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Quick Quantum Quips: Cloud players are now looking for a piece of the quantum pie

The quantum market changes rapidly, and the hype can often distract from the realities of the technological developments. In our new monthly newsletter, Quick Quantum Quips (Q3), TBR will brief readers on the latest market announcements, stripping that hype to dig deeper into how recent events will impact the market as a whole. To schedule a time to chat with Analyst Stephanie Long about any of the insights below, contact her at [email protected].

DECEMBER 2019 DEVELOPMENTS:

  • D-Waveunveiled a partnership with NEC to bring hybrid quantum computing capabilities to market. Simply put, this partnership merges D-Wave quantum capabilities with NEC’s classical computing portfolio. On a deeper level, it provides D-Wave with a $10 million investment by NEC and access to the Japanese market, while NEC can provide its domestic market of Japan with a local alternative to quantum offerings similar to those of Fujitsu.
  • IBM announced the public availability of a quantum system allowing for pulse access, which is unique because it provides users with increased control compared to more traditional gate-level control. This development is in conjunction with a new version of Qiskit, and IBM Quantum Experience members have public access to this new capability. Pulse access provides users with an in-person feel to their quantum computing experience. Because of the delicate and expensive nature of quantum systems, they are currently available only via the cloud.
  • Amazon Web Services (AWS), in response to Microsoft Azure Quantum, unveiled Amazon Braket (currently only a preview of the offering), which is Amazon’s initial attempt to turn quantum computing into an easily accessible cloud service. Currently, only AWS corporate accounts will have access to the service, and access will be granted to systems from AWS partners D-Wave, Rigetti and IonQ. Like offerings from IBM and Microsoft, this cloud offering will provide a hybrid computing model for customers that will provide choice of underlying quantum architectures abstracted from the software programming. Innovations at the hardware level will not impede the ongoing software development or hedge customers’ and cloud providers’ bets on the technology.
  • Russia entered the quantum arms race this month, as Deputy Prime Minister Maxim Akimov announced that Russia will invest $790 million into basic and applied quantum research over the next five years. The primary goal is for the country to build its own working quantum computer, with secondary goals of developing algorithms to run on this system to mine databases and create highly secure communication networks. The country is behind major players China and the U.S. in terms of the number of government initiatives that it has made public, but TBR believes Russia has likely been investing in the technology prior to making this announcement. Still, this is the first major public quantum announcement by Russia to date.
  • Accenture opened a NanoLab in Colombia designed to provide local Accenture customers with access to emerging technologies, including AI, robotics, blockchain and quantum computing. TBR believes that because Accenture’s quantum services play is funded by early adopters to jointly develop capabilities, increasing exposure of customers to the technology can increase interest in quantum computing overall as well as funding once more customers are able to uncover the advantages they can employ through such a relationship with Accenture.

If you would like to receive more detailed information around the quantum computing market, please inquire about TBR’s Quantum Computing Market Landscape, a semiannual deep dive into the quantum computing market. Our latest version published in December.

Informatica touts AI benefits with a caveat: Data cleanliness and management are critical

To be widely effective, AI needs clean data and cloud scale

Informatica World 2019’s focus was on customers of all backgrounds and sizes leveraging AI to accelerate digital transformation. While AI is not a new or novel discipline, cloud computing has supported its growing accessibility by enabling scalable, cost-effective data processing. In that spirit, Informatica has forged partnerships with the three most prominent public cloud brands, Amazon Web Services (AWS; Nasdaq: AMZN), Microsoft (Nasdaq: MSFT) and Google Cloud (Nasdaq: GOOGL), and put these three Platinum partners on stage throughout the event’s keynotes and breakout sessions.

Google Cloud

Google Cloud was represented on the keynote stage by new CEO Thomas Kurian, who harped on both data processing at scale and the idea of ensuring you’re informing AI and analytics with clean and comprehensive data sets. Informatica and Google jointly announced that as of the conference, Informatica’s Intelligent Cloud Services (IICS) and Master Data Management (MDM) solution were available on Google Cloud, better enabling customers to move their data warehouses to Google Cloud Platform, leverage Informatica’s products in the environment, and run analytics through BigQuery and Google’s AI capabilities.

AWS

Ariel Kelman, VP of Worldwide Marketing at AWS, joined Informatica CEO Anil Chakravarthy on stage to describe how AWS is innovating and enabling customers with AI, but more importantly to explain the relationship between Informatica and AWS in supporting their joint customers. Kelman admitted that “a lot of [AWS’] services need data and a lot of that data is still on premises.” Though AWS is bringing its services into customers’ environments through AWS Outposts, customers also want help bringing their data to the cloud. In addition to supporting integration between Informatica products such as Power Center and IICS with Amazon Redshift, the partners announced a joint offering with Cognizant (Nasdaq: CTSH) that enables customers to complete a free, self-service data migration assessment. The assessment service leverages Informatica Enterprise Data Catalog on AWS and Cognizant’s data-to-cloud migration assessment and strategy services to help customers begin planning and mapping their data migrations to cloud. The service is intended to accelerate customers’ data migrations to AWS infrastructure while ensuring enlistment of Informatica data management products and Cognizant consulting and systems integration services in the process.

Microsoft

While Microsoft and Informatica did not make a formal announcement on stage, Microsoft had a large presence in the final keynote of Informatica World and in breakout sessions, highlighting how Microsoft approaches AI innovation and use cases across various industries and customer roles. At the outset of the event, Informatica announced its support of the Microsoft Common Data Model (CDM), data frameworks meant to ultimately reduce data silos across workloads and applications through data model standardization on Microsoft Azure. Informatica’s support of the Microsoft CDM, which is a key aspect of the widely discussed Open Data Initiative between Microsoft, Adobe (Nasdaq: ADBE) and SAP (NYSE: SAP), enables customers to utilize Informatica’s portfolio of products and solutions to manage data across applications and enable analytics and business intelligence efforts across the data landscape. TBR believes there’s a clear opportunity for Informatica to similarly extend its Customer 360 and Customer 360 Intelligence solutions into the Open Data Initiative alliance, particularly to bring greater light to the capabilities brought with Informatica’s recent acquisition of AllSight, a storyline that was overshadowed at the event despite its deliberate inclusion in the narrative.

Three years after launching Google One, Google Cloud nears enterprise readiness with Anthos

Google Cloud’s enterprise journey started with Diane Greene and the ‘One Google’ strategy

When Google entered the public cloud market it leveraged the company’s positive reputation among developers as well as technological expertise around machine learning and data analytics from its Search business. However, as a cloud vendor, the company had yet to establish a reputation or a business model that appealed to enterprises. Customer engagements were largely disjointed as G Suite and Google Cloud Platform were sold by different sales teams, making it cumbersome for enterprises to adopt multiple offerings within Google Cloud’s portfolio. To attract and win enterprise customers, Google Cloud hired Diane Greene as CEO in 2015 and created its “One Google” enterprise strategy in which Google Cloud planned to unify its SaaS and PaaS offerings in sales and engineering. Greene’s experience as the co-founder of VMware made her particularly qualified to lead the new strategy, but she was unable to establish the business messaging that large enterprises seek. However, Google Cloud’s value proposition to enterprises has improved over the past three years under Greene’s leadership with a degree of portfolio integration and technology advancement in areas such as machine learning, analytics and Kubernetes.

Incremental improvements are the backbone of Google Cloud’s enterprise-grade platform, Anthos

Over the past year Google Cloud’s momentum has continued to accelerate: Thomas Kurian was appointed CEO, the company partnered with large vendors such as Atos and introduced Google Cloud Services platform, which included hybrid capabilities with Google Cloud’s GKE and its new managed on-premise private cloud, GKE On-Prem. While many of these developments were noteworthy on their own, Google Cloud’s Anthos Platform, announced at Google Next in April, brings together the vendor’s technological advancements and partnerships, as well as new capabilities and infrastructure agnosticism that truly appeals to enterprises.

At its core, Anthos is a rebrand of Google Cloud Services Platform, a multicloud management toolset first announced in July 2018. In addition to GKE On-Prem’s general availability through Anthos, Google Cloud also launched Anthos Migrate, which enables customers to manage workloads running on Amazon Web Services (AWS) and Microsoft Azure. Anthos Migrate automates the migration of virtual machines from on-premises or cloud environments into containers in GKE, which helps simplify migration to Anthos.

The ability to migrate from — or run workloads on — AWS and Microsoft IaaS in addition to Google Cloud Platform (GCP) is vital to Google Cloud’s enterprise strategy, as 30% of enterprises plan to increase the number of IaaS providers in their hybrid environments over the next two years, according to TBR’s 2H18 Cloud Infrastructure & Platforms Customer Research. Further, enabling these organizations to containerize legacy applications on premises in Anthos helps alleviate virtual machine maintenance and OS patching pain points for enterprise IT departments. Migrating to Anthos also enables customers to leverage offerings such as Google Cloud AI in GCP while keeping certain workloads on premises, which is particularly beneficial for organizations facing corporate, government or industry regulations.

Google Cloud’s partner ecosystem will support, sell and augment Anthos to drive customer adoption

Because Anthos is a completely software suite, customers can deploy it on their existing hardware rather than replacing on-premises assets with new infrastructure. For customers that have existing hardware or plan to buy additional infrastructure, Google Cloud hardware partners such as Cisco, and hyperconverged infrastructure partners including Dell EMC, Hewlett Packard Enterprise, Intel and Lenovo are making their offerings compatible with Anthos, enabling customers to configure or purchase the underlying hardware based on their storage, memory and performance requirements.

System integrators including Accenture, Atos, Cognizant, Deloitte, HCL Technologies, NTT DATA, Tata Consultancy Services and Wipro are also developing services and solutions to provide managed services for Anthos, helping Google Cloud customers integrate Anthos into their hybrid environments. TBR expects these partners will drive adoption of Anthos, as they bring Anthos to market and sell the suite to their customer bases, helping expand Google Cloud’s addressable market.

IBM’s Kubernetes-based IBM Cloud Private offers a similar value proposition, but Google Cloud’s expertise in Kubernetes may help fend off competition from IBM, as well as Microsoft and AWS

Google Cloud’s most formidable competitor regarding Anthos is IBM and its Kubernetes-based PaaS offering IBM Cloud Private, which is gaining traction in the market as evidenced by the vendor’s 200 customer signings in 4Q18. Additionally, IBM’s tenure as a trusted enterprise provider makes the vendor a favorable choice for many organizations. However, IBM is also seen by many enterprises as a legacy on-premises provider, whereas Google Cloud is a born-in-the-cloud business with a strictly cloud-oriented business model. In the public cloud market, Google Cloud is growing at a faster rate than IBM, showcasing Google Cloud’s superior perception in the market. In addition to its improving perception among large enterprises, Google Cloud can leverage its reputation among developers to outcompete IBM in the small- to medium-enterprise space.

AWS’ Amazon Elastic Container Service for Kubernetes and Microsoft’s Azure Kubernetes Service are Kubernetes-based PaaS offerings similar to GKE, but the on-premises capabilities for each offering lag behind those of Anthos. Azure AKS will become available on Azure Stack, but the plans to create Azure AKS on Azure Stack were just announced in February. Amazon EKS can connect to Kubernetes apps running on premises, but the capabilities are more limited than those of Anthos as AWS has not yet developed an Amazon EKS on AWS Outposts. TBR expects Google Cloud will be able to fend off competition from IBM, AWS and Microsoft, as Google Cloud — as the inventor of the technology and with a network of more than 20 ISV partners with Kubernetes apps in the GCP Marketplace — has a prowess that may help swing customers in its favor.

Not your father’s partner programs: How vendors and partners are evolving cloud ecosystems

Chicken or egg first? For partner programs, that makes a big difference

As Intel (Nasdaq: INTC), Microsoft (Nasdaq: MSFT) and Cisco (Nasdaq: CSCO) created the modern computing era in the 1990s, partner programs were at the forefront. The success of these companies and the distributed computing era in general was largely built on the backs of technology and distribution partners. In fact, these companies still rely on partners to drive a majority of their revenue today. The same cannot be said for the cloud era of IT, which was led by the direct sales strategies of top vendors such as Salesforce (NYSE: CRM) and Amazon Web Services (AWS; Nasdaq: AMZN). These two vendors became leaders in their respective cloud markets by selling directly to customers, bypassing distribution partners altogether. Partners are certainly playing a larger role now, but the timing does impact their position in the value chain for cloud. Without a well-defined value-add in the self-service, transactional and passive sales strategies for cloud, partners are forced to create or carve out activities that are both unaddressed by the cloud provider and hold value for the end customer. Rather than traditional IT vendors relying on partners to drive their business, in cloud those partners are on their own in many respects to identify and develop their own value-add. Being creative, developing intellectual property and focusing on the gaps between multivendor solutions are much more important activities for partners in cloud programs compared with traditional ones.

Partners may look the same, but are in fact quite different

“What does a cloud partner look like?” was a common question as these new cloud-centric programs came to be. It was unclear if a new startup class of born-on-the-cloud partners would come into existence, or if the existing stock of VAR, distributor, MSP, systems integration (SI) and hosting partners would eventually transform their businesses to align with the new cloud business opportunities. As shown in Figure 1, the types of partners participating in new cloud programs is just the first category of changes programs are undergoing. As the answer to what type of partners are needed for these programs comes into view, it is looking like a little bit of the former and a lot of the latter. Cloud-native partners that are focused on consulting, managed services, intellectual property development and cloud solution integration hold a small but important space in the market. The difficult thing for vendors is that there are not very many of these newly formed partners, and to make matters worse, many are being acquired. It is also difficult to spur their creation or fit them into a traditional partner program. While traditional partners are cattle that can be controlled and herded in a consistent direction, cloud-native partners are wilder animals that create, forge and follow their own path. In terms of existing partners changing to focus on cloud solutions, that, too, is a difficult task. The truth is that many traditional VAR-type partners, focused on reselling and implementation activities, may not survive the transition to cloud solutions. Part of this is generationally driven, as many of the baby boomer-owned partner businesses lack the incentive to adapt their business model with retirement looming. Many of these partners will ride the slow decline of traditional IT opportunity until eventually closing their doors. Those traditional partners that do make the transition to a more cloud-focused business model will compose the largest segment of cloud partners. While they may keep the same name, these partners will be operating in a fundamentally different manner compared with traditional partner models.

emerging trends in partner program attributese
Figure 1: Emerging Trends in Partner Program Attributes

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

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

Trend to watch

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

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

Public cloud remains the largest, fastest-growing segment of the cloud market. TBR’s Public Cloud Market Forecast analyzes the SaaS, PaaS and IaaS performances of leading vendors and details how hybrid deployments, new use cases for enterprise apps, and trends in emerging technology will make public cloud even more relevant in the future.

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

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

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

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

Key findings from TBR’s 2H18 Hyperconverged Platforms Customer Research

  • TBR forecasts the HCI market will reach $15 billion by 2023, representing a significant growth opportunity for data center vendors.
  • Survey incidence data indicate that the majority of potential customers have not yet begun their hyperconverged infrastructure (HCI) journey.
  • Emerging solutions, such as Lenovo’s TruScale Infrastructure Services and AWS Outposts have the potential to shake up the HCI market.

Opportunity for successful HCI vendors is great, as the market will rapidly expand through 2023

The HCI market evolves to meet customers’ changing demands. As customers embrace digital transformation, the opportunity in HCI increases, and vendors invest and adapt to become agents of change for customers. TBR estimates the HCI market will increase from $4.6 billion in 2018 to $15 billion by 2023 as customers leverage HCI for a wide array of needs, both traditional and emerging.

A majority of potential customers have not yet purchased HCI, creating opportunities for all HCI vendors to gain customers. Incidence data from TBR’s research show that only 27% of companies surveyed purchased HCI. This demonstrates the massive opportunity that remains for vendors to gain net-new customers in the space. Converged infrastructure (CI) leaders Dell EMC and Cisco have a distinct advantage over other HCI peers, as their CI legacies have afforded them incumbent status with existing CI customers. Despite the incumbent advantage, there is opportunity for any vendor to capitalize on emerging buyer preferences. For example, software is an increasingly central piece of the HCI story, and with 79% of respondents indicating that they would consider consumption-based HCI purchases, strategic marketing and investments can enable any HCI vendor to rise through the ranks.

While Lenovo is not a leading vendor at this time, 30% of respondents indicated they considered Lenovo for their HCI purchase. Lenovo’s restructured portfolio, its recent unveiling of TruScale Infrastructure Services, and the rapid positive changes in its overall data center business are likely to bolster gains for the vendor in HCI as well. Although Dell EMC’s and Cisco’s leadership in the HCI space has been established, the opportunity in HCI remains vast, even for fast followers in the space. Digital transformation only stands to reinforce this trend as HCI becomes more widely adopted.

Customers leverage HCI for private and hybrid cloud installments as security remains a top concern with public cloud adoption

It is clear the private and hybrid cloud value proposition is a benefit HCI buyers are looking to achieve, with 80% of respondents indicating they leverage HCI for private or hybrid cloud installments. A majority of customers (60%) leverage their HCI for database management, and many of these customers indicated their database management use was for mission-critical purposes. This underscores the need to protect critical and sensitive data. TBR’s research showed that buyers are making additional investments in security in conjunction with HCI, particularly network security.

Graph depicting 2H18 security software purchased with hyperconverged

Going forward, the emergence of AWS Outposts in the market will challenge current HCI deployment trends as Amazon Web Services (AWS) messages its Outposts offering as being able to seamlessly integrate with AWS public cloud, addressing a key driver behind HCI adoption for private cloud installments. AWS Outposts are expected to hit the market in 2H19, so it will take some time before the impact of Outposts is known. However, that AWS is making its Outposts offering available as a managed service will improve ease of use, and will likely increase demand, especially among existing AWS customers as the underlying hardware of Outposts will resemble that of AWS’ public cloud environment.

AI chips: Explosive growth of deep learning is leading to rapid evolution of diverse, dedicated processors

Artificial intelligence (AI) utilization has been accelerating rapidly for more than 10 years, as decreases in memory, storage and computation cost have made an increasing number of applications cost-effective. The technique of deep learning has emerged as the most useful. Large public websites such as Facebook (Nasdaq: FB) and Amazon (Nasdaq: AMZN), with enormous stores of data on user behavior and a clear benefit from influencing user behavior, were among the earliest adopters and continue to expand such techniques. Publicly visible applications include speech recognition, natural language processing and image recognition. Other high-value applications include network threat detection, credit fraud detection and pharmaceutical research.

Deep learning techniques are based on neural networks, inspired by animal brain structure. Neural networks perform successive computations on large amounts of data. Each iteration operates on the results of the prior computation, which is why the process is called “deep.” Deep learning relies on large amounts computation. In fact, deep learning techniques are well known; the recent growth is driven by decreasing costs of data acquisition, data transmission, data storage and computation. The new processors all aim to lower the cost of computation.

The new chips are less costly than CPUs for running deep learning workloads

Each computation is limited and tends to require relatively low precision, necessitating fewer bits than found in typical CPU operations. Deep learning computations are mostly tensor operations — predominantly matrix multiplication — and parallel tensor processing is the heart of many specialized AI chips. Traditional CPUs are relatively inefficient in carrying out this kind of processing. They cannot process many operations at the same time, and they deliver precision and capacity for complex computations that are not needed.

Nvidia (Nasdaq: NVDA) GPUs led the wave of new processors. In 2012, Google announced that its Google Brain deep learning project to recognize images of cats was powered by Nvidia GPUs, resulting in a hundredfold improvement in performance over conventional CPUs. With this kind of endorsement and with the widespread acceptance of the importance of deep learning, many companies, large and small, are following the money and investing in new types of processors. It is not certain that the GPU will be a long-term winner; successful applications of FPGAs and TPUs are plentiful.

AWS shakes up the private cloud infrastructure market with Outposts

Outposts enable AWS to meet clients’ demand for private cloud

Amazon Web Services (AWS) unveiled at re:Invent in Las Vegas its new Outposts on-premises cloud infrastructure, which will enable AWS to become the sole cloud infrastructure provider for its clients. The underlying Outposts infrastructure closely resembles AWS’ public cloud data center infrastructure. Since the infrastructure will be similar, it is conceivable AWS will be able to tie customers’ public and private clouds together seamlessly, fulfilling customers’ desire to deal with one less vendor for their IT needs. AWS will deliver, install and maintain Outposts for customers.

The sheer volume of AWS public cloud customers creates a large base to sell Outposts to and takes aim directly at private cloud data center providers. Outposts will also directly compete with Microsoft Azure, and will generate accretive hardware revenue for AWS.

An advantage AWS has over infrastructure vendors is economies of scale, which will enable AWS to sell massive infrastructure volumes for low margins — much like an original design manufacturer — and become a price leader against OEMs such as Dell EMC and Hewlett Packard Enterprise (HPE). AWS also plans to arm its channel partners with the necessary capabilities to sell these infrastructure solutions, further enabling large sales volume. Moreover, AWS is better equipped than other infrastructure vendors such as Dell EMC and HPE to attach the necessary services to provide connectivity between public and private cloud environments due to its expertise in the public cloud space — and will gain the higher-margin sales to boot. IBM has strong services capabilities but lacks the commoditized infrastructure and customer volume to match AWS’ strategy. TBR notes that pricing details of Outposts have not yet been determined.

VMware gets a piece of the AWS Outpost pie with the VMware Cloud variant

VMware and AWS collaborated to provide VMware Cloud on a variant of AWS Outposts, which will be offered by VMware as a managed service. As this creates a conflict of interest for Dell Technologies, TBR believes Dell Technologies has its sights set on the higher-margin sales generated from VMware Cloud and will forego the loss of lower-margin hardware sales to gain it.

Although AWS’ announcement may seem like bad news for the private cloud infrastructure OEMs, the good news for them is that AWS’ Outposts will not hit the market until 2H19, giving the infrastructure players some time to develop solutions that can compete with AWS as it moves into the data center hardware market.

The Big Six, the 150, and the future of Accenture’s alliances

Like nearly every IT services vendor TBR covers, Accenture professes to follow a technology-vendor-agnostic approach to making client recommendations, but we have noticed how the company — in addition to managing over 150 tech vendor partnerships — forms strategic business groups with core partners, such as SAP, Oracle, Amazon Web Services (AWS), Cisco, Pivotal and Google, not to mention the joint venture with Microsoft (Avanade). Given the initial structure of the Accenture-Apple partnership, we expect this may formalize as a Business Solutions Group as well. Augmenting its large partner ecosystem capabilities often requires Accenture to team up with regional firms (e.g., Sompo Japan Nipponkoa Insurance and Daiichi Kotsu Sangyo) to demonstrate how Accenture partners at the local level to gather insights and test technologies in specific industries. The alliance strategy makes sense for such a large firm with a diverse set of offerings and capabilities, but in today’s market, which is flooded with emerging technologies, we have to ask what market and competitor changes will alter Accenture’s strategy.

What’s changing?

As the market evolves, Accenture’s do digital, be digital approach has impacted the way the company forges and manages its alliance relationships. The influx of startups presents a great opportunity for Accenture to expand its reach into new areas such as artificial intelligence (AI), blockchain and the rest of the alphabet of new technologies. Part of the Accenture Innovation Architecture, Accenture Ventures has played a critical role in this evolution as it has taken Accenture’s alliance strategy to the next level, creating a bridge between acquisitions and strategic partnerships mainly through minority investments in vendors such as Ripjar. The additional commitment and risk sharing demonstrated through minority investments is a step in the right direction as new buyers can be skeptical when nontraditional vendors pitch new capabilities. But Accenture is an almost $40 billion organization with a predominant focus on Global 2000 clients, leading the company to heavily rely on its Big Six partners — SAP, Oracle, Microsoft, AWS, Salesforce, Google, plus the emergence of Workday on Accenture’s radar. TBR notes that recently Accenture’s leadership has recognized the importance of these partners, as platform-based services enabled by the soon-to-be Big Seven by these Big Seven are now generating over 25% of Accenture’s sales. So, is anything really changing? At the macro level, maybe not, but the “as a Service” economy has enabled Accenture to pursue opportunities within the midsegment market, which in our view is an even bigger strategic shift than bringing in Accenture Ventures. This move into the midsegment market creates opportunities for the small technology players to play in the same sandbox as the 800-pound gorilla.

With Accenture augmenting its strategy, how do the small guys get Accenture’s attention? TBR asks this $100 million question of the startups, but more importantly of Accenture too. Many rival IT service vendors have ramped up similar strategies and will now drop prices to meet clients’ demands for nimble, off-the-shelf solutions that may not require premium consulting expertise as much as strong back-end support (hello, India-centric vendors). So is Accenture ready for the next chapter of its alliance strategy? Possibly. Will data interoperability reduce the need for multiple large platforms and be the panacea for the small tech guys to fill in the blanks? Can Agile methodologies infect Accenture’s alliance strategy? Maybe. With Accenture, let’s recall that it’s all about process. To paraphrase the late Johnnie Cochran, if it doesn’t fit, you must quit. And if you’re one of 150, you’d better be better rather than good.