Chris: And these are like people that have been in the industry for a long time. And they fail to see that there is tremendous innovation. Things are not the same as it used to be. Huge breakthroughs in like Doppler radar and how they do interstellar lasers, where they use lasers to interconnect the- to bounce signals between the satellites.
Patrick: Right.
Chris: The coordination of the birds in the sky, like it’s they just- and then the capacity load that you can put in these systems, with software upgrades Starlink can double the capacity of their systems by doing things in a more optimal way, or putting more satellite stuff and re-interconnecting the mesh.
Patrick: Right.
Chris: And here again, we see now there’s this wake up. “Oh, wait a minute. Satellite’s actually legitimate.”
Patrick: Yeah.
Chris: They can actually do more than just text messages through it. Now we can do- voice is coming and data is coming. Soon you’re going to be maybe even watching some low-resolution video over satellite at some point in the not-too-distant future. This is coming.
Patrick: Yeah.
Chris: And you know, the telcos, some of them are partnering. They’re being proactive. Some of them are going to be facing another competitive dimension now.
Patrick: Right. Right.
Chris: That they weren’t expecting.
Patrick: Right.
Chris: And yeah, it’s NTN is very much here to stay. And it’s going to be very impactful.
Patrick: Yeah. And that that innovation speed that people that are maybe too in the weeds of what they’re doing, don’t see the innovation that’s happening right outside their door.
Chris: Yeah.
Industry reset
Patrick: That’s going to have an impact on them. So, let’s- I want to end with your last comment in your piece that was basically, the telco space is unhealthy and deteriorating. Can’t end on a bad note. So, you’ve got to spin it for us Chris, and tell us how is it that we’re going to go from unhealthy and deteriorating in five years to where we’ve got a robust segment again and growth in the top of the space?
Chris: Yeah. So, there needs to be a reset in the industry. There needs to be a reset of scale and regulation. Those are probably the two big things.
Patrick: okay.
Chis: So, from a scale perspective there needs- telecom is a scale game. You have to have a lot of scale to have margins that are competitive and to invest in your business at the appropriate level. And there’s a lot of countries still in the world, many of which are in Europe, that are subscale. You have tiny telcos, you know, a small fraction of the size of the ones we have in our country, like a 10th of the size or even smaller of an AT&T. Like they don’t have the scale to do some of the things that they want to do, and then regulation holds them back, whatever they would be able to do. So, they don’t want to invest. There’s disincentives to invest. Those things need to be addressed at a high level. And-
Patrick: Let me- just to clarify, what is the regulatory component that holds them back? Is it because they can’t merge? Is it because they can’t- so, it’s like an anti-competitive regulatory environment that’s keeping them from getting bigger.
Chris: Yeah. So for example, like in the EU you have the member states, but they don’t want the telcos to cross marry.
Patrick: Right.
Chris: Because they don’t want to have those combinations. They want to have national telcos in each country. So, you have subscale countries there that have a population of less than 10 million people. And then they have three telcos, three or four telcos there. They don’t have scale, versus an AT&T or Verizon, they have over 100 million subscribers each.
Patrick: Right.
Chris: Right. It’s a completely different ballgame. And that needs to change. If Europe is a union, show it. Show us the union.
Patrick: Yeah.
Chris: Not just the currency, but at a more local level and at an industry level. Show us the unity and then you can start to have a healthier, more sustainable ecosystem, especially in Europe. Europe needs the most work, I would say, of the major economic blocs, Europe needs the most work.
Patrick: And so, if Europe gets its act together, then in five years we can be saying this industry as a whole is growing and is healthy.
Chris: I think from a margin level it’ll be healthier, like from a sustainability standpoint, managing the debt, managing the cost of keeping up with innovation will be healthier. The growth side, I don’t know. AI is going to give a cost efficiency gain, opportunity for the telcos to drive more cost out of the business.
Patrick: Right.
Chris: On the revenue side, if- this is still a hyperscaler game. Even if they get that stuff figured out, it’s still a hyperscale game for the really big picture transformational stuff. And I’ll loop in things like AR/VR and some of these- these are going to be huge things in the not too distant future.
Patrick: Right.
Chris: Who’s going to generate the majority of the money from those technologies?
Patrick: Connectivity in the data that’s required for that. So yeah, absolutely. Absolutely.
Big picture takeaway from MWC 2025
So, we didn’t- we got into Europe, but we didn’t really get into a lot of the other things I know that you’re interested in, which is sort of the opportunities that are going to come on the defense side spending, and what that will mean for the telcos. It’s something we can go into in another session. But any last kind of wrap ups, like as you think about five years worth of going to Mobile World Congress, any sort of this is the biggest picture I take away from- this is the biggest trend.
Chris: There’s a chance that this might be the peak of the event. We might see some challenges going forward. And I think that part of that might be driven by, you know, when I’m talking about the five years out, like there needs to be a lot of consolidation, a lot of fundamental changes, that create tremendous volatility and uncertainty.
Patrick: Right, right.
Chris: And in those situations, you’re going to have a lot of changes in how this industry has been for the last, you know, last few decades. It’s going to change a lot. Things are going to change a lot in the next five years, I think.
Patrick: Well as analysts it’s great, change is always good for us.
Chris: Yeah,
Patrick: It gives us a lot to talk about.
Chris: I think the silver lining in it though is, yeah, there’s going to be a lot of maybe not so good things happening. But if you look at the long term, this kind of needs to happen. And this kind of happens to every industry where you have a rationalization phase and then whatever’s left can continue on in a more healthy state. Over the long term, I think this is actually a good thing for the industry to go through this phase.
Patrick: Yeah, I have to ask because what you just said that, you know, every industry kind of goes to this, but the regulatory component, to come back to that for a second. It’s not just the industry that needs to change. It really is the regulatory environment and maybe the regulatory mindset within Europe that needs to change as well.
Chris: Yeah. And this was talked about a lot at the event.
Patrick: Yeah.
Chris: I think that- and this is the, part of the topic of the write up that we did.
Patrick: Yeah.
Chris: Trump is changing everything.
Patrick: Yeah.
Chris: Everything is on the table and it is subject to change.
Patrick: Right.
Chris: And this could be a silver lining in the sense that, from a Europe perspective, in that they’re waking up. And they’re realizing we need to make these fundamental changes.
Patrick: Yeah.
Chris: And if that’s what it took, if it took Trump to get Europe back to moving again.
Patrick: Yeah.
Chris: And improving and progressing, that might not be such a bad thing. That’s actually good for the whole world
Patrick: Yeah.
Chris: if Europe is back.
Patrick: Well, if you want to rearrange the furniture you roll a grenade across the floor. It’s not such a bad tactic. So yeah. You don’t know what you’re going to get in the end. But at least your furniture is going to be rearranged.
Final thoughts
So excellent Chris, thank you so much for coming in. Please look for Chris’s Special Report on the website and there’s a ton of Special Reports that have been done over the years on Mobile World Congress. We’ve also recorded a few more of these episodes in previous years. Look for those. And of course, look to the podcast for additional research around telcos and around everything else that TBR covers. Thank you.
Next week we’ll be back to our prediction series speaking with TBR Principal Analyst Allan Krans, about his 2025 predictions for cloud market share. Don’t forget to send us your key intelligence questions on business strategy, ecosystems, and management consulting through the form in the show notes below. Visit tbri.com to learn how we help tech companies large and small answer these questions with the research, data and analysis my guests bring to this conversation every week.
Once again, I’m your host Patrick Heffernan, Principal Analyst at TBR. Thanks for joining us and see you next week.
TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms
Join TBR Principal Analyst Patrick Heffernan weekly for conversations on disruptions in the broader technology ecosystem and answers to key intelligence questions TBR analysts hear from executives and business unit leaders among top IT professional services firms, IT vendors, and telecom vendors and operators.
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https://tbri.com/wp-content/uploads/2025/03/doge-disruption-in-us-federal-it-services-cover-scaled.jpg25602560TBRhttps://tbri.com/wp-content/uploads/2021/09/TBR-Insight-Center-Logo.pngTBR2025-03-28 16:35:512025-03-28 16:35:53The Telecom Market Must Change: Mobile World Congress 2025 Recap, Featuring Telecom Principal Analyst Chris Antlitz
Senior Analyst John Caucis and Analyst James Wichert, of TBR’s U.S. Public Sector Professional Services research team, share key challenges our clients in the space — including four of the top six federal systems integrators — and their partners face amid uncertainty in funding as the Trump Administration implements funding reviews and contract cancellations stemming from the work of Elon Musk’s Department of Government Efficiency (DOGE).
John and James also discuss what these disruptions mean as well as how many federal IT services vendors are using this time to enhance their partner ecosystems, positioning themselves for the inevitable workloads and IT modernization spend to come.
TBR Talks is produced by Technology Business Research, Inc.
Edited by Haley Demers
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Art by Amanda Hamilton Sy
DOGE Disruption in U.S. Federal IT Services
TBR Talks Host Patrick Heffernan: Welcome to TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms, where we talk business model disruption in the broad technology ecosystem, from management consultancies to systems integrators, hyperscalers to independent software vendors, telecom operators to network and infrastructure vendors and chip manufacturers to value added resellers. We’ll be answering some of the key intelligence questions we’ve heard from executives and business unit leaders among the leading professional IT services and telecom vendors. I’m Patrick Heffernan, Principal Analyst, and today we’ll be talking about the current state of the federal market with John Caucis, Senior Analyst for TBR’s Federal IT Services Practice, and James Wichert, Analyst for TBR’s Federal IT Services Practice. John Caucis, James Wichert, welcome back to the TBR Talks podcast, season 3. You guys were on at least twice so far, probably four times now. Probably twice each season I would guess right?
John Caucis, TBR Senior Analyst: Yeah, that sounds right.
Patrick: Okay. All right. I’m not going to hold you to it, I just thought, you know. Start off with that. Well, we want to talk about today. You guys cover the fed sector, federal IT in particular. You look at a range of companies, we’re going to talk about all of them, I’m sure, over the course of the next 20, 25 minutes or so. It is obviously a really hot topic these days, a lot more than it was a year ago. Probably the hottest it’s been for a long time because of everything that’s been happening since the inauguration back in January. So, we’re going to cover a lot of ground. If there’s certain things that I forget to ask about, jump in and add them. And at the end, I definitely want to get your take on sort of where things are going to end up, what are we going to be saying a year from now.
Current state of chaos
But right now, let’s just start with sort of the current apparent chaos across the federal government. Is it going to hurt or is it going to help the federal IT services vendors? Because IT after all, it’s a utility and you need to keep the lights on, unless you shutter an entire agency or department, in which case, I guess you don’t need to keep their lights on. And the DOGE guys are supposedly all about tech enabled efficiencies, so that should be a sweet spot for the federal IT services integrators. Yes. No? I know there were there was a lot in there, but sort of current state of play and is it a plus or minus for the companies that you cover? John. You go first.
John: I think it’s really going to vary by company. In the short, short term, I think there’s going to be pain for everyone. Because everyone to one degree or another, every one of the major contractors, especially the major contractors given their scale, given their breadth, given their exposure to the federal market, they’re going to be hit. You know, if, for example, I know that Deloitte, had a large north of $200 millions worth of contracts on the books with USAID. Obviously, if those come off the books, that is going to move their needle to the left significantly. IBM signed a $90 million contract with USAID, I think it was last, third or fourth quarter of 2024. That’s on the block, obviously. The contractors that have a larger footprint with the DoD will probably be more insulated from the disruption in the market. Although, Secretary Hegseth has indicated, about a month ago or so that the Trump administration is planning to reduce the defense budget by 8%. I know they dropped the dollar figure, and I think they said it would be something like $50 or $60 billion, whether that’s per budget cycle or over the next five years in total, that’s not clear. And we’ll come back to the issue of lack of clarity, because that’s one thing that is hitting all of the vendors equally. Just what are the- what is DOGE doing? What’s their strategy? How are they going about doing this? You know, the lack of clarity there is going to hit everyone equally. So, in the near- in the very near term and, oh, by the way, keep an eye on SAIC releases their earnings on Monday the 17th. They’re really going to be the first of the major FSIs to give us an in-depth take, I’m hoping, an in-depth take on how they’re being impacted by DOGE, although their discussion is going to focus exclusively on 2024, which is their fiscal 25. After that, keep an eye on what Accenture says. They’re releasing their earnings shortly after that. And I’m sure that with Accenture Federal Services being roughly 8% of their total business globally, they will be discussing the impact that they have seen thus far. Then after that, it’s really, wait a month until the federal earnings season really kicks in around the second or third week of April, right through the end of May, the beginning of June, when we have Booz Allen and SAIC. But in a nutshell, I think it’s going to vary from contractor to contractor depending on their exposure. The contractors that have a larger civil business or larger civil exposure, I think they’re going to be hit hardest initially. And then we’ll see how it plays out in the DoD. And at this point, I haven’t heard anything about how the intelligence community could be impacted. It sounds like more of the mission critical work that the Trump administration has underlined as being priorities, reside on the DoD and the intelligence community side. So, in a very large nutshell, I hope that provides some insight. James you may have some additional comments.
James Wichert, TBR Analyst: I mean, yeah, the simple answer is this hurts them in the short term. All this chaos, all this uncertainty, it’s just not good. It’s funny to say that, as you know, in consulting these tumultuous times where people want insights, you know, consultants tend to do well. But at least on the federal side, there’s not much of a focus on that in the short term. And I mean, in theory, you’re right that DOGE are after tech enabled efficiencies. But right now, I would say we’re seeing parallels to when we saw Musk take this “move fast and break things” approach when he was forced to take over Twitter a couple of years ago. Broad cuts in spending were quickly implemented, they delay payments on contracts, on rent, fired large chunks of people, and then they just rehired individuals that they realized were essential later on. And there was a lot of chaos, and it just did not lead to an efficient few months. And while FSIs have expressed interest in working with DOGE on pinpointing ways to increase efficiency and to make tactical changes, I mean, Musk doesn’t seem interested in switching up from his sledgehammer approach, at least in the short term. I mean, consultants would want to be more meticulous. They’d add costs to his short term. He feels confident that he can just repeat the approach he took with Twitter and apply that to the federal government with the end goal cutting something like $2 trillion in spending and I mean, now looking at what DOGE and the Trump administration have been trying to cut spending on. They’re loudly going after any contracts related to DEI, strategic communication, executive coaching and these other areas that they deem to be superfluous. Well, you know, technology modernization and operational efficiency are still seemingly priorities, but I mean, even then, contracts pertaining to that are getting caught up in all this chaos. We’ve seen, the 18F consulting unit of the General Services Administration has been shut down. Their roughly 100-person workforce was responsible for handling the IRS’s tax filing service, helping develop government agencies websites, helping them procure new technology. I mean consulting engagements; they’re another big thing they seem to be after. And you know, John and I have been talking about this with the press lately, but the issue with going after consulting services is they haven’t really outlined what they are and like where does the line stop between consulting and technology modernization. A lot of advisory services are embedded into larger IT services contracts. So, it’s going to be hard to identify. And we’re going to get a lot of chaos in the in between as vendors and agencies go into increasingly granular detail on what they do. And, you know, it’s not just like the types of work, you know, DOGE and the Trump administration are targeting, it’s certain agencies in their crosshairs as well, like the Department of Education, National Oceanic and Atmospheric Administration, the IRS, the VA, USAID, whereas there’s a little more job security for those FSIs helping enable border security and working with the DoD. I just think, yeah, in the short term this is all pretty rough for vendors. We’re already seeing efforts being made by companies to trim their headcount, reduce their billable staff. I do think there’s some long-term opportunities though, particularly for the vendors that go after employees with security clearances and skilled in emerging technologies. Eventually, the federal government is going to have to rebuild from this slash and burn approach and whether that’s with, you know, DOGE or the next administration. Especially since these headcount reductions at agencies will lead to them needing to increasingly rely on vendors while these systems are modernizing. They still do need to modernized. And looking at consultants, while they’re a private sector solution to bureaucratic gridlock and where the government can pay them per project versus salary in perpetuity and there’s less red tape, so, there’s always going to be a place for them. You know, especially in a world with less federal employees, like the VA’s headcount is expected to be- it’s like culled by like more than 80,000. And that’s just the VA. I think the IRS is expected to half their headcount. Eventually there are going to be contracts for FSIs to try and mitigate the chaos. And yeah, they’re going to need a lot of people for that and optimized infrastructures.
IT infrastructure modernization
Patrick: I wanted to just touch on something you said about the IT infrastructure, the need for that modernization. If I’m not mistaken, a lot of why the federal IT needs to be modernized is because some systems are still running on Cobalt and like the most, you know, I mean, I know it’s not great big IBM servers taking up an entire warehouse, but it’s not that far off from it. Is there the rationale is there the argument sort of that the sooner we just break all that, it’ll be easier to rebuild? Because part of those big contracts for the modernization was the slow migration. Not slow intentionally, but you know, deliberate, but also, like you know, secure, like all that kind of all of that IT modernization had to happen in a government secure, accountable way. Now it’s sort of, we’re just going to break the whole system. And so, when we go to rebuild, we don’t need those Cobalt engineers because we’re just not- we’re going to build something brand new. Is that crazy to say that or is that a potential that that’s what’s going to happen here.
John: Well, you’re right when you say that there’s a lot of antiquated technology that is still at the heart of federal IT infrastructures. There’s no doubt about that. And a lot of it is still running on Cobalt. They’re still using old mainframe type systems. And that has to change. The first major accelerator, because as you may have heard this adage, but, you know, things in the government tend to move in a glacial pace,
Patrick: Right.
John: and, and modernization-
Patrick: Right, well I was with the government so, I know how- I know exactly how it moves so-
John: Exactly, and in the lead up to the pandemic five years ago now, modernization was happening. There was- nobody would try to make the argument that we don’t need to modernize, we don’t need to start moving towards digital infrastructures, cloud-based infrastructures. And now on top of that, AI and automation and then quantum in the near future as well. No one would say we don’t need to do those things. But, everything was moving, they said the government, the federal government tends to be 3 to 5 to 7 years behind the commercial space in terms of its technology maturity.
Patrick: Right.
John: The pandemic did accelerate that because it really put the spotlight on the inadequacies of most federal IT infrastructures. And it was mostly on the civilian side because the DoD and the intelligence community, because of the core nature of their missions, had to stay ahead, technologically ahead of our nation state rivals, Russia, China, etc. who continue to accelerate their investment to IT enable their own military infrastructures. So, it was mostly on the civilian side. So, we do have kind of an example of how to do it from the DoD, but we have- there’s still a bunch of modernization work that still has to happen despite the Covid related acceleration five years ago. The bull market in IT spend that was, you know, really initiated by the Biden administration with a heavy emphasis on security, with an increasing emphasis on AI. But it has still- the pace has increased. You know, and this is one area where I’m kind of hopeful about the, you know, once DOGE gets past the Hulk smash approach, which is
Patrick: It’s what we’re in now.
John: It’s what we’re in now. And frankly, I think it’s somewhat reckless. And, you know, once they perhaps take a step back and take a more graduated, more moderate, a more judicious approach to doing this, and, oh, by the way, they really need to engage industry more. I’ll call out a couple of examples here. The CEO of SAIC, Toni Townes-Whitley. The CEO of L3 Harris, immediately in December, I think, reached out to the DOGE advisory board, reached out to the Trump administration and said, we’re here. I mean, it’s almost like if you remember back to the 70s or 80s, The Six Million Man program, where they have the intro and they would say, we have the technology, we can rebuild it. Well, you know, the CEOs of these companies, in particular, L3 Harris and SAIC, we have the technology. We can do this, engage with us. And they’re still waiting for that. It’s now the middle of March.
Patrick: Yeah.
John: And to my knowledge, there hasn’t been a more aggressive, a more active outreach on behalf of the DOGE advisory board to do that, to engage with industry. It’s just been, as I termed it, Hulk smash.
Patrick: Yeah.
John: Which doesn’t work. So, there’s going to have to be some pullback. You know, like I said earlier, keep an eye on the earnings, you know, to see just what the fiscal value of the disruption has been.
Patrick: Yeah, that’s the other observation from what you said earlier John, is because one of the characteristics among the, you know, Hulk smash is one aspect of what’s been happening, it’s also been a lack of transparency and a lack of clarity and accountability into what’s going on. That can happen- that has happened in the absence of any clear, defined metrics of the impacts beyond sort of the layoffs. What we’re going to see with SAIC, what we’re going to see with Accenture, what we’re going to see with all the other earnings is, this is the actual not just the market reacting and the market’s fickle. Who knows why the market goes up or down. Right. But a company’s earnings are pretty clear. Like there’s no getting around like what happened here. I mean when- Deloitte doesn’t report its earnings, but like you said, Deloitte $200 million contract with USAID gone. That’s going to hurt Deloitte. And there’s no, like there’s no fudging that, the same thing is going to be true with SAIC and the others. And so, where you can sort of claim to have saved a billion here and a billion there and then not be exactly held accountable for what that savings was. You can’t say that to an SAIC that can actually just say, look, you know, we’ve got shareholders. We got to put numbers on, you know, we’ve got- we’re being audited. We can’t just say we saved or we, you know, we did this.
FSI mega trends for 2025: lack of M&A, new partnerships, and contract structures
All right. Let’s step away from the chaos in DC for a second. What are some of the other mega longitudinal trends that the FSIs are facing this year? Are there going to be mergers? Are there going to be blockbuster acquisitions. Is it going to be more private equity encroachment on the space. What’s next John?
John: I would say, well, in terms of mergers and acquisitions, if I’m a member of the C-suite at any of the federal systems integrators, the FSIs, I’m pumping the brakes on that.
Patrick: Full stop
John: Yeah, full stop. And not because valuations are out of control like they were the last several years, which was one of the primary demotivators of acquisition activity, things were just too expensive. Valuations have come down but it’s not a strategic priority. Right now the strategic priority is trying to figure out how to navigate the chaos.
Patrick: Yeah.
John: And they don’t have enough guidance from- you know, because of lack of transparency, because of lack of engagement with the DOGE advisory board, they don’t have what they need to craft a one year strategic window, let alone a 3-to-5-year strategic window, which is the kind of thing that happens at the C-suite level. They just can’t plan for these things. So, as far as you know, all the nice to have things, which would be nice, you know, for somebody who’s trying to expand their cloud capabilities. It would be nice to acquire some cloud capabilities or consultancies with ServiceNow expertise or AWS expertise. Who knows what’s going to happen a year from now, maybe, you know, maybe AWS, even though they’ve been one of the leading hyperscalers in the market, especially in the intelligence community, you know, maybe their business is impacted- their top line, not just the bottom line, not just down the P&L, but at the top lines are going to be shaved by 10%, 20%, 30%. And that work’s just not going to be available.
John: So, M&A activity I think is off the table, maybe in lieu of that, the focus might be enhance and strengthen your partnership ecosystems. Because eventually when things stabilize, you’re going to need to be able to bring the right team to the table the first time, because all your competitors are going to be doing that. And the competitors like Booz Allen and Leidos and Accenture that have been the most proactive and have the best run partnership ecosystems, the best managed partnership ecosystems, will have an advantage. Others have been catching up. SAIC has done a great job of enhancing their relationships with AWS and the other hyperscalers. And we’ve been following the partnership related activities of the FSIs very closely. And we’ve seen others like General Dynamics Information Technology doing the same.
So, enhancing your partnership ecosystems, I think is going to be key. But just trying to protect what you have, I think even more of a priority than that will be absolutely optimize communications with your counterparts on the agency side. When you pick up the phone and you want to talk to the procurement official, the procurement counterpart on the other side, they have to, first of all, be available. But you need you need to optimize those relationships, A. B, there has to be a very clear-cut business case, particularly with what would fall under the auspices of consulting services.
Patrick: Right, right.
John: Okay. Those are going to have to be tied much more directly. And oh, by the way, one of the challenges there, is that there isn’t a universal set of job codes in contract to define all the different types of consulting. It’s just in many cases, you know, under one job code or one title and there’s hundreds, at least I would imagine, of different types of consulting, and you just can’t parse them out. So, the vendors are going to be, you know, their procurement teams, their bid and proposal teams, their price to win teams, are going to be under tremendous pressure to be very clear, to have optimal communications with their counterparts in the agencies, and to clearly establish the link between, you know, how they’re going to generate ROI, how are they going to generate your real transformation and do it in a cost effective way.
My fear is that we get pushed back to the environment about 10/12 years ago, the LPTA or lowest price technically acceptable contracting environment. Although some of the executives, at the FSIs have indicated that this is a slightly different environment. We were not going back to sequestration. You know, we’re not just doing what we can for the lowest price. We are trying to advance the technology maturity of agency. So very long-winded answer.
Patrick: The IDIQ days are definitely gone right? The indefinite duration, indefinite quantity. I mean, those bids were fantastic, or those contracts were fantastic for the FSIs when they existed.
John: Yeah, yeah. IDIQ might, be diminishing as a contracting approach.
Patrick: Yeah.
John: What I’ve also heard is that there’s going to be a greater shift. At least SAIC was expecting this from cost plus type contracting structures to fixed- firm fixed pricing.
Patrick: Yeah.
John: Because that puts the risk, all the onus on the contractor to deliver. So those contractors like SAIC, Leidos, etc. who have been optimizing, and Leidos is the best example of this, have been optimizing contract performance. They’re already ahead of the game.
Patrick: So, in the commercial space, you go from cost plus contract, and then you have fixed price contracts and then you have outcomes based. So, the difference between fixed price and outcomes based, being fixed price is here’s the job, go do it, here’s what you can charge for it. Outcomes based is, I’m only going to pay you if I get this outcome. But for the contractor, for the services contractor, the result is basically the same, which is you’re getting paid a certain amount of money. You can say, all right, I’m going to book $1 million here because that’s what I’m going to get, because I know I’m going to hit the outcomes. I know I’m going to get the million dollars. I know you’re going to pay me this fixed price of $1 million. The challenge though, is, you know, in a fixed price, the concern is, wait a minute, are you going to be able to do this project the way I think you’re going to do it, which is you’re going to charge me $1 million, put you’re only going to make 250, you know, you know, you’re going to make your margin, but not a lot more, or you’re going to be able to apply a lot of AI and automation and all that. And so all of a sudden I as the buyer, am overpaying, even though I’m paying you a fixed price, I’m actually overpaying because I didn’t realize you were going to be able to do this faster than that. And the same thing with outcomes based where it’s like, wait a minute, if you can get to that outcome and you can do it in, you know, much cheaper in your own- So, there’s always been a reluctance to accept those kinds of contracts from the buyers because they’re afraid that they’re going to be overpaying when the cost plus- And so it comes back to like the procurement mindset of I’d rather just do cost plus, and I’m never in trouble for having overpaid.
James: Or you end up with the situation from the first Trump administration where you’re, you know, you’re Boeing, you’re Boeing Defense, Space & Security, and you make a bid for Air Force One. You wind up horrifically made in your margins-
Patrick: Right.
James: You mess up the bid, you didn’t anticipate these costs to ramp up significantly.
Patrick: Right. Right. Yeah. There’s definitely the risks on the services contract or the supplier side. And that’s always been like everyone always defaults to the lowest risk commercial arrangement, which I guess makes sense. At the end of the day, it’s still humans that are signing contracts, and it’s human nature. But, James. Sorry, I went off on a tangent there, but I couldn’t help myself. James, some thoughts on the megatrends in the space.
James: I mean, I think John hit on M&A really well there. I think my view on it is all the FSIs valuations have cratered on Wall Street. I think everyone’s down between 25% and 50% from their November highs last I checked. I think ICF might have been like over 50% for like one brief window, like for all these companies together that’s like, I don’t know, over $30 billion in market cap just gone. And then I mean, that’s part of why I don’t think you’re going to see much M&A activity in the short term. It’s just going to be harder to get financing with all this uncertainty. And vendors are just going to be wary of splurging on M&A when they need to focus on, you know, surviving at least the next six months, even 12 months. They’re not sure if the Trump administration is going to just change course and, you know, those that will consider M&A will wait until the slash and burn has started slowing down and long-term definitive goals are actually outlined, like no one’s thinking they should spring for a business that does heavy work with USAID right now, even if the price is like probably as low as it’s going to get, they’re going to wait just because they don’t know what’s going to happen.
I guess you might see, and we did notice this in the last few years. You have vendors with venture capital arms like Maximus making more targeted strategic investments. And you might see an uptick in that activity. I know Maximus recently made their first ever investment via their venture capital arm. Yeah. Collaboration from partners would accelerate. Vendors are going to really push on redeploying their free cash flow into ensuring their businesses are still standing, come this time next year. I think, you know, we’ll see most vendors accelerate their investments in emerging technologies and develop meaningful proofs of concepts. And I mean, yeah, no, I think John really, you know, hit on that one really well.
John: If I could. Just one quick comment on the contract structuring, the trend. We have been hearing the term “outcomes”
Patrick: Right
John: being dropped more in the last 40/50 days
Patrick: That’s good.
John: as DOGE has taken- has this gone to gone to the federal space with the sledgehammer.
Patrick: Yeah.
John: So, I think we are actually moving in that direction. And we may go beyond, you know, many of the contractors actually break out their revenues and they will give you an itemization of, this is the proportion of our revenue that’s from fixed price, cost plus time and materials. I’m getting the sense that there’s going to be much more focus on outcomes over the next- at least the next four years of the Trump administration.
James: Do see that carrying over into the civilian space though? I know defense has always had more of a say in outcome-based contracting, they’re more technical, they have that more experience out of federal civilian, especially with all the cuts going on. Do you see that really picking up volume there, like gaining traction?
John: Well, I think there’s more opportunity in the civilian side to apply, we mentioned this earlier, some of the metrics, you know, where you can, you know, you can manage what you can measure. Okay. There are established metrics for measuring citizen engagement already in place. And Booz Allen has been developing, and Accenture and others that are more out in front in terms of AI, they’ve been developing those metrics and they’ve been using that to sell their capabilities. You know, this is how we, whatever those metrics are, you’d have to talk to an AI expert. But, so some of that, the ability to measure, is already in place. So, I would say yes from that perspective. But you’re absolutely right. The maturity of the DoD and the intelligence community is greater in other areas simply because of the nature of what they do or what they need technology to do for them.
Possible acquisitions
Patrick: Yeah. So, one thing, James, I want to come back to. You said, because John mentioned and I had to write this down because I’m going to use this a lot “when things stabilize, bring the right team to the table the first time.” But what you said was, if we’re going to see acquisitions, it’s going to be picking up those skills with your technology partners. Right. Did I hear that right?
James: I would view this more so as like during this like lull in M&A activity, you see pivoting into their partner networks and leaning on them more. So, collaborating together on proofs of concepts, you know, working in R&D labs together.
Patrick: Right.
James: I know GDIT has been expanding their presence across the US, so they can work on site with partners and clients.
Patrick: Right. So, then when we get to that, when things stabilize, if they’ve done all that sort of- laid all that foundation, done that groundwork, then they’re going to be able to bring the right team to the table the first time.
James: Yes.
Patrick: Right?
James: Yes.
Patrick: Right?
James: Yes.
Patrick: Yeah. Excellent.
John: Something just occurred to me, and this is thinking way outside the box here. But one area where we might see acquisitions, because the initial round of Hulk smash DOGE cuts have fallen disproportionately on small to medium, in many cases, disadvantaged, minority owned or veteran owned businesses. And in many cases, those businesses are so small that they only have one client, one agency as their client. And that business has disappeared overnight. But many of these companies have developed very specific niche capabilities and technologies that could still be of value to the larger FSIs, you know, to their larger peers. And many of these FSIs, James mentioned a couple, Leidos and Booz Allen for example, they came off of the four-year bull market in federal IT with enormous cash flows. One of the ways they can plow that money back into the company is to maybe step up and say, because they’re already partnering with a lot of these small to medium contractors, say we’ll bail you out. You know, we can keep you from going under, you know, by making an investment in your company, bringing you on board, you know, holding your hand, walking you through this period of tumult, and oh, by the way, then, you know, we have access to those technologies. I mean, it all depends on what they bring to the table. I would expect to see more in the AI and perhaps in the quantum and security areas.
Patrick: There could be some kind of creative partnering, creative investing that goes on
John: There may have to be.
Patrick: You know, almost like angel investor.
John: Yeah.
Who is set up to succeed and who is not
Patrick: Yeah, yeah. All right, let’s wrap it up. The last thing we want to talk about here, because, well, I was going to say at TBR, we always talk about specific companies. We’ve already mentioned a bunch so far. At TBR, we increasingly talk about ecosystems and I’m going to come back to what you said. You know, the right team to the table the first time. I think that’s going to be super important to keep in mind. And as our research continues to evolve around how these companies partner in the ecosystem, I think that’s something we’ll all be keeping in mind. And I know we have a lot of research coming out around the FSIs and the hyperscalers and the rest. But let’s, each of you pick one company and say, okay, when we get to the other side of this maelstrom, this company is going to be, and, I guess, make your choice. Do you want to say this company is going to be completely swallowed by the black hole and gone, or this company is going to be, you know, standing tall and proud and going forward. James, I will put it on you first.
James: Yeah. Okay. Well. I don’t think it’s going to be ICF in the best position for sure.
And even just ignoring all the DOGE craziness, GDT is still struggling with the lack of synergy between GDIT and mission systems. So, I mean, honestly, ManTech is probably my dark horse candidate which-
Patrick: I like it
James: which feels really crazy to say. I think they’re probably just in the least volatile long-term position. They’ve been making progress in the federal civilian market, but their bookings have always remained concentrated within the defense and intelligence market which is where their roots are. Like in 4Q we saw ManTech win $1.4 billion contracts to develop cyber platforms that support ICON objectives. You know, the defense intelligence clients, they’ve been seemingly less impacted by DOGE’s crackdown on mission critical spending. The real reason I’m picking ManTech is like, they’re private. And I think that leaves them in the safest spot. Basically, while all their FSI peers are racing the quarterly earnings clock during all this chaos, ManTech can take their time and wait for the Trump administration to clearly define spending priorities. And once, you know, they’ve identified that, they have the Carlyle Group’s financial backing at their disposal to build out what they need to do and, you know, they’re not going public any time soon.
Patrick: Right.
James: Certainly not on valuations right now. And so, they can focus on the fundamentals, you know, people and permission digital consulting practice. They can get displaced employees from AFS and Deloitte and they can recruit employees from federal agencies with security clearances or really niche skill sets.
There’s a lot of opportunities. And, of course, they’ve also been making a lot of organizational changes recently, like creating the Chief Acceleration Officer position, which, I mean, we had never seen a company do that before in the Federal IT Services Benchmark. They’ve added federal civilian and federal defense advisory boards to give them better insight into those client markets. They’ve launched the mission readiness and enablement practice. They’ve made an insane amount of appointments in like the last few months. I think right now they’re my dark horse-
Patrick: Yeah.
James: The least impacted at the very least, the most potential.
Patrick: It is a surprising one, that’s for sure. All right, John, what do you got?
John: Well, in this case, bigger isn’t always better, but in the current market, in the current environment, bigger might be better and no surprise then, I would have to nominate Leidos. But for a couple of real reasons beyond just their scale, they are well diversified across the federal market, about half of their business comes from the DoD space and the intelligence community. The remainder, the bulk of the remaining comes from the civil space. They do have a very large health IT business, which could expose them. I know that there’s been indications that some of the cost cutting activity may fall disproportionately in the health IT space, but there’s still a lot of monetization integration work that has to happen there.
Leidos is also fairly well diversified geographically relative to their federal FSI peers.
They have about 10% or 15% of the revenue coming from overseas, the UK and Australia primarily, and they have been doing well there. So that could offset some of the impact to their top line. They have a contract, an order book, that is chock full of multi-year, long tail, multi-billion-dollar strategic programs. For example, the $11.5 billion Defense Enclave Services award, which is ongoing, which is fully ramped up. And also, those contracts and their go to market model is really IT focused. They have a limited exposure, they don’t talk about any advisory capabilities they have. I know they have them. But they aren’t, and now this is a good gear shift over to the vendor that I think is the most venerable but also the most vulnerable, which would be Booz Allen.
Patrick: Right.
John: Booz Allen is, when they report their fiscal 25 earnings and their performance at the roughly around the Memorial Day time frame. Their fiscal year wraps up on March 31st. I fully expect that they’re going to have surpassed over $11 billion in annual revenue, three straight years of double-digit growth on the second or third largest revenue base within the sphere of the contractors that we track, just had an amazing run the last 3 or 4 years. It’s over.
Patrick: Yeah.
John: Because they are more akin to a traditional management consulting firm. If you go back to what they look like, how they were operating, how they were structured prior to their IPO in 2010/2011, whenever it was. They were mentioned in the same breath as McKinsey, BCG, Bain.
Patrick: Yeah
John: You know, they had a world commercial business and world technology business, which was their federal business. They separated from the commercial, focused on federal. And then in about, 2016, 2017, 2018, 2018 particularly, they started to take on more technically complex work. So, they have diversified their portfolio and their go to market a bit more, but they’re still advisory led.
Patrick: Yep.
John: How much, what proportion of their business? It’s really hard to tell. But they’re going to be hit the hardest. And I think that the same factors impacting Booz Allen are going to have a negative impact on Accenture Federal Services. We have heard early on that there has been some restructuring there, some workforce rebalancing. That would also impact CGI Federal, who has made some acquisitions to become more consulting focused, although they still have more of an IT focus as well. And then, because of their small size, because of how nascent they are, IBM Consulting’s federal group, they made a strategic acquisition, strategic to their size at the time, it was two years ago roughly, they acquired a company called Octo Consulting obviously to expand their advisory capabilities. And they’re just starting to get off the ground with that. And now, you know, that could be derailed, at least temporarily. But the grandest negative impact is probably going to be Booz Allen Hamilton.
Patrick: Yeah.
John: But I see Leidos as coming out of this. They’re already the best positioned, strong cash flow, strong profitability, diverse model, more technically focused. With one area that I’ll call out before we move on. It’s still unclear as to in the DoD how much of the 8% budget cuts or the DOGE related actions are going to impact research and development. And Leidos does have their R&D subsidiary, Dynetics, which they acquired in 2020, which generates, estimates vary, but between $1 and $2 billion, you know, that’s roughly 6% to 7% of their revenue base. I know that hypersonics, for example, is still a strategic focus of the Trump administration. But all that is underpinned with R&D. If those cuts fall disproportionately on research and development, that could hit Leidos pretty hard. Beyond that though, I think they’re fairly well diversified and diversified enough just to weather the storm.
James: And for the listeners to this, keep an eye out on TBR’s social media channels for an upcoming special report from John and I, we’ll be going into each individual vendor on our benchmark and what the impact of DOGE will be in the short term for them and how they might face that. Also, I might suggest reading the Financial Times article that John got a quote in, excellent read, great quote.
Final thoughts
Patrick: Yeah. Thank you for saying that, James. So, yeah, the special report, the Financial Times article. And I think those, those two things, plus this podcast are going to be a really good marker for us because we’ll meet again in six months here in the studio. And we’ll talk about how much we got wrong, how much we got right, how much we never saw coming. Because I feel like if we had done this six months ago, we did not anticipate what we were talking about today. So
John: Well, the volume and the pace of change right now is so high we might have to get together in a month.
Patrick: Yeah, it’s a good point
John: Because we do have the federal earnings season coming up as I mentioned earlier, it’ll run through late April through the beginning of June.
Patrick: Yeah.
John: You know, so maybe we reconvene in two months or so, because then we’ll have a full picture.
Patrick: Right. Well, I mean, a full picture of chaos is still a picture of chaos.
John: Yeah.
Patrick: Gentlemen, thank you so much for coming in. We will do this again very soon. Thanks.
John: Very good. Thank you.
Patrick: Next week I’ll be speaking with TBR Principal Analyst Chris Antlitz about Mobile World Congress 2025. Don’t forget to send us your key intelligence questions on business strategy, ecosystems, and management consulting through the form in the show notes below. Visit tbri.com to learn how we help tech companies large and small answer these questions with the research, data and analysis my guests bring to this conversation every week.
Once again, I’m your host Patrick Heffernan, Principal Analyst at TBR. Thanks for joining us and see you next week.
TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms
Join TBR Principal Analyst Patrick Heffernan weekly for conversations on disruptions in the broader technology ecosystem and answers to key intelligence questions TBR analysts hear from executives and business unit leaders among top IT professional services firms, IT vendors, and telecom vendors and operators.
“TBR Talks” is available on all major podcast platforms. Subscribe today!
https://tbri.com/wp-content/uploads/2025/03/doge-disruption-in-us-federal-it-services-cover-scaled.jpg25602560TBRhttps://tbri.com/wp-content/uploads/2021/09/TBR-Insight-Center-Logo.pngTBR2025-03-26 09:46:302025-03-26 09:46:34DOGE Disruption in U.S. Federal IT Services
TBR Principal Analyst Chris Antlitz dives deep into the stark reality of 6G rollout and the implications of the technology for telecom operators and vendors as well as other over-the-top data and service providers. Additionally, Chris discusses the implications of these investments for consumers, enterprises, governments and IT vendors.
TBR Talks is produced by Technology Business Research, Inc.
Edited by Haley Demers
Music by Burty Sounds via Pixabay
Art by Amanda Hamilton Sy
6G Reality and the Future of the Telecom Ecosystem
TBR Talks Host Patrick Heffernan: Welcome to TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms, where we talk business model disruption in the broad technology ecosystem, from management consultancies to systems integrators, hyperscalers to independent software vendors, telecom operators to network and infrastructure vendors, and chip manufacturers to value added resellers. We’ll be answering some of the key intelligence questions we’ve heard from executives and business unit leaders among the leading professional IT services and telecom vendors.
I’m Patrick Heffernan, Principal Analyst and today we’ll be talking about 2025 predictions for 6G with Chris Antlitz, Principal Analyst for TBR’s Telecom Practice.
6G Capabilities
Chris, good to see you again. Thank you for coming in. A lot of fun doing these podcasts with you, because I feel like the telecom space is something that, I never stop learning about because I clearly don’t know enough about it and it’s changing- for such a huge industry it seems to be changing a lot, especially in the last couple of years. I know we’ve had some discussions after the trips you’ve taken to the big 6G summit. And I know we chatted back in November, but you since then came out with the Predictions document around 6G and talked about where you saw- where you and our colleagues here TBR saw the market going.
And one of the things you talked about was, you mentioned in the piece was, you know, will 6G, the open question of whether or not 6G will be a brand only or a legitimate set of truly differentiated features and capabilities that bring value. And I think you meant bring value for the CSPs, not for the entire market as a whole. Or did you mean for the whole market? And, do you think it’s just going to be a brand, or do you think it is going to be an actually legitimate set of truly differentiated features and capabilities?
Chris Antlitz, TBR Principal Analyst: Yeah, so that statement I made in the special report was specific to the communication service providers or CSPs. But, 6G will have capabilities that will be broadly used even beyond the telecom industry. You can think about enterprise capabilities for industries. You could think about, public sector opportunities for mission critical communications. Think about the blue light services and ambulatory and, you know, there’s defense opportunities there. And, it’s much broader than just telecom.
The evolution of connectivity
Patrick: Right. And so I was going to get to the government part later, but let’s jump into it now because I feel like within the telecom space, but then within the broader, sort of enterprise IT space, we’ve been talking about the opportunity around government services, responses around police and fire and smart cities and all that stuff, and telecom and networking and connectivity has been a piece of that. But it always feels like it’s sort of on the horizon. Is 6G what sort of brings us to where we finally get the smart cities we’ve been talking about for a long time?
Chris: So I think that connectivity is going to evolve and be transformed, but not be the lead. It’s going to be pulled forward by the major, the bigger things that are going on. AI, quantum computing, you know, electrification of the energy grid and how that evolves over time and how that’s supported, the future of transportation. These are things that are in motion, and connectivity is a fundamental ingredient for the transformation of those things. And it’s kind of going to pull it along versus connectivity leading the way or moving at the same pace as these things. So, for example, for AI, the data center, concept of a data center and how that data center interacts with this environment, like from an energy grid standpoint, what is running inside of that data center is changing, the architecture of the network fundamentally changes from a CPU based data center to a GPU based data center.
Patrick: Right.
Chris: And like right there, that is forcing the connectivity to evolve.
Patrick: Right.
Chris: It’s forcing it, but it’s coming from the AI side not being led forward by the, you know, the telcos, if you will.
Patrick: Right. But there is no there’s no data center and there’s no IoT and there’s no- there’s nothing without connectivity. So, I get where these, quantum and other technologies will be pulling through connectivity because they don’t work without it. But if the ROI on the investment in connectivity isn’t there, then how do we get the connectivity that’s going to enable those? It’s the chicken and the egg. But even more than that, it’s a really expensive one, whether you start with one or the other. But you have to have them both. So how do you see whether it’s 6G or just the telecom space generally or 5G and everything, how do you see that that struggle to get the return on investment? And maybe is that where government comes in? Is that where government has to take a more aggressive role?
The new business model
Chris: Yeah, I think government is going to take a more aggressive role. I mean, we saw some of this with 5G. We saw all kinds of stimulus and other programs that came up to facilitate 5G ecosystem development, to varying success. But I think, with regards to the ROI, the business model of telecom needs to fundamentally change. The hyperscalers have already figured out what the new business model is, and the business model revolves around the data itself, not the transmission of the data, which is the connectivity, the pipe model, the utility model.
Patrick: Right.
Chris: That’s what the telecom ecosystem is locked into, unfortunately, that’s what they’re locked into. But the OTT players, like the hyperscalers and the Netflix’s of the world and the Ubers, they are in the data business and they use the pipes to transmit the data and the value that comes through that data, so that how the connectivity is thought about in terms of the broader ROI equation, it’s much more than just the connectivity. You have to look at the entirety of the business model and what is the value of the data in that context.
Who will succeed?
Patrick: So, you mentioned Uber and Netflix, two companies that did not exist, whatever, 15, 20 years ago. But have competitors that have existed since they were founded as well. Are there companies that you are looking at now in the telecom space that you think could make that shift in their business model? Are there any companies that stand out when you look to- starting now and looking five years out, do you say these are the companies that that we have traditionally covered? And I’m not going to name names. I’ll leave that up to you. But who you think are actually going to be able to make that business model shift and succeed?
Chris: Of the telcos?
Patrick: Of the telcos, yeah.
Chris: Yeah, there’s two that come to mind. One is Rakuten who is a hyperscaler that’s trying to transform the telecom business model.
Patrick: Yeah.
Chris: And they’ve had mixed success. The telco that is a traditional telco that I actually think is going to make that jump is Reliance Jio in India.
Patrick: Hm
Chris: Yeah, they’re one of- it’s a very small list of companies I think will actually make that jump.
Patrick: What is it that Reliance Jio has that a traditional telco doesn’t have.
Chris: Well one of the things they have is very little legacy infrastructure. When they started in 2016, they started with LTE. They started with an all IP based network,
Patrick: Okay.
Chris: And most telcos in the world have years of legacy technology that have been band-aided and carried forward into new generations and re-patched together. That’s a limitation to telcos breaking free of that. Reliance Jio doesn’t have to break free from that. They’re starting from day one with basically a greenfield architecture.
Patrick: Okay, okay. And then Rakuten. And know they’re not India based where they’re based?
Chris: Japan.
Patrick: Japan, okay. Is there anything about like the investments by, for Rakuten or for Reliance Jio, are they in any way- or the investments coming from, or their success dependent on, government intervention that’s helped them out? Or have they been, sort of not as dependent on that.
Chris: So, Reliance Jio benefits from protectionist policies in India where there’s a lot of restrictions on who can play and what level they can play in the Indian market. So that is a huge help. But in terms of direct capital injection, we don’t really see that in either country.
Patrick: Yeah. So, at Mobile World Congress are you expecting sort of a full embrace of everything you’ve talked about with respect to the need to change the business model? Or is there still- out of all the people who are attending, is there still not a welcome recognition that things have got to change?
Chris: So, the urgency continues to build, and I’ve been hearing for years about how the telcos are going to change. They’re going to do this, they’re going to do that. And they tried, some of them have tried various things, but they never- they never were successful at the level they needed to be, to really make that transition.
Patrick: Yeah.
Chris: So, for example, like AT&T, they tried, they did try and they spent a lot of money trying.
Patrick: Yeah.
Chris: And they wound up undoing a lot of what they did because it wasn’t working out.
Patrick: Yeah.
Chris: So, you know, it’s not an easy situation. What I’m seeing the telcos doing is reverting back to their- what they know how to do best, and that’s connectivity.
Patrick: Yeah.
Chris: Running the pipes. Building the pipes and running the pipes.
Patrick: Right.
Chris: And they are- some telcos have changed their strategy now, some quite significantly, like AT&T, they are very much focused on that pipe. They are back to focusing on the pipe.
Patrick: Yeah. And if they can do it well and do it efficiently then there’s still money for them to be making there. It’s just not going to be the same kind of growth that they were probably anticipating a few years ago. Right?
Chris: Yeah. That limited- more limited on the growth side. More on the cost savings side and building a very profitable network. You know, AI is one of the technologies that’s going to help them achieve those goals. Like, that’s a whole step function of lower cost for them to run their business.
Patrick: Right, right.
Chris: That if you think about their shareholders like they’re looking for earnings per share growth. Yeah, they want top line too, at the end of the day they want the earnings per share.
Patrick: Right.
Chris: And that’s what the telcos can bring with these new technologies. They can invest and get cost efficiencies. And they can pass that down to the EPS line.
Ericsson, Nokia and Huawei
Patrick: So, two other companies I want to ask about before we wrap up, because these are the companies that when I think about connectivity in the telco space, are the ones that I’ve worked at the most, and that’s Ericsson or Nokia. So where do you see them in the next 3 to 4 to 5 years? How much of their story is a 6G story? How much of their story is dependent on, both of them being able to change their business models to what the realities are going to be in a few years.
Chris: So, their hand’s kind of being forced. I mean, if you look at the balance of power is shifting and RAN, for example, with Ericsson emerging as the primary RAN supplier of the entire world, and Huawei, of course, is there as well. But those companies are, in their DNA and their heritage is hardware engineering, and they do it really, really well.
Patrick: Right.
Chris: The problem is these new network- the new architect for the network, the engineering is still important for the hardware. It will always be important, but the emphasis shifts to the software, and disaggregation, virtualization, all of these, these, technology transitions are changing that business model.
Patrick: Yeah.
Chris: So, you have Ericsson and Nokia and the other hardware centric vendors like they are, you know, they’re facing kind of a crisis moment because, you know, 6G, it’s likely not going to be- it’s going to be an underwhelming CapEx cycle. And it’s going to be, honestly, a lot of it’s going to be software updates to the 5G infrastructure, to the 5G hardware, where you’re doing software updates so that you have better algorithms, you know, maybe some new antennas and, you know, some of that, of course, but it’s going to be much more emphasis on the software and the integration of software, and the cross integration of that telco software stack with other- with partner software stacks and platform providers and things. That’s where you’re going to get the value as this market moves forward.
Patrick: Right. So those are two companies though that have gone through significant business model shifts in the last 3 or 4 or 5 decades. I mean, Ericsson and Nokia have performed well enough to still be around and still be the dominant players in what they do. So, do you anticipate that they’re going to figure out the right strategy to make it through the next couple of years? Or do you think there’s going to be a real reckoning for both of those companies? And Huawei too, lets throw Huawei into the mix, although I know that’s it’s a very different business model and opportunity they have.
Chris: Yeah. So, you have the geopolitics aspect. But yeah, I mean nothing bad is going to happen to Ericsson or Nokia, you know, they’re going to be around 4 or 5 years from now. But they might look different and they might be smaller than they are today. Potentially significantly smaller through divestments, or some businesses are going to, you know, they’re going to fizzle out over time or just- those are aspects that are in play.
Patrick: Yeah. Yeah.
Chris: They’re probably not going to be significantly bigger than they are today unless there’s some big M&A events, which I know Nokia has been acquisitive lately with Infinera. But you know, situations like that, you know, that’ll change the composition of those companies as well.
Patrick: That’s a challenge too, if you don’t do acquisitions all the time, it’s harder to do acquisitions. I mean, that’s what we’ve learned over and over again from the companies that we cover. It’s a muscle memory that if you don’t exercise it, you’re not good at it. And so, for a company to sort of say, well, acquisitions is going to be our growth strategy, that can be its own set of challenges.
Chris: Yeah. And you know, with tech just building on that- with tech, you know, you’re buying into some company, you’re buying into their IP.
Patrick: Yeah.
Chris: And technology is fickle. It changes. What happens if you pick wrong.
Patrick: Yeah.
Chris: And the valuations are high. There’s a lot of risk.
Patrick: Yeah.
Chris: There’s a lot of risk.
Metaverse
Patrick: What happens if you pick wrong, for example, metaverse which we talked about 4 or 5 years ago, and it hasn’t really turned out to be- and yet 4 or 5 years ago we were not talking about a, I don’t want to say quantum that’s the wrong way to say it, but a leap in artificial intelligence that I don’t think anyone expected four years ago, or at least nobody was talking about it.
Chris: The metaverse stuff. Have you tried the Apple- the headset.
Patrick: Not yet.
Chris: You have to try it. You got to try it.
Patrick: I take that back, I was at a PwC event where they had it, and I could change- I could listen to music and change it just by talking to it, which was kind of cool, but it didn’t do anything other than that that I could tell.
Chris: So, I did the demo, the formal demo they have at the store and, the metaverse is going to happen. The question is, when is it going to happen.
Patrick: Yeah. Well, one of the quarterbacks in the playoffs, again I’m dating this by saying it, but the quarterback for the Washington Commanders has been using a VR headset to train. And he plays it at 1.5 speed so that when he’s actually playing the game physically on the field, it seems slower than it does in his training. So that might be the most compelling case. And I can understand where there’s a massive runway of opportunity for companies to come in and can say, you know, we’re going to help athletes train at that much more elite level. So- but is that a 6G opportunity? I don’t even know.
Chris: Yeah. We’ll have to see.
Final thoughts
Patrick: We’ll have to see. Chris, thank you so much, this was a lot of fun as always, appreciate it. Next week, I’ll be taking a quick break from our predictions series to speak with TBR Senior Analyst John Caucis and Analyst James Wichert about the current state of the federal market. Don’t forget to send us your key intelligence questions on business strategy, ecosystems, and management consulting through the form in the show notes below. Visit tbri.com to learn how we help tech companies large and small, answer these questions with the research, data and analysis my guests bring to this conversation every week. Once again, I’m your host, Patrick Heffernan, Principal Analyst at TBR. Thanks for joining us and see you next week.
TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms
Join TBR Principal Analyst Patrick Heffernan weekly for conversations on disruptions in the broader technology ecosystem and answers to key intelligence questions TBR analysts hear from executives and business unit leaders among top IT professional services firms, IT vendors, and telecom vendors and operators.
“TBR Talks” is available on all major podcast platforms. Subscribe today!
https://tbri.com/wp-content/uploads/2025/03/delivering-digital-transformation-genai-solutions-via-partners-alliances-ecosystems-predictions-for-2025-and-beyond-cover-scaled.jpg25602560TBRhttps://tbri.com/wp-content/uploads/2021/09/TBR-Insight-Center-Logo.pngTBR2025-03-26 09:19:182025-03-26 09:19:216G Reality and the Future of the Telecom Ecosystem
In this episode of TBR Talks, TBR Principal Analyst Bozhidar Hristov and TBR Analyst Alex Demeule join Patrick for a discussion on partnership predictions for 2025. Boz and Alex share insights into the partnerships between cloud vendors and software vendors as well as with their systems integrator partners, including the increase in collaboration to deliver modernization, cloud migration and GenAI solutions to the world’s leading enterprises. Alliance highlights in this episode include Microsoft Azure, Salesforce, Amazon Web Services and Accenture.
TBR Talks is produced by Technology Business Research, Inc.
Edited by Haley Demers
Music by Burty Sounds via Pixabay
Art by Amanda Hamilton Sy
Delivering Digital Transformation & GenAI Solutions via Partners, Alliances & Ecosystems: Predictions for 2025 and Beyond
TBR Talks Host Patrick Heffernan: Welcome to TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms, where we talk business model disruption in the broad technology ecosystem, from management consultancies to systems integrators, hyperscalers to independent software vendors, telecom operators to network and infrastructure vendors and chip manufacturers to value added resellers. We’ll be answering some of the key intelligence questions we’ve heard from executives and business unit leaders among the leading professional IT services and telecom vendors.
I’m Patrick Heffernan, Principal Analyst, and today we’ll be talking about 2025 predictions for Digital Transformation and Ecosystems with Boz Hristov, Principal Analyst for TBR Digital Transformation practice, and Alex Demeule, Analyst for TBR Cloud and Software practice.
Boz and Alex, welcome back to the podcast, season three. Good to have you guys back.
Alex Demeule, TBR Analyst: Season three. Wow.
Bozhidar Hristov, TBR Principal Analyst: Yeah. Time flies when you have fun.
What drives ecosystem alliances
Patrick: Season three. Wow. Yeah I know I don’t know how many episodes we’ve done so far. By the time this drops, it’ll probably be over 40 at least. I mean, it’s been really kind of amazing. And, what we wanted to talk about today. We were going to look at our predictions, from the end of last year, heading into this year around digital transformation, around ecosystems, around sort of the bigger picture because you guys are coming to this space, Boz you’re our lead on digital transformation. You’re also the lead on a number of IT services companies and consultancies. And, Alex, you’re in the cloud and software space looking at a number of those cloud and software players. And together you collaborate very closely on the ecosystems report. So, that’s actually where I want to start with what’s happening in the ecosystems.
So, when you think about what’s new in the ecosystem now and how important ecosystem intelligence is, that is not just competitive intelligence, not just market intelligence, but ecosystem intelligence. One of the questions that we hear again and again is that companies, whether it’s a hyperscaler or whether it’s a Big Four consultancy, don’t know what the others want from them. They’re unsure what their ecosystem partners want, and they’re unsure that they’re communicating to their ecosystem partners what it is that’s going to actually drive their business. So, Alex, from your perspective, what is it that the cloud players, the software players, when they look across the ecosystem, what drives their ecosystem alliances, what are they trying to get out of their ecosystem partners?
Alex: Yeah, absolutely, and before I kind of even approach that question, you know, just a note on the importance of ecosystem intelligence. When we look across the cloud applications vendors, it’s pretty unanimous that everybody is looking at the ecosystem as a major part of their go to market strategy. And obviously, you know, this has been something that’s been going on for a long time. But the prioritization and, you know, how heavily they’re leaning on their ecosystem, this is growing. This is something that is becoming more important and will be more important in the future and that just raises the value of strong ecosystem intelligence as you put more weight behind the ecosystem as a core part of your sales engine. So, it really can’t be understated.
When I look at, to get back to the real question, what do the cloud application vendors want? You know, when we talk about the different vendors, everyone’s going to have sort of their unique take, you know, but obviously the phrase that we can get away from, GenAI, and kind of where that aligns with priorities. When Microsoft’s partner chief got on stage at Ignite, the first priority she mentioned was Copilot adoption. So, you know, bringing this technology to the enterprise and facilitating their adoption, it’s the number one priority for the cloud applications vendors and the thing that really matters for these cloud apps, and there’s actually- there’s two things that I want to touch on that really matters in sort of facilitating this GenAI go to market for the cloud apps. The first that I was going to mention is change management, and this is something I’ve talked about a few times recently and just how important it is. Adopting this new technology at the user level is proving to be very difficult. We had a customer conversation just a month ago where they talked about Microsoft 365 Copilot adoption being like rolling out a new ERP platform, and that really surprised me.
Patrick: Seriously?
Alex: Yeah, that really surprised me. You know, that seems a bit aggressive. And I’m not necessarily convinced that it’s an apples-to-apples comparison, but just the fact that an IT leader would go out and say that, just kind of tells you that it’s difficult. It’s probably hyperbole, but this is a challenge. And, you know, Microsoft 365 Copilot, that should be one of the easier tools to get your employees using because the level of complexity just goes up from here. You know, Salesforce is on my mind today. And when I look at their Agentforce, platform, which is where they’re putting a lot of their attention, the complication and the complexity of building these agents around business use cases is really hard. And it’s something that when you go through and do the channel check that comes up time after time, you know, like they talk about obviously, in the relation to RPA and flow with Salesforce and much greater magnitude of difficulty with building an agent versus building a flow and a traditional RPA. So there’s a lot of handholding that I think has to go on between the services partners and the enterprise and a lot of training, kind of, between the services partner and the end user to sort of create this environment where the users are able to adopt this technology and get the most out of it. You know, like those same channel checks, they always talk about Agentforce being a highly capable platform and a platform that has a lot of future potential. But it’s just- it’s a difficult thing to be able to go in and start building on top of. And so being the change management enabler is something that really matters to Salesforce.
And I’ve been talking a lot already, but the last thing I will mention just quickly is that they want pre-built agents, you know, part of the agent building, like and this comes from the Voice of the Partner, and we look at what do cloud vendors want. They want services partners in their partner ecosystem building IP on top of the platforms that they’re coming to market with. And so, there’s a lot of domain expertise that the services partners have. And they want that domain expertise to come through in pre-built agents a little bit easier to adopt instead of building one from scratch. So, it’s this building on top of and also change management at the customer level and helping them, you know, understand what needs to happen. It’s the skill sets that need to be in place for them to get the most out of this technology.
Change management
Patrick: Yeah. That’s fantastic. And I can see just looking at Boz like the wheels, like spinning faster and faster the more times you say change management. I want to ask you, I want to focus in on three things. You’ve touched on two of them, and I want to make it really explicit. So, we heard recently, an executive at one of the largest software companies in the world say that the three things they look for from their services partners and their consultancy partners are know the portfolio, co-innovate with us, innovate co-innovate with us, and industry expertise. So, you mentioned domain expertise at the end. And when you talked about build agents with us, well that’s co innovation. But I’m curious the portfolio- because if adopting Copilot is, I mean I thought that was going to be as easy as you know sort of using ChatGPT, if it’s harder than that, what does that say about how little the IT services companies and the consultancies know about Microsoft’s roadmap for where Copilot is heading? Is that a missing piece right there that they don’t know the portfolio well enough?
Alex: Possibly. I think that it’s, you know, maybe you’re talking about it, and I agree. You’re both surprised to hear that Microsoft 365 Copilot was a challenge to adopt. So, maybe it’s just necessarily underestimating the role of change management within GenAI, you know, and I feel like, you know, coming into it I think there was a pretty good understanding that this was something that change management was going to be important for. But maybe it’s just that it’s such an imperative and maybe it was a little bit understated.
Patrick: Yeah. Boz, have we ever heard of change management being understated? That’s never happened, right?
Boz: I was just thinking about it, I mean, you said it better than I would. I would say this is sabotaging.
Patrick: Yeah.
Boz: On the- potentially, you know, I mean, if you think about the people, the employees that are being impacted by any AI, GenAI kind of a tool, why would they rush to adopt a tool that might replace them. You know, obviously there’s a bigger discussion about that whole topic, so, another opportunity of being- change management being approached through a different lens rather than it just being here’s another tool for you. But I think what Alex was talking about, one thing that struck me, he kind of like in the beginning of his remarks and at the end, almost felt like Microsoft or any of the software companies, they have a self-serving message. No surprise. Everyone does. Right.
Patrick: Sell more of my stuff.
Boz: Yeah. Sell more of my stuff, which I think it was very clear when we did the Voice of the Partner over the summer, the misalignment in priorities between the three groups of vendors, that came loud and clear. When we asked the OEM providers, cloud providers and service providers, what are your top priorities for the next two years? Kind of like a short to mid-term revenue growth, and there was not a single one that aligned between the three. And the top three were completely like, what works for me. So that’s where I think the big gap is. I think that’s where we may talk about the expectations of each other. But at the same time, unless those companies don’t sit across the table and align those priorities, could it be the application led? Could it be the change management led? Could it be sell more boxes, if you are OEM provider, you name it. That’s where, you know, that’s where I think that the big disconnect becomes, you know, and I think that requires more executive alignment, you know, having the vision, you know, having more of the co-investment part of it, understanding, like who are your top partners? Everyone wants to partner with everybody. But that then diminishes differentiation. So, pick and choose your top five, top seven, top ten partners and go deep with them and really focus on the knowledge management. So, I think that’s the big gap, that misalignment in priority when you start to peel back, you know, I think there’s so many other pieces that nobody’s addressing at scale at this point.
What do partners want?
Patrick: So, you brought up two things I want to come back to. One differentiation and the other sort of picking strategic partners. But I wonder if you could frame out in the same way that Alex and I talked about, this is what the hyperscalers and the software vendors want from IT services companies and consultancies. When you talk to the KPMG’s, Deloitte’s, and Accenture’s, and PwC’s of the world, what do they say they want from their technology partners?
Boz: Number one, simplicity. Make your portfolio as simple as possible. I think this is, you know, because technology vendors are notorious for adding more features and speeds and feeds. Right.
Patrick: So let me stop you right there. Is there anybody that’s good at that?
Boz: Nope.
Patrick: Alex, do you think anybody is good at that?
Alex: Not in my portfolio.
Patrick: Okay. Fair Enough. So. All right, what’s next? That was number one. Number two.
Boz: Simplicity from technology. Simplicity from a commercial model as well. Meaning, you know, trying to be a little bit more direct about and, you know, all these different tiers of selling t-shirts size kind of apps and, you know, and subscription base and all that stuff. Try to be a little bit more clear about it. Now it’s moving towards outcomes. That’s what the services companies are talking about and trying to be a little bit more focused on outcomes. So, we have not heard of any software or application vendor selling their portfolio outcome based.
Patrick: Yeah.
Boz: So, there’s a big opportunity there. And that simplicity around commercial model alignment might be tied to outcomes. We’ll see who’s going to be the first one to see.
And the third one is really about training. I think that’s a big piece of it because essentially, that’s where a lot of the trust, both because if it’s not SAP or Oracle or Salesforce at the table, the client wants to know that the services provider, could be KPMG or PwC or Accenture, it doesn’t matter. They are equally trained. They have the same technology depth because they’re on the hook and there’s a risk component associated if you are implementing certain technology or managing certain technology. So, if you’re not providing enough training, if you’re not investing in training, the resources, certifications, are something that, you know, can be overlooked and can backfire on both sides of the house.
Determining priority partners in 2025
Patrick: And that’s a perfect segue into, how do you determine who your priority partners are. Maybe a big part of it is the simplicity in portfolio, the simplicity in commercial model. Those are the two really hard ones to tackle. But training ought to be simple and you ought to be able to determine who do I need to have my people trained on. And the reverse should be true too. When you’re a hyperscaler or a software vendor, you should be able to look at the consultancies and the SIs and say, who’s really invested in training. So, if training is one component to bridging that gap between them, and simplicity isn’t going to happen, is differentiation around the industry part of it? Where? How?
Let me rephrase this whole thing, because I want to come at it from the most useful way possible. How does a relationship between a hardware – not a hardware I don’t want to get into that – a software vendor or a cloud provider and an IT services company or consultancy, how does it change in 2025 for the better? What are the levers, the most efficient levers that can be pulled right now?
Boz: I mean, you start with the industry. I think it’s an important piece. But it’s less so at the overarching industry, I think it’s sub-industry, subsector, sub, you know, function area that actually, aligns with the depth to a particular technology component that may be available. And that ties back into strategic partners, because those strategic partners, while they are providing a good opportunity for scale, you also need to be maybe more aligned with those strategic partners in particular industry areas. You know, sub industry cloud, industry clouds and whatnot. So, that’s I think it has been discussed it’s not a new thing. That’s the part of it, that’s not, and it feels like it comes and goes and comes and goes in terms of like, you know, the discussion and the, you know, essentially clients leaving the industry, right? And the line of business manager or director, you know, they are having their particular bubble that they that they operate in. Right? So, rarely, rarely enterprises procure services from one vendor and technology from one vendor.
Patrick: Right.
Boz: So, you need to figure out, you know, it’s yeah, of course you want to have as much as much as possible exposure and footprint and enterprise level. Of course everyone does. But you’ve got to be realistic about where do you see yourself being, you know, very strong.
A good example right now comes to mind, the recent contract we saw from Telstra. So, there was a major consolidation in terms of the vendors that they were using. You know, now they go to Accenture on the AI side, there was like 18 other vendors, you know, in this major consolidation. Telstra did a major consolidation of their IT operations, and now they’re down to using Infosys and Cognizant. So, there’s that understanding because those companies are starting to build those pillars around depth in particular function delivery area that they’re known for. So rather than just say we can do it all, try to find- and partners will be a big part of that discussion, because you need to know what are your SAP strengths at the function level and at the industry level. And what does SAP think that’s your industry knowledge and, you cannot do equally well in SAP in 19 industries. But maybe 4 or 5. But that’s-
Patrick: And that seems to be the hardest thing for the IT services vendors and IT services companies and consultancies to understand is what do the software vendors and the hyperscalers actually think about them? Not what do they tell them in terms of, you know, the marketing level at the top, and not simply the relationship based on dollars, but how do they actually tell the difference between any of the Big Four?
I do want to pivot to another prediction that was around transformation. But, Alex, any other last thoughts on sort of ecosystem intelligence? I’m glad you started off by saying, look, this is a massive strategic priority and it’s a boardroom level issue now. But any other thoughts you have before we close out on ecosystems?
Alex: No, I mean, I’ll just reiterate when we look at these GenAI go to markets, they’re so heavily skewed towards the ecosystem. You know Microsoft’s, their majority of their GenAI strategy, their GenAI go to market, is through the ecosystem, Salesforce is through the ecosystem. It’s really- we’re living in an ecosystem led world now, and that just continues to raise the importance there. So, I’ll just reiterate that I guess.
Patrick: Yeah. And that’s important because the mindset from the hyperscalers and the software companies is that ecosystem driven way and the mindset from the IT services companies and the consultancies is very much an industry kind of way. That’s- they live in the same way that their clients live in it. And so it’s coming together there.
Digital transformation is not dead
Patrick: So, for transformation, I want to just tell a quick story because I think it sort of illustrates where we are, with transformation now. So digital transformation has been a buzzword. It’s been out there for forever. We talked, Boz and I, wrote stuff years ago saying digital transformation is dead. And then last year, a little more than a year ago this time, I was on stage down in Orlando, Florida, at a sales kickoff for SoftwareOne, and was waiting to give my part of the presentation and their CEO went first and in my notes it said digital transformation is dead. It’s all about optimization. It’s all about run the business. It’s all, you know, it’s not transformation. It’s optimization. Their CEO got up and twice in his presentation behind him in huge letters was the word transformation. So, I’m sitting there changing my notes frantically before I go up on stage. Because he didn’t think transformation was dead. And I don’t either now.
And I think a big part of it is that we’re seeing the investment by the IT services companies and the consultancies in that business model reinvention. KPMG had a term for it last week. I can’t remember what it was, but-
Boz: Transaction to transformation.
Patrick: Transaction to transformation. So, they’re explicitly using that word transformation. And a lot of that is because, we’re beyond the hangover of enterprises adopting cloud heavily post-pandemic or during the pandemic. And the bills, their cloud spend was a lot higher than they thought it would be. We heard the other day somebody talking about Microsoft, you know, their Microsoft bill was half of their IT spend. So, the hyperscalers and the software vendors have captured a massive amount of the spend, more so than I think enterprises thought they were going to when they were going to go to the cloud. That optimization has not necessarily meant a reduction in costs. So now we need to move to the transformation phase, which is I’ve invested all this money in my core IT, I’ve invested all this money in how I’m going to run my IT. Now I need to transform my business and actually change the business model.
Who is positioned well?
Patrick: So, the question I have for you guys then is, Boz are there certain companies you think are, I already mentioned a couple, but that are in a really good position to take advantage of that new enterprise interest in transformation? The SoftwareOne guy apparently was right. Are there companies that are sort of ready for that?
And then, Alex, what does it mean for the hyperscalers and the software companies if that fatigue around spending so much on, ERP, spending so much on cloud and then looking at SAP and saying, oh, I have to go to S4 or else, you know, by 2027 or I’m in trouble. What does that mean for their ability to continue to grow beyond the upgrades and beyond the modernization and the migration. Is there still room for the cloud and the software vendors to grow the size of their footprint within IT?
But Boz, I’ll let you go first on which companies are sort of ready to take advantage of a resurgence around transformation.
Boz: I don’t think there’s a single company that will tell you otherwise that they’re not.
Patrick: Okay, fair.
Boz: But I think the challenge with most of the companies we track and we research and we talk to is it’s just a matter of business goals. Right? They want to grow the business, but they also understand there’s some foundational work that needs to keep the lights on. Right. And that’s the same true with their clients, the enterprises. So, in a way, it is- all the companies that we cover have offerings in digital, in AI, we’ve heard them investing $1, $2 $3 billion in AI in the last two/three- two and a half years. We’ve heard the same thing in cloud before. We heard a lot of them investing in interactive services, in product engineering services in some of them, even blockchain, you know, and everyone’s tried to make sure that they have the skills, the portfolio, the positioning, the partners when it comes to when clients are ready. The readiness on the vendor side is less of an issue.
It’s about how they message and how transparent they are with themselves, with their stakeholders, meaning, you know, how much they want to focus on, lets make sure we keep running. And that boils down to culture, right? So, there are companies that are a little bit more aggressive on the innovative side, and they are able to balance securing the core and expanding on the innovative areas and drive transformation discussions with their clients. Others are a little bit more, let’s make sure we wait for the market and then we’re going to react. So, it’s like split into two camps, proactive and reactive companies. Right? But even in both camps, they’re all going to say we can, you know, do it all, but in reality the culture prevents them to be a little bit more, you know, aggressive when it comes to executing the transformation.
So, you mentioned a couple of names. Obviously, the consultancies are always trying to find ways to drive new conversations, to expand a wallet share. There’s new ways now that they’re to come up with, you know, using managed services as a door opener to drive consulting and more transformation because they can see it as a way to, we know your IT infrastructure and all your business process optimization. So now there’s ways we can actually introduce our consultants to drive to see what next can be. So that optimization transformation takes a new angle essentially for those companies.
You know, we’ve seen some of the more traditional IT outsourcing companies continue to capture a large amount of business, on the traditional IT outsourcing side, on the managed services side, mega deals, large outsourcing deals, And there’s nothing wrong with that because those are keeping the lights on and that buys them time to make a pivot.
Patrick: Right.
Boz: Make a pivot along with their clients. And if we had to take a step back and clients are in the same boat, sure, US clients may be a little bit more further ahead in digitization. They are a little bit more prepared, but there’s still pockets in the US like insurance and public sector, they’re a little bit slower to move along the way. In Europe, another 3 to 5 years to wherever the US clients are and how they think about transformation. I think there’s so much more on cost optimization and efficiency that’s actually presenting, forcing, I should say, the vendors to approach those clients in a little bit more traditional way. And we saw that in our latest research, in the Voice of the Customer. A new wave of lagging enterprises entering the market, trying to start their transformation programs, and again, it presents a good opportunity for the vendors that have the chops, have the experience, have the lessons learned how to best approach it. The challenge now with those laggards is that also have to think about AI and GenAI. It may be something their counterparts don’t have to worry about 5/10 years ago, when it was all about cloud, right. Maybe they can now leapfrog and catch up quickly with AI, but that presents new opportunity for the vendors themselves. So, it’s I think again, proactive versus reactive companies and wrapped around company culture.
Patrick: Yeah. I think I’d love to have another longer conversation on the whole managed services as a way, a back door, into consulting and what that means for the labor pyramid and all that. And I think that if anyone ever can come to me with a case of where a company actually leapfrogged, that would be fantastic. I think everybody talks about it and it almost never happens.
Challenges ahead
Patrick: But what you said there at the end about the laggards, that to me, Alex, sort of well, maybe that’s the sweet spot for growth for the hyperscalers and the software companies is that enterprises that have been behind, been slower to adopt, now see they need to make this transformation and they’re going to need a whole lot of tech thrown at them in order to make it happen. So where do you see the challenges maybe for the hyperscalers and the software companies in this, in 2025, based on all the things that we’ve been talking about?
Alex: Yeah, absolutely. And, you know, we talk about cloud rationalization versus investing and innovation. And you know, there’s always going to be an ebb and flow component to that. I think that I don’t know, I don’t see it in terms of laggards versus leaders. I think that when we do our cloud customer research, one of the biggest impetuses to move toward the cloud and invest in cloud technology is positioning the business for access to innovation. And I think that, you know, it’s not just the laggards that are moving towards the cloud for access to innovation. I think that the people that have already made the move, you know, they’re rationalizing. They’re looking at where can I reduce cloud spend, where am I doing things incorrectly and inefficiently, you know, going back to their IT teams to make sure that a lot of these consumption-based platforms aren’t being managed poorly.
So, they want to look at how they’re spending and what they’ve already invested in. And make sure that that they’re doing that right. But there’s still this sense of access to innovation. I think that we live in a very, you know, it’s a very dynamic world, and you don’t even have to just talk about AI when we’re talking about changing environments. You know, sustainability is still on the docket, you know, changing political environment, maybe changing sustainable- regardless. You know, when we look at SAP, for example, you know, there’s interest in green ledger. You know, there’s because of the regulatory environment that’s shifting in the EU. So, it’s not even necessarily that it’s just that are laggards that are showing and trying to do catch up. But the people that are already there are interested in these technology solutions to new problems and to navigating through those problems.
And, you know, GenAI obviously is a part of that conversation as well. I think that we’re still in an experimentation phase with GenAI and AI broadly and agenetic AI, all the different subsets, but I think there’s still pretty strong interest. I don’t see, you know, much around people completely abandoning AI strategies. You know, when we think about operational change, there’s some companies out there that are really looking at how can I stretch my human workforce by bringing in a digital workforce. And, you know, a lot of the cloud application vendors are playing customers zero there. Like I said, Salesforce is on my mind. They’re not going to hire any developers this year because of the productivity improvements that they have seen within their developer force.
Patrick: Right.
Alex: And, you know, that was something that really surprised me hearing that on the earnings call, because it’s such a dynamic stage for AI. But, you know, looking at the margin consideration, it’s something that makes sense for the company right now. And so, I think there’s a lot of companies out there that are looking, and understanding that maybe AI isn’t going to be something that’s a revolutionary part of my business in the year ahead. But when you stretch that timeline into the not so distant future, it is something that is going to have operational impacts and be a part of how these enterprises are thinking about the organizations and they want to be a part of that conversation, investing, so that they can be in the right position to be a part of that change.
Patrick: Yeah, that’s a super helpful way to frame it out. And, I really didn’t think about sort of the optimization continues and that’s still the opportunity for the cloud and software vendors to sell more and do more with their clients. And as you’re optimizing doesn’t always mean you’re sort of cutting. Oftentimes it can mean, like you said, innovating and finding new ways to change the business, maybe a little bit more piece by piece rather than that sort of revolution, transformative change. And everything you said about digital workers, we’re going to come back. That’s going to be our opening episode for season four in the fall, I’ll have you two guys come back and we’ll talk about whether digital workers was the thing we talked about most over the summer.
Final thoughts
I want to end with this because I’ve asked this question a few times now of folks that have been on the podcast. So, I guess this my season three theme, I used to talk about food a lot. Now we’re talking about jobs. What was your first job? Well, your first actual had to, you know, go and get a paycheck job. Boz?
Boz: I was an entrepreneur to start with.
Patrick: Wow.
Boz: I had my own ice cream cart, I was scooping ice cream, but it was, I mean, my parents obviously helped me. I was 13 years old, but that was me running it, you know, dealing with suppliers, you know.
Patrick: Nice.
Boz: Yes.
Patrick: Okay.
Alex: I mean, I was mowing lawns and getting paid cash. My first W-2 job, though, I was a ski instructor at Ski Bradford.
Patrick: No kidding. All right. Fantastic. Moguls? High jump or like, ski jump?
Alex: I was like, you know, teaching little kids.
Patrick: Teaching little kids. Yeah. Excellent.
All right, gentlemen, thanks so much. Ice cream cones and ski jumps and all that. And we’ll come back to this again at the opening of season four. Thanks.
Boz: Thank you.
Patrick: Next week, I’ll be speaking with TBR Principal Analyst Chris Antlitz about his 2025 predictions for 6G.
Don’t forget to send us your key intelligence questions on business strategy, ecosystems, and management consulting through the form in the show notes below. Visit tbri.com to learn how we help tech companies large and small answer these questions with the research, data and analysis my guests bring to this conversation every week.
Once again, I’m your host Patrick Heffernan, Principal Analyst at TBR. Thanks for joining us and see you next week.
TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms
Join TBR Principal Analyst Patrick Heffernan weekly for conversations on disruptions in the broader technology ecosystem and answers to key intelligence questions TBR analysts hear from executives and business unit leaders among top IT professional services firms, IT vendors, and telecom vendors and operators.
“TBR Talks” is available on all major podcast platforms. Subscribe today!
https://tbri.com/wp-content/uploads/2025/03/delivering-digital-transformation-genai-solutions-via-partners-alliances-ecosystems-predictions-for-2025-and-beyond-cover-scaled.jpg25602560TBRhttps://tbri.com/wp-content/uploads/2021/09/TBR-Insight-Center-Logo.pngTBR2025-03-07 16:42:332025-03-07 16:44:25Delivering Digital Transformation & GenAI Solutions via Partners, Alliances & Ecosystems: Predictions for 2025 and Beyond
TBR Talks host Patrick Heffernan began his professional career in diplomacy, with Middle East postings as a foreign service officer with the State Department and counterterrorism assignments with the National Security Council and the U.S. Department of the Treasury. In this bonus episode of TBR Talks, Patrick gives his unique perspective on the impact of Saudi Arabia’s recent decision regarding PwC and on consulting and IT services firms. Patrick will also share insights into how Saudi Arabia may be changing the way in which it operates with global firms.
TBR Talks is produced by Technology Business Research, Inc.
Edited by Haley Demers
Music by Burty Sounds via Pixabay
Art by Amanda Hamilton Sy
TBR Talks Bonus Episode: Saudi Arabia & PwC: What does this mean for Advisory Services?
Saudia Arabia, IT services firms and consultancies: What’s next?
TBR Talks Host Patrick Heffernan: Hi, this is Patrick Heffernan from Technology Business Research with a special episode of the podcast because it’s not too often that my former career and my current career come together as much as they have just recently. If you looked on LinkedIn, you’ll know that I was with the federal government for 13 years, serving as a diplomat, including four years living in the Middle East. I also traveled to Saudi Arabia so many times people thought I actually lived there.
And then this past weekend, we got the news that the Saudi Public Investment Fund had essentially frozen out PwC for a year. And so, I got a lot of questions from both my colleagues here at TBR, but then also colleagues I’ve known for a long time, people who I’ve formerly worked with. And they were asking questions about what does this really mean?
And I think one of the mistakes that’s easy to make is to look at the story and think it’s about PwC, it really isn’t. This is a story about Saudi Arabia and the way I read this, again from my experience, having traveled extensively and having worked and lived in the Middle East, is that this is really an opportunity for the Saudi government to do two things.
One, they’re putting a shot across the bow of all the consultancies, all the others who have been looking to cash in on what seems like an endless flow of Saudi money. The Saudi government can’t simply disrupt everything and start canceling contracts willy nilly, but they can rein in some of that spending on foreign firms, in part by sending a signal that the days of free money, the days of that free cash flow all the time are really over. So essentially, they’re sending a warning to the companies that have been making a lot of money off of Saudi Arabia over the last couple of years.
The second thing is it sends a broader signal to the market and to the globe as a whole, and the investment community as a whole, about what’s happening in Saudi Arabia now around transparency and around accountability. Essentially, the Saudi government is saying we’re holding even these global accounting firms accountable. The good old days of the bazaar is over. We are now a highly functioning, highly modern economy. Now, you can take that all with a grain of salt. Although I am hearing from people in the investment community, in the insurance community, in the banking community, talking about the pressure they’re feeling to bring people to Saudi and to hire people in Saudi Arabia now, to be more local, to be more on the ground.
So clearly, there are a lot of messages that are coming from the Saudis right now. So, the bottom line for me, it’s really a mistake to read this as a simple Saudi Arabia and PwC thing. It really is a warning to all those consultancies and the IT services company that have been pouring investment money into the Middle East, into making bets on the growth of Saudi Arabia and the growth on others. And that warning is that you need to play by the local rules. And if you don’t know the local rules, just simply don’t play.
Final thoughts
So hopefully that’s a little bit of perspective based on all my experience in the Middle East and all my experience looking at big four firms from both a competitive and an ecosystem lens. If you have any questions, please feel free to reach out. Again, this is Patrick Heffernan with Technology Business Research. Thanks.
TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms
Join TBR Principal Analyst Patrick Heffernan weekly for conversations on disruptions in the broader technology ecosystem and answers to key intelligence questions TBR analysts hear from executives and business unit leaders among top IT professional services firms, IT vendors, and telecom vendors and operators.
“TBR Talks” is available on all major podcast platforms. Subscribe today!
https://tbri.com/wp-content/uploads/2025/03/tbr-talks-bonus-episode-saudi-arabia-pwc-what-does-this-mean-for-advisory-services-cover-scaled.jpg25602560TBRhttps://tbri.com/wp-content/uploads/2021/09/TBR-Insight-Center-Logo.pngTBR2025-03-07 16:20:542025-03-26 08:39:51Bonus Episode: Saudi Arabia & PwC: What does this mean for Advisory Services?
Astadia CEO Scott Silk joins Patrick for a discussion on cloud migration and the mainframe modernization needs of enterprises globally. A recent Amdocs acquisition, Astadia focuses on the mainframe modernization opportunity within the broader digital transformation services space. Scott also shares insights into Astadia’s core partner strategy and how a smaller firm partners with larger hyperscalers, global systems integrators and legacy OEMs.
TBR Talks is produced by Technology Business Research, Inc.
Edited by Haley Demers
Music by Burty Sounds via Pixabay
Art by Amanda Hamilton Sy
Mainframe Migration and Modernization
TBR Talks Host Patrick Heffernan: Welcome to TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms, where we talk business model disruption in the broad technology ecosystem, from management consultancies to systems integrators, hyperscalers to independent software vendors, telecom operators to network and infrastructure vendors and chip manufacturers to value added resellers. We’ll be answering some of the key intelligence questions we’ve heard from executives and business unit leaders among the leading professional IT services and telecom vendors.
I’m Patrick Heffernan, Principal Analyst, and today we’ll be talking about cloud migration and many other technology topics with Scott Silk, chairman and CEO of Astadia: an Amdocs company.
Introducing Astadia CEO Scott Silk
Scott, thank you so much for coming in, and I appreciate you being here on site at the TBR headquarters for this. Great opportunity for us to talk to people who are in the ecosystem that we cover, and in particular the company that you’re with, that you run Astadia, has been acquired by Amdocs. It’s been a client of ours for a long time, so we know Amdocs, but we haven’t known Astadia as much as we really need to. So maybe you give us a little bit of both your background, but then also what the company is doing now and sort of where it’s going.
Astadia CEO Scott Silk: Sounds good. Great to be here with you today, thank you so much for the time. So, my background, I’m a big company dropout. I started ironically selling mainframes at Unisys and kind of went up the management ranks at Unisys. And after 16 years I was voted off the boat and it was time to do startups. So, I did a series of startups ever since. The latest- how I got involved with Astadia was actually quite interesting. I was trying to retire in Naples, Florida, and I wanted to move to Naples because it was an opportunity for real estate appreciation. Because baby boomers retire, they drive property values up. And then after two weeks of retirement, my wife said, go get a job. And, I found Astadia and Astadia was interesting me because a lot of the companies in the mainframe migration space, the companies that would move workloads from mainframes to distributer or mainframes to cloud, had been in the business for over 30 years, but the mainframe never died. And I was just kind of curious that- I’m just wondering if the baby boomers retiring might have been the death of the mainframe. So, about ten years ago, I joined Astadia with the mission to build the greatest mainframe migration company and making a bet that when these boomers retire, the market was going to cooperate, and we could become the market leader.
Patrick: Yeah, it’s fascinating. And, a couple things. I am also a refugee from the big company’s space. I was actually with the federal government for a while, which is perhaps the biggest employer, and then with Deloitte for a while after that. So, now here at a much smaller firm, it’s fantastic. I’m curious too, because of your background especially with Unisys back in the day and now with Astadia, you’ve seen the way that the ecosystem has changed, not just around mainframes, around everything technology. And so, I’m curious when you think about the way that partnering and alliances and going to market together, how much that’s changed, and sort of how critical an alliance or ecosystem play is for Astadia.
Co-opetition
Scott: Ecosystems are very important, and we probably drive over 85% of our revenues through partners or with partner assistance, and it’s a delicate balancing act. For starters, our partners tend to fall into three buckets. They tend to be platform players, like IBM and Kyndryl. It could be the big SIs, like Capgemini or Cognizant. And it’s the hyperscalers, AWS, Azure and GCP.
Patrick: Right.
Scott: But, it is co-opetition because if you think about it, oftentimes we’ll partner with AWS, but they also have a competing product to what we do. So, it’s delicate there. Same with the GSIs. We do a lot with the Capgemini’s, as I mentioned, and the Cognizant’s of the world, but we are now owned by a GSI. So, we have to balance those types of things out. So, it’s co-opetition so everybody wins. And then finally- similar delicate balance with IBM or Kyndryl because we have great technology to move workloads off the mainframe. But in many cases IBM and Kyndryl want to control the speed at which that migration takes place. So, it’s changed a lot because it is co-opetition and it is a delicate balancing act.
Patrick: And the co-opetition part requires a different kind of mindset on the part of the people that do- that run alliances. In the past, it was sort of how much are we selling through you, now it’s got to be how are we partnering together to go-to-market. Is it- have you seen like a sort of a change in the way that people at a leadership level appreciate the importance of alliances?
Scott: Yeah, they’re real business people at this point. Because if you think about it, you need to structure win-win business partnerships. So, if you’re going to partner with one of your competitors, so to speak, it’s got to work for both of you. And that’s why we’re looking for more seasoned business people for these types of roles.
Astadia’s superpower
Patrick: Okay. Yeah. Makes sense. And then you talk about co-opetition because, what you do, maybe AWS has some of those services as well. So, there’s a company that we worked with a lot that that is really keen on talking about what their superpower is. And so, I’m curious, what is Astadia’s Superpower? Two questions. One. What is it? But then also, how well do you think your alliance partners can articulate that?
Scott: Great question. So, kind of a funny story. We made a decision to get into the refactoring space, which is the software that automates the movement of COBOL to Java or COBOL to C sharp. And we had a choice, do we make it or do we buy it? And we decided to acquire. And my investors at the time said something that I’ll never forget. They said, don’t come back to me in six months and say, “you bought the wrong company.” And I was taken aback by that because I’m thinking, I’m going to be thorough- what are they talking about? But what we found was interesting. We looked at companies like Blue Age and Modern Systems and TSRI and Cisco, ExperSolve, and they were okay. But what we found is five more companies that did refactoring, and then five more and then five more, and we ended up finding 22 companies that we had to go to school on, and we had to be thorough. And it took us the better part of two years to do a thorough evaluation on all 22 companies. So, when you get to superpower, though, here’s the way we looked at it. We wanted the tooling that was the most automated when moving COBOL to Java and C sharp. As close to 100% was the goal. We wanted automated testing because up to 50% of the time and cost of a project can be testing, and if we can automate that, that would really help deliver a great ROI. And probably the third one was enterprise class references. A lot of the people, a lot of these 22 companies we looked at, they were pretty good at POCs or pilots or nibbling around the edge or doing small projects, but we wanted somebody that could do Societe General, Liberty Mutual, AT&T, Citibank, Deutsche Bank, companies like that. And we found a diamond in the rough. We found a company called Anubex Space in Antwerp, Belgium. And they were a classic case of next generation technology, world class references. So automated, it was a generation ahead of anybody else out there. They probably weren’t the best on the go to market side, which allowed us to buy them, we could afford them.
Patrick: Yeah. So, in your experience, while you’ve worked with big companies and small companies, it sounds like most of your clients though, in your career, have been those larger clients, you’ve been working with enterprise clients.
Scott: Correct.
Patrick: How much have the buyers’ at those enterprise clients changed in the sense of like the decision makers themselves are so much more technologically savvy, experienced, like you’re not trying to sell them the technology anymore, right?
Scott: Correct.
Patrick: Yeah.
Selling business impact
Scott: Correct. We’re selling business impact, business results.
Patrick: Does that make your job harder that you have to be able to articulate it as business impact instead of “these are the speeds and feeds and what works best.”
Scott: It makes my job so much easier, it’s not funny.
Patrick: Yeah.
Scott: I’m the least technical person on the planet who’s run tech companies. So anytime I can have the conversation and be technology aware, but turn it a business or ROI discussion. I’m happy doing that. And to your question too, the buyers have changed. I guess I’m going to date myself when I use these terms. But back in the 80s it was the DP director and then the MIS director. Now the CIOs and CTOs that are involved in the decision-making process, they’re pretty business savvy as well. And up through the C-suite from CFO, COO, and CEO. They’re tech savvy. Yeah. So, it has definitely changed where it’s a blend of businesses, roles, technology.
Patrick: Yeah, it makes a lot of sense. So, at Technology Business Research, one of our- sort of the core way we described our superpower is, we look at companies by looking at their strategy, we look at their financial performance. We say, what should we expect out of that?
Scott: Yep.
Patrick: Do they have the right strategies, is their business model put to their strategy. Are they performing the way they should and all of those things together, including how they put it to market. You know, what can we expect out of them? So, when you think about- I know you can’t give me for financials and that’s fine. But when you think about Astadia’s core strategy, how the company/how the firm’s been doing so far and then where you expect it to go, like how would you lay those three things out?
Scott: Sure. So, when I joined Astadia, we had a little bit of an unfair advantage. And the unfair advantage was time. Nine years ago, ten years ago, baby boomers hadn’t retired in earnest yet. So, it gave us the time to really think about what building the ultimate mainframe migration company would look like. What type of leadership team did we need, what type of technology team did we need, what type of solution offerings and so forth. So, we were very pragmatic when we built it. When we launched our new capability, it worked out really, really well. With the exception of COVID, COVID flattened things out for a couple of years. But the strategy worked really well. And I tell people that it was one of the rarest experiences in my life where we threw up a strategy on the flip chart nine years ago. Bang! It came through. It was almost like we drew it up and
Patrick: Right.
Scott: You know, when we were acquired by Amdocs in November of last year. We were the largest player in the space, but we were also the fastest growing. We were growing at over 155%. And while our investors like that, I think the most important part was we were pulling away from the pack, which meant we were delivering value to customers.
Astadia and Amdocs
Patrick: So, it made sense then, I mean, for Amdocs, an incredibly smart play by them to acquire you guys. And again, this is where it’s going to get a little delicate. But, you’ve been through this before. So, what were the things that you expected to be harder about being acquired by Amdocs and it ended up being easier? And what were some of the things that you thought joining at Amdocs would unlock, you know, a certain acceleration for you guys and it wasn’t there.
Scott: Yeah. Great question. And probably the shock value is a little bit less for me because I’d been in a C-suite in a Fortune 100 company.
Patrick: Right.
Scott: But the rationale behind the merger made really good sense. And that was, let’s say we were walking into a large company and saying it’s a $50 million migration. And they look at us and say, well, you’re only $50 million. You really need the backing of a bigger company. So, Amdocs is a $5 billion company. So having that backing was important. The second thing that Amdocs brought to the table was system integration capability. When we would go into clients and move them from their mainframe to one of the clouds, we’d earn trusted advisor status. And then after that the customer would say, “well, I want to do managed services or I want to do generative AI. I want to do predictive analytics, I want to do DevSecOps,” and we’d have to bring in a partner. And now, while we still have a partner network of GSIs to do that work, if somebody wanted one throat to choke or vertical integration, they can buy it all from one location. And that’s Amdocs.
GenAI
Patrick: So, I want to come back to GenAI for a minute, but you brought up something that we’ve been fascinated by for the last couple of years, which is the shift in the way that consulting opportunities have emerged or the way that consulting opportunities have come about. And it used to be consultants were the tip of the spear. Right? They would go in and say, here are your problems, we’ll help you solve them, and by the way, there’s going to be some managed services and some other implementation stuff down the line. Now we’re seeing a lot of the managed services providers in the IT- the folks doing the implementation, they’re on the ground, in the thick of it. They know what’s going on, particularly managed services. And they can surface problems that can then bring the consultants in. In your experience so far with Amdocs, are you getting that ability to see with Amdocs’ clients, okay, here are some of the things that are that are surfacing or is Astadia bringing that capability to Amdocs?
Scott: That’s a great question. And we’re seeing both. It’s kind of the yin and the yang of we bring some, they bring some. We’re approaching them from different places, but that’s been one of the big leverage points of Amdocs. We’ve been super busy. I mean, you come in and, you know, we have more presentations and demonstrations and things like that than we have ever had. So, it’s been a busy time, which is a good thing.
Patrick: Yeah. Excellent. So, let’s wrap up with GenAI, you can’t have a conversation
Scott: Right.
Patrick: In the last two years without talking about generative or artificial intelligence, which is fine. I know it’s part of your business. I know it’s part of Amdocs’ business. But I’m curious if they’re- just to take- you referenced your age and so, I’m old enough too. So, let’s talk the big picture, the sort of grand technology scheme of things, you’ve seen lots of different trends come and go. This one is here now, so, we’re all fixated on it. But are there certain changes you think are going to happen within enterprises around IT because of GenAI that we’re just now beginning to appreciate, and then are there some use cases that you’ve seen that are like “okay, this this is what makes it all click for me.”
Scott: Yeah. It’s so true. There’s not one sales opportunity we can go on without people mentioning GenAI, I think it’s, you know, it’s gone through its hype phase a little bit. When people started talking about it, it was going to put us out of business. And you can migrate a Fortune 100 mainframe in 15 minutes with GenAI. I think it’s kind of off the hype curve right now where people see a role for it, but it’s not going to be ready for prime time probably for 2 or 3 more years.
Patrick: Yeah.
Scott: That said, and I’ll go back to our superpower, I mentioned that we’re very automated. We’re more automated than anybody, and we do automated testing. The benefit to the client is we can get you to the cloud faster, more cost effectively, and at less risk. So, while I lot of our competitors will be using GenAI to go for maybe 60% or 70% automation to 100% like automation, like we are. We really can’t use it there
Patrick: Right.
Scott: Because we’re already that automated. So, we’re looking at complimentary use cases to complement our core highly automated platform. One example might be when you move somebody to Java, and you may want to use GenAI to make it more modernized, more containerized microservices, things of that nature. That’s a wonderful use case. Another use case might be around test case automation, rather than having humans do the building of the test cases, have GenAI use that. So, we at this point see it as more of a complementary strategy to what we do. And then maybe, I mentioned 2 to 3 years, maybe the next generation of these platforms probably will be more GenAI centric. And it can be 2 or 3, if not more, years out.
Patrick: So, it’s a good accelerant to the automation that you already have in place. But it’s not replacing that.
Scott: Correct.
Modernizing the mainframe
Patrick: Right. Yeah, that makes sense. One more question, because just the way you framed that out, especially the thought about migrating to the cloud faster. One thing that we’ve heard in the last year or so, has been a certain fatigue on the part of IT buyers, that they’re saying, look, you sold us on cloud, you sold us on blockchain, you sold us on metaverse, you sold it- you know, you kept selling us on all these things that we had to buy. And so, they’re saying, like, now you’re coming to us with GenAI and now it’s going to cost even more. And there was a little bit of sort of fatigue combined with, take my technology I’ve already got and make it work. So how does Astadia play in that sort of, when you’ve got a client that says, look, take the tech I’ve already got and make it work better for me, is that is that a good opening for you all?
Scott: Yeah. I mentioned our tagline is mainframe to cloud, however, we do that because that’s just a very focused part of the market to capture. There are clients that will say, I want to stay in the mainframe, but swap out Broadcom or CA and just modernize on the mainframe.
Patrick: Right.
Scott: Or, I’ve got a boatload of these x86 servers laying around, can you take workloads off my mainframe and run them on x86. And we can do that as well. But if I can close on kind of a plug for Astadia.
Patrick: Yeah.
Scott: I mentioned our high degree of automation and I mentioned our automated testing. The biggest benefit to the client is predictability. So, in over 95% of our cases, since we’ve eliminated probably 75% of the humans that have to migrate a mainframe, because the software is doing the work, in 95% of those cases, we go in fixed price and fixed bid.
Patrick: Yeah.
Scott: We hold the risk. And that’s very refreshing to clients that always are getting billed to death. In our case, if we say the projects $10 million in two years, that’s what it’s going to be. If it’s $12 million, guess what we just lost $2 million.
Patrick: To me, that seems like it’s going to be amazingly compelling for clients where they are right now, which is, the industry told us cloud was going to save us money and in fact, that’s the biggest bill we have now. And the same thing back- like you said, it was going to cost this and now it costs that much more. If you guys are actually coming in saying this is what it actually costs and we’ll take the hit if it doesn’t. That sort of outcomes based pricing is- we think it’s going to increase, it sounds like you guys are already on the front edge of that.
Scott: Yeah. And our typical customers. I know there’s a lot of people that move to cloud and they’re like, holy smokes. It costs more than it did before. But on average clients save 60 to 80% annual operating cost. So, that’s a good place to be.
Final thoughts
Patrick: Huh. Alright, well thanks so much. We’re going to keep an eye on you guys.
Scott: Sounds good.
Patrick: As you could imagine and maybe, towards the end of the year, we’ll bring you back in to give us an update on where things are and talk about how GenAI just completely disappeared or whatever the case may be.
Scott: Sounds good Patrick.
Patrick: Excellent. Thank you so much.
Scott: I’ll look forward to it. Thank you.
Patrick: Tune in next week for another episode of TBR Talks. Don’t forget to send us your key intelligence questions on business strategy, ecosystems, and management consulting through the form in the show notes below. Visit tbri.com to learn how we help tech companies large and small answer these questions with the research, data, and analysis my guests bring to this conversation every week. Once again, I’m your host, Patrick Heffernan, Principal Analyst at TBR. Thanks for joining us and see you next week.
TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms
Join TBR Principal Analyst Patrick Heffernan weekly for conversations on disruptions in the broader technology ecosystem and answers to key intelligence questions TBR analysts hear from executives and business unit leaders among top IT professional services firms, IT vendors, and telecom vendors and operators.
“TBR Talks” is available on all major podcast platforms. Subscribe today!
https://tbri.com/wp-content/uploads/2025/03/mainframe-migration-and-modernization-featuring-scott-silk-ceo-of-astadia-cover-scaled.jpg25602560TBRhttps://tbri.com/wp-content/uploads/2021/09/TBR-Insight-Center-Logo.pngTBR2025-03-06 12:49:362025-03-06 15:06:12Mainframe Migration and Modernization, Featuring Scott Silk, CEO of Astadia
In this episode of TBR Talks, SoftwareOne Global Head of Industry Analyst Relations Dr. Jochen Wolf joins TBR for a discussion on developing a successful career in analyst relations and building an effective analyst relations team. Jochen shares his perspective on how to support executives, sales, partners and the broader market for today’s AR professionals and provides realistic insights into an often overlooked, yet critical role within the technology ecosystem.
Additionally, Jochen speaks with TBR Principal Analyst Allan Krans on the roles, responsibilities and challenges in creating a new analyst relations team for a well-established, rapidly growing cloud and SaaS services & software firm.
TBR Talks is produced by Technology Business Research, Inc.
Edited by Haley Demers
Music by Burty Sounds via Pixabay
Art by Amanda Hamilton Sy
https://tbri.com/wp-content/uploads/2024/12/building-an-analyst-relations-team-featuring-dr-jochen-wolf-global-head-of-industry-analyst-relations-for-softwareone-cover-scaled.jpg25602560TBRhttps://tbri.com/wp-content/uploads/2021/09/TBR-Insight-Center-Logo.pngTBR2024-12-20 15:00:002025-01-22 13:44:04Building an Analyst Relations Team, Featuring Dr. Jochen Wolf, Global Head of Industry Analyst Relations for SoftwareOne
Securing recompetes and maximizing execution on existing bookings are driving leading federal systems integrators (FSIs) ManTech and Peraton to success. From the challenges of private equity involvement to bidding on key government technology investments, TBR Senior Analyst James Wichert joins Patrick to discusses key trends leading into 2025.
TBR Talks is produced by Technology Business Research, Inc.
Edited by Haley Demers
Music by Burty Sounds via Pixabay
Art by Amanda Hamilton Sy
https://tbri.com/wp-content/uploads/2025/01/mantech-peraton-how-two-leading-federal-systems-integrators-are-navigating-the-us-public-sector-cover-scaled.jpg25602560TBRhttps://tbri.com/wp-content/uploads/2021/09/TBR-Insight-Center-Logo.pngTBR2024-12-13 15:00:002025-01-30 16:19:57ManTech & Peraton: How Two Leading Federal Systems Integrators Are Navigating the U.S. Public Sector
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