PwC’s Industry Cloud strategy delivers on 3 major cloud trends

PwC’s ambitious Industry Cloud strategy aims directly at heart of current trends

After spending an afternoon at PwC’s Boston Seaport offices in late March, TBR came away with a clearer picture of how the firm is centralizing its capabilities into solutions to be utilized in client engagements. It is a strategy that has been developed cautiously and thoughtfully over time, mirroring the firm’s overall evolution of the last few years, which has been both methodical and ambitious. The new Industry Cloud strategy is firmly in line with the company’s DNA but is also aligned with the most current trends in the cloud market, namely services, collaboration with partners, and industry alliances and preconfigured ecosystems.

The importance of services in cloud adoption and utilization has only increased over the last two years. The migration of mission-critical workloads and skills shortages have stoked demand for third-party firms to help implement and manage cloud solutions. PwC is tightly integrating services with all the cloud assets being deployed for the firm’s customers, which is an evolution of the long-standing Integrated Solutions program, incorporating the best of PwC’s consulting business across all platforms.

PwC’s Alliance strategy is integral to the Industry Cloud strategy, and through these collaborations, PwC is selecting well accepted and widely adopted cloud technologies to include in the firm’s recommended cloud solution frameworks, then filling the gaps between those individual technologies. The key is not trying to recreate the wheel with technology that already exists but using alliances to bring the leading solutions together across multiple vendors. It ties into broader PwC strategies to use automation, scale and commonalities to reduce deployments times by as much as half in some cases.

A key tenet of PwC’s strategy is also to build common cloud services that bring industry and sector-specific practices and prebuilt configurations to accelerate adoption timelines and reduce custom work. For a variety of reasons, customers are looking for diversity in their IT and cloud vendor landscapes, and PwC’s open solution frameworks cater to that desire. Lastly, industry specificity is an emergent trend in cloud. PwC is addressing the industry specialization void in the market by bringing together industry-leading technologies, tying them together with an integration fabric, and filling any gaps with its own services and innovation based on PwC’s deep experience and investments. These solutions can then enable customer business transformation spanning the front, middle and back office.

Industry customization ties the solutions together, as it as it reduces the need for custom services and is done in tight collaboration with cloud vendors’ technology. In this special report we detail these trends and PwC’s cloud strategy. However, in short, we see PwC’s strategy as being well developed and aligned not only to its core DNA but also to some of the most current trends and developments occurring in the market.

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Industry cloud is moving from a nice-to-have to a must-have

Enterprise maturity around horizontal cloud capabilities has resulted in a growing appetite for solution customization built around highly nuanced, industry-centric needs. This rising need will be addressed by both cloud vendors and services firms like PwC. Vendors have traditionally leveraged partnerships to add vertical functionality and go-to-market support to their solution sets, but that strategy has become even more aggressive recently, with multiple acquisitions being announced.

Oracle’s (NYSE: ORCL) intended acquisition of Cerner, Microsoft’s (Nasdaq: MFST) purchase of Nuance, and Salesforce’s (NYSE: CRM) strong alliance with Veeva (NYSE: VEEV) are all examples of how vendors are investing to offer more industry functionality to customers. Cloud vendors are also supporting industry-based go-to-market ambitions by augmenting their approach with an increased reliance on ecosystem partners across the IT continuum.

While tech partnerships have accelerated industry-based solution design and development, evidenced by Microsoft’s partnerships with both Rockwell (NYSE: ROK) and Honeywell (Nasdaq: HON), engagement with IT services entities will be just as critical to facilitating adoption among customers with industry-fluent advisory, road-mapping and implementation support services.

Specifically, in venues like industrial manufacturing, client DNA is rooted in hardware legacy organizational models and waterfall innovation and many clients lack not only the knowledge to support software-driven business models but also an understanding around the outcomes emerging technology — be it cloud, IoT or AI — can bring to their operations. This knowledge gap plays to the strengths of the professional services side of the IT spectrum, where innovation centers pair educational resources with business cases to provide prospective clients with an understanding as to what their own digital transformation (DT) could look like.

Not only has vendor activity with industry cloud picked up, so too have financial results as end customers increase adoption of these solutions. As shown above, customers see industry cloud capabilities as value-add elements of their cloud technologies, notably with the ability to free up resources being the least cited benefit. The ability of industry cloud offerings to first meet regulatory requirements and then also match the unique business and IT workflows within certain industries are the most compelling benefits, according to TBR’s 2H21 Cloud Applications Customer Research.

TBR’s perspective on PwC’s alignment with industry cloud trends: ‘Micro alliance activation’

      • PwC is not “boiling the ocean” with its approach to Industry Cloud, instead focusing on heavily regulated industries as the firm looks for ways to not only meet regulatory requirements but also leverage investments to competitively differentiate itself with enhanced time to market and ongoing operational excellence, While many vendors on the technology side have taken an even more focused approach to industries, we believe PwC’s strategy is appropriate for the firm, given its partner-driven engagement focus and existing presence within the industries.
      • PwC’s approach aligns to the third most selected benefit of industry cloud: “We are in the early phase of cloud adoption and are pursuing industry cloud services as a preliminary step in the process.” Many companies are still in an early stage of their cloud adoption. Regulations are more stringent in these industries, creating real and perceived barriers to adoption. In many ways, industry cloud is the ramp these customers need to get started using cloud in more significant ways as part of their IT strategy.

Cloud partnerships are moving from important to critical

The shift to partner-led growth is not a new trend but is being further legitimized in 2022. Growth from indirect, partner-led revenue streams have been outpacing direct go-to-market efforts for several years, but indirect revenue is reaching a new level of scale and significance in the market.

TBR estimates indirect cloud revenue is approaching 25% of the total cloud market opportunity, which is a significant milestone. For reference, in traditional IT and software, indirect revenue represents somewhere between 30% and 40% of revenue streams. We expect the indirect portion of the cloud segment to surpass that level within five years, approaching half of the market opportunity within the next decade. For all cloud vendors, the combination of short-term growth and long-term scale makes partnerships an increasingly critical element of their business strategy.

Partner ecosystems have been a core part of the IT business model for decades, but the developments around cloud will be different for various reasons, primarily because the labor-based, logistical tasks of traditional IT are largely unnecessary in the cloud model.

For cloud vendors and their partners to succeed in growing the cloud market, they both need to be focused on enabling business value for the end customer. Traditional custom development becomes cloud solution integration. Outsourcing and hosting are less valuable, while managed services are far more variable for cloud solutions. To capture this growing and sizeable opportunity in 2022, we expect companies will adapt their partner business models and vendor program structures to align with vibrant cloud ecosystems.

TBR’s perspective on PwC’s partner strategy

      • PwC is being proactive in how it leverages alliances, recognizing that winners in industry cloud rely on alliances and that the industry data model is only as good as the ISV solutions that run on top. Within PwC, these relationships are supported by joint business relationships and alliance groups with front-office, middle-office and back-office players, as well as the cloud service providers (CSPs) that go to market with PwC as part of the Journeys model. PwC is being selective about the vendors and technologies it recommends, focusing on leading providers like Amazon Web Services (AWS) (Nasdaq: AMZN) and Microsoft to both offer the most widely used solutions and simplify its alliances.
      • By combining the IaaS and SaaS capabilities of alliances with its own products and accelerators, PwC enables integration points in a platform-like approach. While not a PaaS offering in itself, PwC’s Common Cloud Services Platform, which targets custom Journeys for a specific industry in an end-to-end fashion, should create a high degree of stickiness.
      • PwC is emulating some best practices of its alliances, including the leading cloud service providers (CSPs) and ERP vendors. Further, some of ServiceNow’s success stems from selective innovation and deciding early on where it wishes to develop versus leveraging partners. PwC takes a similar approach, focusing custom development investments on whitespace markets while layering the capabilities of its partners on top of new solutions.
      • One of the most notable obstacles facing PwC is a degree of competitive overlap between PwC and cloud vendors it has collaborated with that are similarly working with industry consortiums to stitch together end-to-end systems. Where PwC stands to benefit in this regard is through its roots as a services firm; unlike some of the product-first competitors overlapping with the Industry Cloud strategy, PwC is going to market first with tech-enabled services that can then get clients exposed to products.

Traditional designations are morphing as value moves to IP development and managed services

In the traditional IT partner model, the business models of partners — such as reseller, systems integrator and ISV — were used to segment partner programs. Cloud has disrupted the traditional model, with born-in-the-cloud partners competing in various activities to optimize their revenue streams and traditional partners expanding their business models to sustain their financials.

As a result, resellers can develop their own solutions and IP, while systems integrators sell and resell their own software solutions and ISVs offer their own managed services. It is common for partners to have multiple business models, making the traditional designations too restrictive.

The other area of strong demand from customers, driving enhanced focus from cloud vendors, is in managed services. Increased cloud adoption has led to higher cloud complexity for many customers, leading to more challenging tasks to provide ongoing administration, integration and operations of the environment. This increasing complexity coincides with a historic shortage of personnel with cloud expertise, driving demand for managed service offerings from third-party providers to fill the gap. As a result, we expect managed services to be the fastest-growing segment of the cloud professional services market, reaching $75 billion by 2026.

Cloud vendors like AWS, Google (Nasdaq: GOOGL) and Microsoft have a vested interest in nurturing their managed service ecosystems to facilitate new investments from their cloud customers. Considering these trends and the likely erosion of legacy services lines by software and managed services, it is critical for consulting-led firms to diversify with serviceable assets that go beyond the underlying modules. While some of its Big Four competitors are similarly recognizing this trend, PwC appears to have caught on to the fact that software and services require vastly different sales models and dedicated teams for successful execution.

With Industry Cloud, PwC serves as consultant, ISV and managed service provider

Using the term Journeys is an apt description of how PwC intends to engage with customers around these solutions. It is not just a cloud technology implementation; there is upfront design and consulting, implementation of both off-the-shelf cloud technology and custom PwC IP to align solutions to industry, and finally provision of managed services to simplify ongoing operations. That is a lot of activity, but it reflects what customers need and want from these types of implementations. It is taking PwC beyond traditional services and value propositions with clients, but it aligns with where customers and the market are heading.

While the framework for Industry Cloud is compelling, it will no doubt be a challenge to execute on the vision. Expanding beyond traditional consulting business roles and activities and maintaining cohesiveness can be challenging, but as we have seen in recent years, PwC has been quite adept at reinventing itself, so we expect the firm to overcome these challenges. Alliance management, cloud service development, packaging and pricing are all competencies being developed within PwC to execute on more Industry Cloud opportunities.

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How Informatica uses the cloud to empower a data-driven enterprise


Setting the stage for what ended up being the primary theme at Informatica World 2022 — Data is your platform — Informatica CEO Amit Walia walked attendees through two emerging trends: the importance of scalable infrastructure through cloud computing, and how AI and machine learning (ML) are no longer just about automating processes but also about enabling predictive intelligence. These trends, while well recognized in theory, are more challenging for businesses to put into practice, particularly due to the proliferation of data and the number of users looking to access said data, including both technical and nontechnical personas.

Informatica’s solution to data complexity is rooted in one of the company’s core values — platform centricity — but the move to essentially replace Intelligent Data Platform with IDMC, after years of innovation and a slight disruption from COVID-19, is now taking Informatica’s approach to data management and integration to new heights. With IDMC in the cloud, Informatica is better positioning itself to help clients translate data into valuable insights at a level that cannot be realized on premises.

In addition to being cloud-native, IDMC is infused with AI, addressing the other emerging trend called out by Walia — the need for AI-powered intelligence. All Informatica capabilities are built on CLAIRE, an automated metadata engine that processes 32 trillion transactions per month, and tie back into IDMC. While the ROI for AI technology is still hard to justify for many businesses, another key factor in the low adoption of the technology is that many businesses are working with complex, siloed data, which means AI models could fall short and lead to inaccuracies.

CLAIRE is designed to address a range of operational, runtime and automation use cases — from auto-scaling to anomaly detection — and acts as a wrapper around IDMC to enable fully automated data management and governance processes. By bringing the power of cloud and AI into one integrated platform, Informatica uses IDMC to help customers focus on the only thing they truly own in the cloud: their data. The result of a $1 billion, six-year investment, IDMC consists of seven core modules, with its value proposition largely stemming from its modularity and the ability to allow customers to pick and choose capabilities and services based on their industry, business and use case.

Informatica expands platform capabilities, driving additional value for its comprehensive, cloud-native solution

New innovations emphasize uniting IT and business functions to improve efficiency

With IDMC, Informatica has solidified its platform approach, but as cited by various customers, the company’s ability to continually offer new capabilities is what drives additional value, by addressing more horizontal and vertical use cases in the data life cycle. Perhaps the most notable announcement at Informatica World 2022, which seemed to garner particular excitement from product leaders and customers, was the general availability of Informatica Data Loader. Jitesh Ghai, Informatica’s chief product officer, led a demo of Data Loader, which is a free, self-service tool that ingests data from over 30 out-of-the-box systems into Google Cloud’s popular data warehouse solution, BigQuery.

As part of the demo, we saw a scenario play out where a marketing analyst needs access to more data to effectively run a campaign. The hypothetical marketing analyst then accesses the Integration module within IDMC to pull data from Marketo using a drop-down tool to access BigQuery through which data can be loaded in only a few steps. This integration could end up acting as a time-saver for large organizations and speaks to the innovative ways Informatica is getting data into the hands of line-of-business teams.

At the event, Informatica also announced INFACore, which targets more technical users, such as data scientists and engineers, allowing them to clean and manage data in a single function. As a low-code plug-in for popular frameworks, such as Jupyter notebooks, INFACore is designed to improve the productivity of the technical user, but naturally this productivity trickles up to business functions. For instance, after using INFACore to cleanse data through a single function, the data scientist can publish a clean data set to the Informatica Marketplace, where other teams within an organization can access it.

Another key innovation called out in opening talks with Ghai was ModelServe, which allows users to upload, monitor and manage ML models within their Informatica data pipelines. There are many ML models in production, but businesses are still looking for ways to scale them from an operational perspective. In talks with more than one customer at the event, the common interface within IDMC came up as a value-add when attempting to scale a data team, suggesting customers are awaiting ModelServe’s general availability as it will allow users to register and manage ML models directly within IDMC.

Informatica strengthens SaaS portfolio, building in intelligence from the data model up

While Informatica’s platform capabilities get much of the market’s attention, the company also has a broad portfolio of IDMC-enabled SaaS offerings, which play a key role in the data management journey, complementing warehousing, integration and automation. As a native service within Informatica’s Master Data Management (MDM) solution, 360 applications act as a gateway for transforming customer experience in the cloud, something we saw in action through the product demo of Supplier 360 SaaS.

Through IDMC, CLAIRE recognized a defective part from a supplier of a hypothetical company, and teams were able to use Supplier 360 SaaS to identify which customers were impacted by the faulty part and automatically notify customer service so they can launch a refund program to keep customers satisfied. Informatica also released various industry and domain extensions for its 360 applications and will continue to offer new packaged offerings available in a SaaS model, providing customers more ways to onboard and manage data.

Joining the industry cloud bandwagon, Informatica verticalizes IDMC

It is no secret that industry specialization is re-emerging as a leading trend in the cloud space, as a maturing enterprise customer base demands solutions that suit their unique IT and business processes. During the event, Informatica unveiled new IDMC customizations for financial services, healthcare and life sciences. These three offerings join IDMC for Retail in Informatica’s industry cloud portfolio to further address demand for purpose-built solutions that will limit the need for customization.

Findings from TBR’s Cloud Infrastructure & Platforms Customer Research continue to indicate that some enterprises are wary of industry cloud solutions, dismissing them as marketing ploys. Other enterprises, however, find them worth evaluating. For instance, in talks with a representative from a hedge fund, we found that the company initially chose a competing MDM solution because it specialized in asset management with its own specific data dictionary but was torn as it viewed Informatica’s MDM as ahead of the competition in terms of capabilities. We can expect Informatica to expand in other industries, including specific subverticals, with additional data models, custom user interfaces and data quality rules to appeal to these customers.

Continued integrations and go-to-market synergies with hyperscalers help Informatica maintain data neutrality

For a company that markets itself as the “Switzerland of data,” Informatica’s ability to make its offerings accessible across leading cloud platforms is critical. Partnering across the cloud landscape is no longer a differentiator, it is a necessity and something customers clearly find value in as they gravitate toward multicloud environments. During the event, Walia welcomed several partner executives both in-person and virtually to discuss new joint offerings and go-to-market synergies the company is forming with cloud service providers to deliver more choice and flexibility and for joint clients.

      • The ubiquity of Microsoft’s cloud portfolio allows Informatica to provide clients a unified data architecture. Informatica and Microsoft (Nasdaq: MSFT) have a well-established relationship, which at its core is focused on migrating data warehouses to the cloud but is evolving and making Informatica relevant across the Microsoft Cloud stack, including Azure, Power Platform and 365 applications. For example, Informatica is typically well known for its integration with Azure Synapse, but the company also integrates with the Dynamics 365 SaaS data model to enable Customer 360 analytics. Expanding its presence throughout the Microsoft Cloud stack, Informatica announced MDM on Azure. With this announcement, customers can deploy MDM as a SaaS offering on Azure via the Azure Marketplace, which could appeal to the large number of Microsoft shops looking to enhance their Azure Data Lakes with a feature-rich MDM solution. Both companies also launched Informatica Data Governance with Power BI, which, as highlighted by Scott Guthrie, EVP of Cloud and AI at Microsoft, brings Informatica’s data catalog scanners to Power BI, allowing customers to have a single view of their data processes from ingestion to consumption. This offering could serve as a more strategic way for customers to modernize their analytics workloads through Azure.
      • Given their respective strengths in data analytics and data management, Google Cloud and Informatica are complementary partners. The Google Cloud-Informatica relationship took a major step forward with the launch of Informatica Data Loader, which could expand client usage of BigQuery and help Google Cloud (Nasdaq: GOOGL) address a wider set of customer needs, including those outside the IT department. In TBR’s own discussions with enterprise buyers, BigQuery is often cited as a leading solution due to its ability to handle petabytes of data at a favorable price point. Walia reaffirmed this notion in discussions with two customers, ADT and Telus, both of which are migrating legacy data warehouses and/or front-end ETL (extract, transform, load) capabilities into their BigQuery instances and using IDMC for cloud-based data management.
      • Oracle awards Informatica preferred partner status for data integration. Informatica and Oracle (NYSE: ORCL) struck a new partnership agreement that offers IDMC on Oracle Cloud Infrastructure (OCI). Addressing the large number of customers running legacy Oracle databases and potentially those that are also deploying on-premises Informatica products, IDMC on OCI provides customers an integrated gateway to the cloud by enabling back-end connections with Oracle Autonomous Database and Exadata Database Service and OCI Object Storage. For example, with IDMC on OCI, customers can import data from legacy Oracle E-Business Suite applications into Autonomous Database and connect to other data sources, such as Azure SQL or Amazon RedShift, through IDMC. As a preferred Oracle partner, Informatica will recommend customers use IDMC with Oracle’s cloud services. Oracle’s EVP of database server technologies, Andy Mendelsohn, walked through numerous incentives to assist customers’ cloud migrations, such as Bring Your Own License, Informatica Migration Factory and Oracle Cloud Lift Services.

Informatica also has close relationships with Amazon Web Services (AWS) (Nasdaq: AMZN), Snowflake (NYSE: SNOW) and Databricks, all of which are expanding their commitments to Informatica to help customers look beyond ETL and handle data in an end-to-end fashion. Given Informatica offers analytics, integration, automation, governance and management capabilities across leading clouds, naturally the company runs up against a high degree of competitive overlap with its partners, which offer similar native tooling as part of a customer’s environment.

However, in talks with customers, the general perception seems to be that the hyperscalers’ capabilities are still relatively immature and that there is also significant value in deploying a vendor-neutral platform like IDMC to avoid vendor lock-in and address the training and skill challenges typically associated with a multicloud environment. While we can expect the hyperscalers to enhance their capabilities, at the end of the day, the primary goal for AWS, Microsoft and Google Cloud is to win compute, so the benefits of partnering with Informatica to capture legacy platform-layer workloads outweigh the downsides of coopetition.


With IDMC, Informatica has fostered a value proposition catered to three core areas: platform-centricity, connecting IT and business ecosystems, and infrastructure agnosticism. The numerous announcements made at Informatica World 2022 show the data management company is building on these strategic pillars by better aligning with cutting-edge trends in the cloud industry, such as industry customization, out-of-the-box integrations and data democratization. With these enhancements in place, along with close partnerships across the IaaS ecosystem, Informatica is positioning itself favorably to assist clients with the large number of on-premises workloads ready to be migrated and modernized in the cloud while enabling the cloud-native enterprise to transition from digital to data-driven.

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Drawing on its partner network and Red Hat’s open posture, IBM enables full-stack transformation

TBR attended IBM Think in a virtual format for the third consecutive year, and this time around we sensed a new IBM. No longer beholden to its low-margin managed infrastructure services business, IBM is emerging a more agile, streamlined and focused organization, especially as it looks to lead the digital revolution through two overarching areas: getting customers to embrace a hybrid architecture and helping them unlock data-driven insights through AI.

This strategic pivot was driven home not only by high-level executives, including CEO Arvind Krishna himself in an exclusive Q&A session with the analyst community, but also through the various partnership announcements, service launches and upskilling programs unveiled over the course of the interactive, two-day event.

Through Red Hat, Software and Consulting, IBM has created an end-to-end approach to unlocking hybrid cloud’s value

Closing in on the three-year anniversary of its acquisition of Red Hat, IBM (NYSE: IBM) continues to execute on its hybrid cloud vision, offering the services and software needed to integrate and orchestrate enterprise workloads across multiple environments. With the exception of some mono cloud and data center-only customers, enterprises are largely heterogenous in how they consume IT, drawing on multiple architectures, vendors and environments.

Considering IBM’s large legacy software install base and ties to the mainframe, this trend bodes well for the company as it can leverage Red Hat OpenShift — which now has roughly four times the number of customers it had prior to the acquisition — to unlock siloed data and extend it to any public cloud. The challenge, however, as articulated by Roger Premo, general manager, corporate development and strategy, is that getting greenfield applications to the cloud is only Step 1 in achieving a scalable hybrid cloud framework, yet the amount of time, level of skills needed and executive-level pushback are some of the factors that keep enterprises from expanding on their lift-and-shift investments.


Hoping to advance customers through the containerization, operational change and replatforming phases of hybrid cloud adoption, IBM is revamping its go-to-market model, closely aligning the Software and Consulting business units to address customer needs end to end. For instance, IBM Consulting is invested in the technology behind IBM’s hybrid cloud and AI vision, providing clients the tools needed to provision their own hybrid environments, which, as phases of adoption become more complicated, will naturally pull in more automation, observability and AI assets, as well as additional advisory assistance to help determine which clouds are best suited to which workloads.

Specifically, Premo highlighted the data fabric, which has grown synonymous with IBM Cloud Pak for Data, as one of the technology pieces underpinning IBM Consulting’s value proposition for building and modernizing applications in a hybrid cloud environment. While IBM is still committed to supporting legacy data warehouses and on-premises databases, the company is likely encouraging customers to adopt the data fabric for integrated capabilities that help simplify data management, such as cataloging and automated governance. Essentially an ecosystem of data powered by active metadata, IBM’s data fabric allows various AI offerings, from decision intelligence to machine learning, to run in any environment, while maintaining a common, governed framework.

IBM’s partner strategy continues to evolve post-Red Hat

IBM has always prided itself on having a broad partner ecosystem but appears to be taking a page out of Red Hat’s playbook by creating a more open position in how it goes to market. For instance, as a full-stack vendor specializing in infrastructure, platform software and professional services, IBM naturally runs up against competition in many areas but appears more willing to risk coopetition to do what is in the best interests of the customer.

TBR notes this is a stark contrast from the SoftLayer days, when IBM seemed more concerned with protecting its direct business interests. Today, Big Blue is absorbing more of Red Hat’s operational best practices and is investing in dedicated teams across the ecosystem, including niche ISVs, hyperscalers, global systems integrators (GSIs), advisory firms and monolithic SaaS companies. At the same time, preserving Red Hat’s independence remains equally important, and as Premo indicates, the relationship between IBM and Red Hat is asymmetrical in that IBM is biased toward Red Hat but Red Hat is not biased toward IBM.


IBM inks strategic partner agreement with AWS to scale ‘as a Service’ software

In one of the more newsworthy announcements at IBM Think Digital 2022, IBM unveiled it is working with Amazon Web Services (AWS) (Nasdaq: AMZN) as part of a multiyear agreement that brings the IBM Software portfolio, delivered “as a Service,” to AWS’ cloud infrastructure. Customers can now take advantage of the popular click-to-buy experience on the AWS Marketplace to run IBM data and automation assets, including Db2, API Connect and Watson Orchestrate, among others, in an AWS environment. This partnership announcement is a testament to the major strategy shift IBM made three years ago when it acquired Red Hat and standardized on the OpenShift platform, which, being based on Linux and containers, makes the platform and subsequent IBM software applicable on any infrastructure, including AWS.

This platform approach is also providing IBM the flexibility to adapt alongside changing customer buying habits, including a shift toward cloud managed services, which is the fastest-growing usage of OpenShift and prompted the launch of Red Hat OpenShift on AWS (ROSA) at last year’s Red Hat Summit. Customers looking to offload operations to site reliability engineers (SREs) will be able to deploy IBM SaaS offerings integrated with ROSA as a managed service, although IBM is continuing to support customers looking to protect their capex investments as there are over 30 IBM licensed software offerings available on the AWS Marketplace. Expanding service availability is only one part of the partner agreement as IBM indicates it will work with AWS in other areas, including co-selling and co-marketing initiatives that could engage AWS sales teams and help IBM further tap into AWS’ expansive customer base.


Strategically, IBM is staying the course with its strategy, leveraging Red Hat’s neutral status and integrations with hyperscalers to sell more software and attached services. Offering IBM SaaS on AWS is a strategic move as it will allow IBM to address customers that have years of experience running IBM software but want the scale of AWS’ cloud infrastructure, which TBR interprets as IBM prioritizing partner clouds at the expense of its own so it can focus solely on OpenShift and Software. Further, as IBM looks to grow its software business, particularly through the monetization of “as a Service” models built on OpenShift, leveraging partner marketplaces will be key, especially considering IBM lacks marketplace capabilities at scale and IT procurement continues to rally around the digital catalogs of AWS, Microsoft (Nasdaq: MSFT) and Google Cloud (Nasdaq: GOOGL).


Use of RISE with SAP internally aligns with IBM’s vision to bring legacy ERP to the hybrid cloud

IBM joined the roster of 1,000-plus RISE with SAP customers, announcing it is migrating to SAP Business Suite 4 HANA (S/4HANA) to streamline business operations across its Software, Infrastructure and Consulting units. This announcement comes just months after IBM unveiled a new supplier option via the BREAKTHROUGH with IBM for RISE with SAP program, which enables customers to bundle professional services with IBM IaaS offerings as part of a unified contract and set of service-level agreements (SLAs).

IBM’s new migration project will leverage the premium supplier option and bring over 375 terabytes of on-premises data to IBM Power on Red Hat Enterprise Linux (RHEL) on IBM Cloud. While IBM is partnering with GSIs in many areas, SAP (NYSE: SAP) implementations is likely one of the areas where competition is fiercer between IBM and its peers, especially as the end-of-life deadline for legacy SAP R3 approaches. However, the premium supplier option paired with IBM’s over 38,000 trained SAP consultants could help the company better tap into SAP’s base of over 30,000 on-premises ERP customers and challenge the likes of Accenture (NYSE: ACN) and Deloitte.

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One of tech’s largest acquisitions will place VMware as strategic and financial centerpiece of Broadcom Software

Broadcom will position VMware at forefront of its software strategy

On May 26, Broadcom (Nasdaq: AVGO) agreed to purchase VMware (NYSE: VMW) at an enterprise value of $69 billion, making it one of the largest tech acquisitions in history. While Broadcom is no stranger to software acquisitions, this transaction will be its most transformative as VMware becomes both the brand and growth driver behind Broadcom Software. If the transaction closes, the new Broadcom will find itself evenly balanced between its semiconductor and infrastructure software businesses. After market close on the day of the announcement, investors on each side of the transaction viewed the proposed deal favorably, signaling shareholders’ confidence in management’s ability to use past experiences to generate free cash flow through the integration of the two companies, bolstered by VMware’s cost structure and pervasive role in enterprise IT.

Should the deal close, VMware will be led by Broadcom Software Group’s current president, Tom Krause, who has a financial background and will report to Broadcom CEO Hock Tan. As with past acquisitions, Broadcom’s primary goal will be to improve profitability through cost synergies, mostly related to redundant headcount. While margins will certainly benefit, VMware’s innovative agenda, spearheaded by Pat Gelsinger and since adopted by current CEO Raghu Raghuram, hangs in the balance, with the outcome dependent upon Broadcom’s desire to drive synergies with VMware in both R&D and go to market. If Broadcom’s acquisitions of CA Technologies and Symantec are any indication, VMware’s future in the cloud and at the edge may be muted. But it is still early days, and commentary from Broadcom management suggests a different course of action relative to past acquisitions with a strong intent to invest in VMware’s core software-defined data center (SDDC) stack.

A deal could bring VMware back to its data center roots

Since the 2016 launch of VMware Cloud Foundation (VCF), VMware has insisted on making its trusted virtualization software relevant beyond data center walls by delivering native, turnkey solutions with all major cloud service providers (CSPs). The rise of cloud-native development through containers and Kubernetes has presented VMware customers with an alternate route to the public cloud, but the 2019 acquisition of Pivotal and resulting Tanzu portfolio — while still built and delivered via ESXi — allowed VMware to position as a complement to containers, rather than a competitive threat.

Often still defined as the company that pioneered enterprise virtualization, VMware has proven its ability to adapt over the past two decades alongside market trends, including cloud computing and containerization, both of which have accelerated VMware’s transition to a Subscription & SaaS company, with related revenue comprising 29% of total business in 1Q22. Broadcom plans to upsell Subscription & SaaS alternatives to legacy customers, including those demanding “as a Service” software inside the data center.

However, given the growth in Broadcom’s software business stems from mainframe customers, we cannot help but wonder if VMware’s push to the cloud will be stalled should the deal close. From a cost perspective, customers may be less incentivized to move their VMware workloads to the cloud, and instead could containerize applications to avoid incurring the cost of VMware or could simply keep their VMware applications on premises, which would erode some cross-selling opportunities for Broadcom. Further, given Broadcom’s focus on revenue-rich products, we can expect detracted focus from the Tanzu initiative, which could bring VMware further back to its data center roots and, in a worst-case scenario, put it back at war with the hyperscalers, as was similarly seen in the early days of EMC.

With VMware’s success hinging on partners, Broadcom cannot afford to decelerate partner investment

Historically, Broadcom’s corporate sales model has been largely direct, but considering the scale of VMware’s partner network, the pivot toward indirect sales motions is inevitable, especially as Broadcom looks to build out a $20 billion software enterprise. Management indicated it will sell directly into 1,500 core accounts while likely providing hands-on professional and support services to these customers, which Broadcom chalks up to a simplification of its overall business model. This suggests, however, that there will be over 300,000 vSphere adopters still left in the hands of partners — and given Broadcom’s lack of comparative experience navigating channel relationships, the company will be most successful if it lets VMware go to market independently while preserving its relationships with strategic resellers, especially Dell Technologies, which is responsible for roughly one-third of VMware’s revenue.

Further, despite a thin R&D budget, Broadcom will still deliver new product integrations with VMware, which could present opportunities for distributors, VARs and potentially ISVs looking to integrate and package their solutions with VMware and Broadcom. However, management has been unclear regarding acquisition synergies, suggesting opportunities could be minimal, and except for some OEMs potentially hoping Broadcom will help level the playing field, partners are likely concerned.

This is particularly true as prior to the announcement VMware was in the middle of overhauling its partner program, announcing promises to improve coselling motions between direct sales teams and VARs, in addition to investments in digital and automation technologies designed to lower implementation costs and improve partner profitability. With Broadcom’s cost structure in place, investments in VMware resources and training programs for partners could decrease, which, when combined with the already higher prices we can expect for VMware products, will present a challenge for partners across the spectrum.

For Broadcom, it is all about profitability

The proposed acquisition can be viewed as another one of Broadcom’s attempts to diversify its hardware portfolio through high-margin software, and with VMware, Broadcom will use redundant costs and license prices as levers for margin expansion. Profit growth will have to come in the form of cost consolidation as VMware’s top line will decelerate, especially as profitable software maintenance revenue streams erode as customers transition from licenses to subscriptions. For context, in 2021 VMware’s SG&A costs accounted for 40% of revenue, a high percentage relative to peers, leaving room for Broadcom to offload redundant resources, particularly in back-office positions.

Meanwhile, as Broadcom prioritizes margins at the expense of top-line growth, at least in the near term, we can expect the sales and marketing line to be impacted, with Broadcom making use of its existing sales teams and channel distribution partners to sell into existing strategic accounts. R&D is perhaps the biggest question mark weighing on the pro forma company, which we expect will require a minimum 15% reduction in spend to meet EBITDA targets, when applying the S&M and G&A estimates shown in Figure 1. The R&D budget will undoubtedly be cut, but the degree depends on the level of “central engineering” synergies Broadcom is willing to form with VMware to deliver new products, with at least basic CI/CD (continuous integration/continuous delivery) procedures in place.

Leveraging VMware’s relationships with the cloud providers, specifically Amazon Web Services (AWS) (Nasdaq: AMZN), it is possible new product synergies could be formed without driving significant R&D investment. However, it will still require a level of commitment from Broadcom to invest in the VMware portfolio beyond SDDC, which does not appear on the company’s radar. This structure could also impact existing offerings like SASE and Project Monterey, which happens to align with Broadcom’s gradual shift away from x86 architectures. This is especially true as Broadcom figures out where there is overlap between its existing software portfolio, which already has plays in security, infrastructure management and FC SAN (fiber channel storage area network) and VMware.
Broadcom Software acquires VMware
At the end of the day, cost actions will run through the income statement over the next three years in a way that gets Broadcom to $8.5 billion in pro forma adjusted EBITDA. Currently estimated at $4.7 billion for FY22, Broadcom would need to grow adjusted EBITDA by a 22% CAGR to achieve this goal, resulting in a drastic operational change for VMware and potentially a loss of momentum outside vSphere, vSAN, NSX and the vRealize suite, which may not have an impact on near-term results but certainly risks VMware’s long-term attractiveness.

Rival bid seems unlikely despite go-shop provision

While the premium pledged by Broadcom in its bid for VMware is likely to ward off most, if not all, potential rival bids, the current agreement contains a 40-day go-shop provision that allows VMware to explore other buyers. Ultimately, any potential bidder would need to have a significant amount of capital ready to be utilized and be willing to push VMware’s valuation further. Given their respective sizes, a hyperscaler is the most likely candidate, with AWS top of mind considering its strategic reseller and product alliance with VMware.

However, TBR believes this is still unlikely, and if any of the cloud providers were to buy VMware, it would be widely perceived as an attempt to buy IaaS revenue. Further, we believe that the cloud providers, while some are more prone to locking in customers than others, generally respect VMware’s neutral position in the market and are cognizant of the fact that owning VMware could create a host of challenges for customers. It is also plausible some of the hardware vendors would like to get in on the deal, but OEMs could be skeptical following last year’s spinoff by Dell Technologies.

TBR takeaway

Considering Broadcom’s aggressive profit targets and previous history running software businesses, customers, partners and employees appear to share mutual concern regarding what will become of Broadcom Software should the deal close. With cost reductions bound to occur across business functions, including R&D, lack of investment raises questions as to how VMware will remain competitive in markets beyond traditional virtualization.

However, Broadcom management has also indicated that VMware will not operate like Symantec and CA Technologies, given its unique market position — and if VMware can materialize R&D to drive new product synergies, the company could at a minimum maintain its trajectory of midsingle-digit growth. VMware’s well-established relationships with channel partners will also help Broadcom establish a large software empire, but this would be contingent on the company’s willingness to invest in less profitable, yet emerging business units, with the final decision coming down to whether management believes the initiative will be accretive to free cash flow.

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Cloud ERP picking up speed: How vendors are capitalizing on vast opportunity

It’s clear now that ERP solutions, which are key to solving business problems, are fair game for cloud migration. The barriers of performance, security and compliance are all but gone, leaving only the pace of change organizations can muster as the determiner of when ERP workloads can be reimaged with cloud technologies.


Join Practice Manager Allan Krans, Senior Analyst Evan Woollacott and Senior Analyst Catie Merrill Thursday, June 16, 2022, for a look at how end customers are using cloud technologies to solve real-world business problems.


In this FREE webinar you’ll learn:

  • How barriers to ERP migration have eroded, opening the flood gates to cloud deployments, even in regulated industries
  • How industry customization of cloud technologies is becoming an expectation from customers
  • How platform vendors like Amazon Web Services, Microsoft and Google are encroaching on applications and services markets in the quest for growth


Mark your calendars for Thursday, June 16, 2022, at 1 p.m. EDT,
and REGISTER to reserve your space.

Related content:

  1. Hyperscalers’ cloud-based modern network architecture provides strategic advantage over legacy network technologies
  2. Russian aggression will not dampen pandemic-driven cloud demand


Click here to register for more TBR Webinars





TBR launches annual Infrastructure Strategy Customer Research

TBR launches five mission systems-specific reports: Boeing Mission Systems, L3Harris Mission Systems, Lockheed Mission Systems, Northrop Mission Systems and Raytheon Mission Systems.

TBR launches semiannual Cloud Infrastructure & Platforms Benchmark

As workloads become the most important driver of cloud adoption, TBR’s Cloud Infrastructure & Platforms Benchmark takes an in-depth look at the infrastructure (IaaS) and platforms (PaaS) markets.

IaaS is about scale; PaaS is about differentiation

Join Practice Manager Allan Krans and Senior Analyst Catie Merrill Thursday, April 21, 2022, for a review of TBR’s latest Cloud Infrastructure and Platforms Benchmark, including in-depth views of the IaaS and PaaS markets and how vendors are competing to address opportunities in emerging submarkets such as app development and integration. Our team will look at the cloud market through the lens of platform and infrastructure workloads and highlight leading vendor strategies that are driving the next wave of cloud adoption.

Don’t miss:

  • IaaS and PaaS revenue and growth leaders
  • A review of cloud ecosystems and go-to-market strategies
  • Customer behavior driving vendors’ investment

Mark your calendars for Thursday, April 21, 2022, at 1 p.m. EDT,
and REGISTER to reserve your space.

Related content:

  1. Top 3 Predictions for Cloud Infrastructure & Platforms in 2022
  2. Cloud Infrastructure & Platforms Benchmark
  3. Russian aggression will not dampen pandemic-driven cloud demand

Click here to register for more TBR Webinars





Digital transformation, cybersecurity and cryptocurrency: How the war in Ukraine will change technology forever

The war in Ukraine and ICT vendors: 3 coming challenges in a changed world

Less than two weeks into Russia’s invasion of Ukraine, TBR’s assessment of the effects on the ICT market remains necessarily constrained. The majority of the largest ICT vendors TBR covers do not have tremendous local market and/or client exposure to Russia or Ukraine, so the impact of the war on ICT companies, if the conflict remains limited to those two countries, will be marginal — not insignificant, but marginal — with some exceptions, such as Ericsson (Nasdaq: ERIC), Nokia (NYSE: NOK) and SAP (NYSE: SAP). Longer term, absent either a miraculously positive or an existentially negative development (peace blooms or mushroom clouds), TBR expects the pressures detailed below will force IT services, cloud and software, data center and infrastructure, and telecom vendors to adjust their strategies and their business models.


Digital transformations slow, opening new opportunities

Already stressed supply chains will experience additional sand in the gears, slowing down deliveries of essential hardware and delaying build-outs of data centers, enterprises’ IT infrastructures, and even the physical towers needed for telecommunications. While IT services vendors and consultancies have sold digital transformation (DT) as a method of addressing business problems through agile application of emerging technologies, enterprises and their technology suppliers need the actual physical components to make the “digital” part of digital transformation work. A slowdown in hardware availability will convert into a slowdown in enabled applications and soon everything around DT will become slower and more expensive.


In this DT winter, consultancies advising on supply chain issues and global systems integrators (GSIs) and their technology partners enabling hybrid cloud while bolstering on-premises enhancements will flourish. Chip manufacturing investors will receive government backing and may find technology vendors across the entire ecosystem willing to make long-term commitments to mitigate the risks they are facing now. In a reversal of fortune from the last few years in IT, third-party maintenance specialists — the very boring techies who are keeping the old systems running while the young geeks play with AI and the metaverse — may see a boom as a constrained chip supply and slowed digital transformations make keeping the current technology operational increasingly important.


Cybersecurity commands center stage (hopefully, for real this time)

In every survey TBR has conducted around IT services and digital transformation, buyers have prioritized cybersecurity as a top three — and frequently No. 1 — concern. And yet, enterprises underinvest and remain vulnerable, humans fail to take precautions and fall prey to ransomware attacks and worse, and cybersecurity remains more talked about than acted upon. Russia’s invasion of Ukraine will change that. While pre-invasion predictions anticipated an aggressive Russian cyber campaign, the first week of fighting featured exclusively kinetic military action, with limited, negligible cyber strikes. Analysis conducted in the middle of combat rarely survives intact once the smoke clears, but TBR believes a couple of scenarios could account for Russia’s relative cyber silence. The most encouraging one is that Ukraine’s defenses worked. While NATO, particularly the U.S., shared near-real-time intelligence in the lead-up to the invasion as a means of applying diplomatic pressure and denying Putin a war narrative suited to Russia’s needs, the West and Ukraine would be less likely to share cybersecurity victories in the same way military successes have been touted and with the same divulgence of critical intelligence. A less-encouraging scenario would be that Russia is saving its cyber strikes for an anticipated second stage of the war, when the shooting slows and economic and political wills are tested. Cyberattacks that take critical energy infrastructure offline in Western Europe would be damaging now but would have a greater effect on NATO countries’ populations during a prolonged economic slowdown tied to a standoff in Ukraine. In either scenario, consultancies, GSIs and technology vendors providing cybersecurity services and infrastructure will benefit from renewed concentration in the C-suite on cyber risks, provided those vendors have invested in country-specific, locally sourced, certified talent.



Russian aggression will not dampen pandemic-driven cloud demand

After benefiting from COVID-19 disruption, cloud should fare well yet again in the face of the war in Ukraine

We expect cloud vendors to experience limited financial and operational disruption as a result of Russia’s invasion of Ukraine. Most cloud and software vendors generate a small percentage of their revenue from the two countries combined and maintain limited direct investment, partly due to Russian business regulations. The larger potential impact, in terms of the cloud market, is a slowdown in adoption and investment. The effects of the invasion on the global economy, COVID-19 recovery, and energy markets are all still uncertain.

During the last prolonged economic downturn in 2008, the cloud market was still very early in its development and still quite a small part of most customers’ IT environments. That challenging economic environment was a boon for cloud adoption, largely due to the cost reduction and capital expense avoidance benefits it could provide to customers. The general perception and value of cloud have evolved since then to be more focused on agility and innovation rather than just cost savings, a change we believe may again benefit the cloud market.

In times of uncertainty, cloud’s ability to help customers change business processes, gain greater insight into data, and ensure IT services are available regardless of geolocation have proved invaluable. While prolonged economic uncertainty could pressure IT budgets, we expect cloud to remain a priority given the value customers have realized especially during challenging times. The cloud space may not directly benefit from this invasion as it did with COVID-19, but we expect its growth will continue.

Global hyperscalers do not stand to lose significant revenue streams, but will see delays in the already lagging eastern European cloud markets

The most obvious and direct impact of the war is the disruption of revenue streams for cloud vendors with business and footprints in Ukraine and Russia. Especially in Ukraine, business operations have been all but halted as citizens flee, protect their families, and defend their nation from the Russian military.

While the magnitude is not overly significant to most cloud vendors due to the relatively small size of Ukraine in population, economy and overall cloud adoption, certain global vendors, specifically Microsoft (Nasdaq: MSFT), have a sizable presence and generate revenue streams within the country. Microsoft announced a partnership with the Ukrainian government for cloud services and security in 2014 and in 2020 was discussing plans to invest up to $500 million, including two new data centers, to service the Ukrainian market. That investment has not yet come to fruition, but Microsoft’s relationship with the Ukrainian government has intensified as it works to thwart cybersecurity threats arising from the war.

Russia is certainly a larger economy, but also should not lead to material pressures for cloud vendors during the war and its aftermath. As the aggressor, Russia does not face security threats like Ukraine does, but sanctions have wreaked havoc on Russia’s economy. With the ruble plummeting, Moscow Stock Exchange closed, and financial systems facing chaos, the IT and cloud spaces are impacted along with every other industry in Russia. The effects are mitigated by the fact that cloud adoption has been quite low in the country. Europe in general lagged the U.S. in the acceptance and implementation of cloud solutions, and Russia is even farther behind.

According to industry estimates, 5% or less of IT spend in Russia is cloud related, well below worldwide rates in the 25% range, which means that Russia accounts for less than 1% of the total cloud market opportunity. For the U.S.-based cloud leaders, the revenue effects are mitigated even further by the regulatory challenges of competing in the country. Similar to China, Russia’s laws prevent direct operations by foreign firms. Local providers like Yandex, SberCloud and control a majority of the market. Microsoft and Amazon Web Services (AWS) (Nasdaq: AMZN) have partnered with some of these local providers to participate in Russia, but we do not believe those relationships have grown into significant revenue streams. The war will mean cloud revenue will be delayed further for AWS, Microsoft and other leading global cloud providers, and some vendors might opt to shutter their operations in the country.