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Super 7 webscale total capex spend will reach $123B in 2022

Infographic showing webscale "Super 7" capex forecast for 2017 through 2022

 

Data center builds and expansions as well as AI investment drive growth

According to Technology Business Research, Inc.’s (TBR) 3Q18 Webscale ICT Market Landscape, webscale ICT capex for the “Super 7” will grow at a 26.2% CAGR from 2017 to 2022 to more than $69 billion as these top webscales aim to future-proof business-critical infrastructure and map network capacity to data traffic growth, which is expected to increase exponentially through the forecast period.

Webscales are investing tens of billions of dollars in new data centers, either to support their core businesses or to increase the scale of their cloud services businesses. Capex spend is spiking in 2018 as many of the Super 7 build new facilities on land they acquired in 2017. Amazon’s 30.4% year-to-year ICT capex growth rate in 2018 is noticeably lower than that of its peers, which is largely due to its leading presence in the cloud services market. Challengers Microsoft, Alphabet and Alibaba will grow 2018 ICT capex 73.6%, 100.3%, and 101.6%, respectively, year-to-year in a bid to catch up to market leader Amazon Web Services.

The OEM landscape is being upended as webscales embrace ODMs and open-source technology. A growing number of ODMs aim to take share from incumbent hardware vendors such as Cisco and Dell EMC. Webscales often possess the talent necessary to design their own equipment, then outsource production to an ODM. In these instances, the software is disaggregated from the hardware and the code is written by webscale software engineers. This threat gives webscales negotiating power over incumbents. Some vendors, such as Cisco, mitigating the threat from ODMs with acquisitions, strong customer relationships and litigation.

For more information, contact Senior Analyst Michael Soper at [email protected].

Data center builds and expansions, along with AI investments, will drive webscale ‘Super 7’ ICT capex to $69B by 2022

HAMPTON, N.H. (Sept. 6, 2018) According to Technology Business Research, Inc.’s (TBR) 3Q18 Webscale ICT Market Landscape, webscale ICT capex for the “Super 7” will grow at a 26.2% CAGR to over $69 billion in 2022 as these top webscales aim to future-proof business-critical infrastructure and map network capacity to data traffic growth, which is expected to increase exponentially through the forecast period. Webscales are investing tens of billions of dollars in new data centers, either to support their core businesses or to increase the scale of their cloud services businesses.

“Capex spend is spiking in 2018 as the Super 7 build new facilities on land acquired in 2017. Amazon’s 30.4% ICT capex growth rate in 2018 is noticeably lower than its peers, which is largely due to its leading presence in the cloud services market,” said Michael Soper, a senior analyst at TBR. “Challengers Microsoft, Alphabet and Alibaba will grow 2018 ICT capex 73.6%, 100.3%, and 101.6%, respectively, year-to-year in a bid to catch up to market leader Amazon Web Services.”

The OEM landscape is being upended as webscales embrace ODMs and open-source technology. A growing number of ODMs aim to take share from incumbent hardware vendors such as Cisco and Dell EMC. Webscales often possess the talent necessary to design their own equipment, then outsource production to an ODM. In these instances, the software is disaggregated from the hardware and the code is written by webscale software engineers. This threat gives webscales negotiating power over incumbents. Cisco is mitigating the threat from ODMs with acquisitions, strong customer relationships and litigation.

TBR’s Webscale ICT Market Landscape tracks the ICT-related initiatives of the seven largest webscale companies in the world, known as the Super 7, which includes Alibaba, Alphabet, Amazon, Baidu, Facebook, Microsoft and Tencent. The report provides a market assessment, deep dives into company strategies and analyzes capex trends, particularly as they pertain to ICT. Vendors are also covered from the perspective of relative opportunities with webscale companies as customers.

For additional information about this research or to arrange a one-on-one analyst briefing, please contact Dan Demers at +1 603.758.1803 or [email protected].

ABOUT TBR

Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, and telecom vendors and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients’ needs. Our analysts are available to address client-specific issues further or information needs on an inquiry or proprietary consulting basis.

TBR has been empowering corporate decision makers since 1996. For more information please visit www.tbri.com.

Samsung heads in the right direction

Samsung introduced its new Galaxy Note 9 smartphone and two other products at a big event, Samsung Unpacked 2018, at the Barclays Center in Brooklyn on Aug. 9. The Galaxy Note 9 is a beautiful thing. It is better than last year’s model in many ways, and it has new features, including a remote control built into its integral S-Pen. As with most new models of highly evolved technology products, the enhancements are only exciting if you care about well-conceived and well-executed, though incremental, product improvements. This isn’t Samsung’s fault; it is very hard to pack new and exciting functionality into a highly evolved but constrained form factor.

The newly introduced Galaxy Home Speaker is also impressive; just 160 units of the smart speaker filled a basketball arena with impressive sound, complete with thumping bass. It also has a promising integration of the Spotify music service. Additionally, the new Galaxy Watch looks like a high-end watch, not like Apple Watch’s cough lozenge look, and the rotating bezel is a much more satisfying user interface (UI) than the Apple stem-winder. Bixby, Samsung’s smart assistant, included in the smartphone, watch, and speaker, is much improved over past versions, and it will put you through to Google Assistant on the phone.

Taken individually, these products are superb examples of the best of modern consumer electronics products. Plus, there are synergies among them. The best example shown was continuous music playing from smartphone to speaker and from one speaker to another in different rooms. This cohesiveness, Samsung believes, is the future of consumer electronics — open integration to provide seamless intelligent experiences. We agree. Samsung has identified the direction in which these devices must evolve and makes that direction clear both to the outside world and to the company’s thousands of designers and engineers.

Samsung’s proclamation of this direction was unusually loud, but the company is not alone in pursuing this quest. The company’s vision is not very different from one that Apple first expressed when it introduced the iPod to accompany its line of Macintosh PCs, and that which Apple continues to pursue. Google is moving in this direction with both its hardware products and software platforms. Microsoft retreated from its efforts in this direction with its withdrawal from the smartphone market, but TBR believes the company will, at some point, re-enter that space. Finally, Amazon is a major contender, with its smart speakers, tablets and streaming devices.

There remains much to be done to deliver this effortless, seamless experience. Currently, bringing together different products to provide a seamless experience requires effort on the part of the customer. This is essentially systems integration at home, and in many cases the benefit does not outweigh the cost. To be successful, these systems must interoperate, but at the same time vendors want to demonstrate that they work “better together.” Services and devices from vendors other than Samsung, Apple, Microsoft, Google and Amazon must be easily integrated and provide a seamless experience.

The spoken UI is critical to the success of these integrated consumer platforms. Controlling the home environment with a smartphone provides great power and flexibility, but is not worth the hassle; wall switches are a better UI than an app. A smart speaker, however, one that knows your history and preferences, is both powerful and easy to access and use. The problem with spoken UIs is that there are too many of them, and each keeps a separate store of information about the user. Until this problem is solved, Samsung’s goal of a seamless intelligent experience will not be achieved, and while the market for intelligent home devices will continue to grow, it will not grow explosively until all of the integration problems are solved.

Google seeks enterprise nod with GCP services in IoT, security

The key differentiator for Google is [its] hardware is more comprehensive, but Microsoft has an enormous install base, and that’s a lot of leverage. — Ezra Gottheil, Principal Analyst

Full article

Google goes after IHVs with Cloud IoT Edge

Google’s Cloud IoT Edge hardware-software package for edge devices, announced on July 25, aims to be a comprehensive bundle for the edge ― for devices and for gateways. In this offering, Google leverages its two big assets in machine learning, TensorFlow software and the tensor processing unit (TPU) processor, to stake a position in edge hardware and software.

TBR believes the edge is the leading edge of Internet of Things (IoT) growth. There is competition for both edge hardware and edge software, but few vendors can offer both. There will be consolidation in hardware and software, and the companies left standing will have large and growing businesses and opportunities to expand. In the case of Google, as well as Microsoft and Amazon, capturing the edge helps drive the core cloud offering. By staking a big claim on the edge, Google is better positioned to compete with the other big clouds.

TensorFlow and the TPU processor are the keys to Google’s offering. TensorFlow is one of the most popular machine learning software libraries while the TPU processor is optimized for machine learning. Google claims advantages of the TPU over GPUs for machine learning tasks include lower power consumption and better performance on inference as well as learning tasks. These two benefits, power consumption and inference performance, are critical on the edge. Power consumption is important in edge devices, especially mobile and remote devices. Machine learning training is best suited to the cloud; edge devices need fast inference.

Google is targeting this offering to companies making IoT hardware, devices and gateways, ranging from narrowly specialized to broadly applicable, from custom-built to off the shelf. Companies producing off-the-shelf products are independent hardware vendors, and their offerings range from components for IoT solutions to end-to-end hardware and software solutions. Google’s Cloud IoT Edge is attractive to this market; it is a hardware-software solution with differentiating hardware and familiar software.

In the enterprise market for custom-built devices, Microsoft will often leverage its incumbency. However, there remain many market opportunities, especially in off-the-shelf smart devices with built-in machine learning. Video is a likely market for this technology, and Google will continue to make it easier and less expensive to build smart cameras.

Google’s Cloud IoT Edge is a well-conceived response to the challenge of the edge, and there is potential additional upside. The new Edge TPU is very small, and Google claims very low power consumption. Google will introduce tools and applications that leverage the processor to provide tangible benefits on smartphone, tablet and PC platforms. If successful, Google could own the IP to be a necessary component of edge computing.

Atos’ pragmatism cuts through the AI hype

Atos Technology Days 2018, held in Paris on July 4 and 5, displayed myriad practical applications of emerging technologies. It was not A science fair with a focus on the future, as many technology vendor events have been of late. Rather, Atos showcased artificial intelligence (AI)-infused applications powering prescriptive maintenance, digital twins, Internet of Things (IoT)-enabled retail and payment applications, electric grid optimizations, and process optimization use cases for insurance and banking. The presentations walked through the underlying technological components powering these business outcomes and how Atos, in conjunction with its major technology alliance partners such as Google and Siemens, can stitch together existing technologies to deliver this business lift to its customers.

Hybrid, multicloud, reunited partners featured in TBR’s upcoming cloud & software research

Going into the second half of 2018, TBR’s Cloud and Software Practice anticipates providing additional research around a few issues that have been top of mind among TBR’s clients and our analysts. The common theme across the three issues highlighted in this report is the growing focus on how cloud and software are jointly being used to deliver real solutions for customers. Highlights of the research center on how establishing hybrid capabilities is a primary challenge for enterprises and a growth driver for vendors, from the initial design and integration through to the ongoing management and optimization of the increasingly complex environments. Additionally, offering multicloud is the first priority for customers and creates opportunities for vendors other than category leaders such as Amazon Web Services (AWS) and Salesforce. Lastly, partnerships that were previously threatened by cloud are now realigning for new opportunities created by on-premises hybrid delivery and solution bundling. Look for more insight into these topics in our upcoming research.

Hybrid enablement is an increasingly critical predictor of vendor success
There is no question that cloud and software solutions are being increasingly deployed into hybrid environments and have been for some time now. The real customer pain point in regard to a truly hybrid environment — one or more cloud assets integrated with one or more on-premises assets for the seamless flow and sharing of data — is around enabling each of the solutions to fit into the environment and integrate with the others for optimal utilization.

Cloud and software vendors alike are investing to capitalize on this growing opportunity around empowering enterprise IT departments to integrate sprawling environments on their own, with the help of automated tools and platforms. Salesforce’s acquisition of MuleSoft is one of the more noteworthy examples as it has vast implications for both Salesforce and the market. This is because MuleSoft offers licenses alongside its subscription offerings despite Salesforce’s “No software” mantra, and because many organizations utilize one or more of Salesforce’s cloud offerings, which will soon feature and/or be integrated with Salesforce Integration Cloud, a solution that will be based on MuleSoft’s well-known Integration Platform as a Service (iPaaS).

Software vendors are making similar investments, such as Red Hat announcing its own iPaaS — Fuse Online — and VMware’s continued updates to the vRealize cloud management suite. Additionally, many continue to expand their partnerships with cloud vendors and systems integrators to improve their hybrid technology and hybrid enablement portfolios, increasingly going to market with a software-led services approach.
Cloud brokerage and hybrid integration pure plays continue to generate buzz as well, providing attractive solutions for enterprise IT departments struggling to keep pace with integrations, orchestration and skill sets. We expect some of these vendors to be acquired over the next couple of years as cloud and software vendors look to quickly build out their hybrid integration and enablement tool sets.

Consolidation around leading PaaS & IaaS vendors does not reduce competition
The public cloud IaaS market, substantially made up of businesses that complement scalable infrastructure with general purpose PaaS, has consolidated around the four leading U.S.-based cloud vendors — AWS, Microsoft, IBM and Google — and one international vendor, Alibaba, which has been successful in the highly exclusive Chinese market and is diligently focused on effectively competing with these U.S.-based vendors on an international stage.

Among the insights gleaned from TBR’s upcoming Cloud Infrastructure & Platforms Customer Research, it is becoming evident that even in discrete use cases and niche industries, the general-purpose nature of these vendors has enabled them to be considered across needs. Many customers agree that there is a delicate equilibrium yet to be found in first balancing on-premises and cloud deployments, and then balancing vendor lock-in concerns, usage volume discounts, vendor specializations and multivendor environment complexity. TBR will closely watch and assess how each vendor overcomes its perceived downfalls and positions itself to help customers best weigh the benefits and drawbacks of increasing cloud adoption.

In particular, customers almost universally recognize Google Cloud as the third option behind AWS and Microsoft Azure, citing TensorFlow as a key technology that will drive Google’s growth into a more prominent cloud vendor, but in the same breath identify that Google’s enterprise vision has not matured from “talk the talk,” particularly outside of the executive office of Google Cloud CEO Diane Greene. Meanwhile, Azure has become a viable alternative to AWS for many customers that note general ubiquity in each vendor’s ability to support various enterprise needs. TBR expects the closeness in AWS and Azure functionality, strained by the maturation of Google’s enterprise vision and Alibaba’s increasingly competitive entry into Western markets, will cause the converging market to grow quickly around this competition.

Partnerships are being both stressed and created as the cloud market evolves
The increased focus on cloud delivery methods has certainly stressed many long-held partnerships between traditional hardware, software and service vendors. The model of solution creation, distribution, installation and support was one that had multiple participants in the traditional model but became more focused on the cloud provider in the transition to cloud. Cloud is also an opportunity for new or nascent vendors to take share in markets such as business applications, where SAP and Oracle have been dominant. SaaS vendors fill portfolio gaps and augment vendor offerings for verticalized use cases, enabling legacy players such as Microsoft and SAP to adapt and compete with born-on-the-cloud providers. An example of this shift in vendor landscapes comes with the release of Dynamics 365 Business Central, which will help Microsoft gain footing over SAP in the SMB space for business applications and provide new opportunity for Microsoft’s SaaS partners. However, as each vendor expands its cloud portfolio, its respective ecosystem will be required to adapt. SAP’s acquisition of CallidusCloud will improve the vendor’s position in the cloud front-office space, but it also places SAP in direct competition with its ecosystem of Configure, Price, Quote (CPQ) providers. Now more than ever, the market will see vendor shares susceptible to ongoing changes as the market for core business applications remains relatively immature for cloud.

Hardware and services partners were previously hard hit in the transition to cloud but will have more opportunities with a growing mix of public and private cloud options becoming available. Microsoft will continue to leverage hardware and services partners to deliver and implement its hosted private cloud, Azure Stack, which has already doubled its geographical reach in recent months. This new opportunity for longstanding hardware partners such as Dell EMC and Hewlett Packard Enterprise to collaborate in delivering Microsoft’s Azure Stack offering does little to offset the erosion those vendors have seen as Microsoft built out its own Azure public cloud offerings, reducing customer demand for hardware.

Note: TBR provides extensive, sustained coverage of the strategies and select performance metrics of all the vendors mentioned above, as well as their competitors and key technology partners. Contact the authors for additional details.

By Allan Krans, Practice Manager and Principal Analyst; Cassandra Mooshian, Senior Analyst; Meaghan McGrath, Senior Analyst; and Jack McElwee, Research Analyst

1Q18 device revenue results were boosted by market shifts and increasing ASPs in PCs and smartphones compared to a weaker 1Q17

HAMPTON, N.H. (July 13, 2018) — Technology Business Research, Inc.’s (TBR) 1Q18 Devices and Platforms Benchmark finds that there is ongoing revenue opportunity in both the PC and smartphone markets. Total benchmarked revenue increased 15.9% year-to-year to $112 billion despite indications of saturation in the high end of the PC market.

Total PC benchmarked revenue increased 12% year-to-year to $32 billion. Total PC benchmarked gross profit increased 10.4% year-to-year to $5 billion despite increasing component costs. “Despite speculation that the PC market is dead, major device OEMs have been able to successfully navigate the shifting market and generate healthy profits,” said TBR Analyst Dan Callahan. “Renewed appetite for premium PCs in enterprise — and PC OEMs shifting their go-to-market strategies to respond — has been the primary driver.”

Total benchmarked smartphone revenue increased 11% year-to-year to $72 billion. Total smartphone benchmarked gross profit increased 14.8% year-to-year to $23 billion. Smartphone OEMs are combating worldwide saturation by increasing average selling prices (ASPs). Apple’s gamble with a $1,000 smartphone paid off, as customers responded with demand, and Android peers are following suit.

Device as Service (DaaS), an expansion of the former PC as a Service market, is transforming into an offering aimed at supplanting traditional PC financing. The benchmark explores how HP Inc. was the first of the big three PC OEMs to capitalize on the emerging opportunity and has been the first with concrete outbound messaging to partners and customers. This has afforded the company a lead, but it is not cemented. Dell Technologies and Lenovo will use the path HP Inc. paved to introduce DaaS to the market and quickly solidify their own unique solutions. Lenovo and HP Inc. see opportunity beyond the PC in PC as a Service, thus the introduction of DaaS.

The DaaS opportunity remains mostly untapped. Customers and partners are still trying to understand how this service differs from traditional financing and are still kicking the tires on the analytics often attached by OEMs as the main selling point of DaaS.

TBR’s Devices and Platforms Benchmark provides insight on interrelated ecosystems, including device vendors, platform providers, supplier relations, and technology partners across the consumer and commercial spaces. TBR’s vendor-centric analysis speaks to industry trends, while market sizing illustrates opportunity. Our Devices and Platforms research includes PC, tablet and smartphone vendors; platform providers; and technology partners.

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

 

 

ABOUT TBR

Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, and telecom vendors and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients’ needs. Our analysts are available to address client-specific issues further or information needs on an inquiry or proprietary consulting basis.

TBR has been empowering corporate decision makers since 1996. For more information please visit www.tbri.com.

When the expected cost does not match the actual cost in cloud

In the relationship between customer and business, expectations are everything. In a lot of ways, the shift to cloud computing has evened the playing field for what is expected in terms of cost, responsibilities, and the services exchanged between IT customers and providers. With cloud services, customers can experience far more of a service before buying it, see a clear unit price from the outset and understand the constraints of the service-level agreements. However, uncertainty still lingers in the exact specifications for many solutions, as the complexity of the design and variability of the actual utilization continue to make accurately predicting real-world cost for cloud solutions difficult for many customers.

While there is still typically a difference in cost between on-premises IT deployments and cloud, the unexpectedly higher cost of cloud projects impacts the market in several ways. Highly efficient and mature IT organizations can often use their own internal resources to compete with the price points delivered through public cloud options. For those customers, cost overruns make cloud deployments more expensive, rather than slightly more cost-effective, when compared with utilizing internal resources. Beyond those marginal customers, however, cost overruns universally wreak havoc on internal budgeting processes, which depend on predictable cost structures. Particularly compared with more stable internal IT funding, variability on a monthly basis puts serious stress on the finance function. Lastly, cost overruns impact other IT project decisions, serving as a deterrent to new and expanded cloud projects. In this respect, this unpredictability is bad for all cloud vendors, providing motivation for these providers collectively to further clarify the customer’s financial expectations.

For cloud infrastructure market leader Amazon Web Services (AWS), the problem seems particularly relevant, coming up in a number of discussions with customers. For a vendor that is far ahead of nearest competitor Microsoft, cost overruns are on one of the biggest flaws in the current AWS customer experience. The struggle of customers starts with matching the vast catalog of services available from AWS to the actual IT solution needed. Many customers noted their initial designs, once implemented, lack the performance needed to meet their performance requirements. Whether it’s the tier of storage or the amount of data transfer, customers are forced to change the configuration to more expensive options or incur usage charges above their original expectations.

In speaking with decision makers about their experience, the need for more assistance in both the design and operational optimization are needed to close this gap in the initial expectations and actual costs of cloud implementations. These budget overages may be positive for AWS in the short term, contributing to some of its continued strong revenue growth, but in the long term, they could be the most profound threat. If second-tier public cloud vendors such as IBM, Microsoft and Google can develop and deliver streamlined design and pricing calculators that address these unexpected cost overruns, it could very well help carve out a market niche that certainly adds value for customers. AWS may not have as much incentive to close these expectation gaps, but for competing vendors, any advantage is critical and this could be one that makes a difference long term.

 

Note: This blog is the first in a series driven by TBR’s Cloud Customer Research reports, which focus on applications and infrastructure workloads. More than 50 interviews and 200 surveys are being conducted. Blog posts like this one will highlight the key trends and topics impacting the cloud industry.

Carriers are fostering deeper partnerships with webscales to support growing enterprise demand for hybrid and multi-cloud environments

HAMPTON, N.H. (April 20, 2018) — Combined Cloud as a Service revenue for telecom operators in Technology Business Research Inc.’s (TBR) 4Q17 Carrier Cloud Benchmark rose 15.7% year-to-year in 4Q17 due to strategic acquisitions and alliances, investments in new data centers, and portfolio expansion in growth segments such as SaaS and hybrid cloud. Cloud revenue growth is being limited, however, due to pricing pressures and growing demand for solutions from webscale cloud providers such as Amazon Web Services (AWS). Carriers are cognizant of these trends and are becoming more focused on supporting hybrid and multi-cloud environments by launching new orchestration platforms.

“All benchmarked companies sustained year-to-year Cloud as a Service revenue growth in 4Q17 as significant opportunity remains for carriers to target businesses seeking greater cost savings, scalability and efficiency by migrating traditional infrastructure and applications to the cloud,” said Steve Vachon, an analyst in TBR’s Telecom Practice. “Though cloud revenue growth is being limited by pricing pressures from webscale providers, carriers are relying on the value proposition and convenience offered by the bundling of their cloud solutions with other network offerings, such as SD-WAN, security and mobility services, to attract customers.”

Operators are revamping their go-to-market strategies to counter disruption from webscale providers such as AWS, Google and Microsoft. Competition will intensify over the next several years as webscales seek to play a larger role within the European and Asian cloud markets by investing in additional data centers in those regions. Amid demand for solutions from webscales in the cloud market, most carriers are offering access to these companies to complement their existing cloud portfolios and to support hybrid and multi-cloud environments. Carriers are also integrating webscale cloud platforms to enhance adjacent portfolio segments such as Internet of Things and unified communications.

TBR’s Telecom Practice provides semiannual analysis of Cloud as a Service revenue in key segment splits and regions for the top global carrier cloud operators in its Carrier Cloud Benchmark. Operators covered include Bharti Airtel, BT, CenturyLink, China Telecom, Deutsche Telekom, Korea Telecom, NTT, Orange, Singtel, Telefonica and Vodafone.

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

 

ABOUT TBR

Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, and telecom vendors and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients’ needs. Our analysts are available to address client-specific issues further or information needs on an inquiry or proprietary consulting basis.

TBR has been empowering corporate decision makers since 1996. For more information, please visit www.tbri.com.