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Top 3 Predictions for Data Center in 2022

Vendors respond to customers’ accelerated IT transformations​

Hardware vendors will race to further entrench themselves in customers’ ecosystems

While storage, hyperconverged infrastructure (HCI) and servers are the main products being sold by data center vendors, they are hardly noticeable in the go-to-market messaging that is being pushed out to customers. These vendors are more focused than ever on selling the outcome over the hardware itself,  whether that outcome is building a hybrid cloud environment to serve remote workers or deploying an edge solution on a factory floor. Data center vendors are looking to capture more of their customers’ environment, from managed services to hybrid cloud enablement, to diversify their revenue beyond hardware and create more reliable revenue streams.​

Building ecosystems is at the forefront of data center vendors’ go-to-market strategies to add value and create stickier offerings. This ranges from building management consoles and expanding software capabilities to refining “as a Service” offerings rolled out over the past 18 months. For leading vendors, this is done with an eye toward helping customers reap the same benefits they seek in public cloud alternatives — agility and simplicity — while also providing flexibility and cost control. ​

The road to a more diversified revenue stream is not without hurdles. Customers have already developed preferences for management tools and development platforms from cloud providers and ISVs. Markets like edge compute are complex with customization and industry nuance. Selling subscription models requires sales and delivery transformation for not only vendors but also partners, and a sales strategy that delivers on values that resonate with customers. In 2022 TBR expects to see further proliferation of the journey vendors embarked on in 2021, building out solution portfolios one use case at a time by identifying areas ripe for transformation that also benefit from on-premises hardware.

2022 data center predictions

  • Infrastructure vendors’ “as a Service” offerings will gain traction as the offerings are refined for specific use cases
  • Hardware vendors embrace the ecosystem
  • Vendors will carve out niche specialties under the broad banner of edge compute

Send me a free copy of TBR’s Top 3 Predictions for Data Center in 2022

Telecom Business Research’s 2022 Predictions is a special series examining market trends and business changes in key markets. Covered segments include cloud, telecom, devices, data center, and services & digital.

Spending recovers as pandemic conditions wane in the U.S., but competition among HCI vendors remains high

Spending recovers as pandemic conditions wane in the U.S., but competition among HCI vendors remains high

Opportunity

Survey data suggests U.S. hyperconverged infrastructure (HCI) customers’ budgets began to rebound in 1H21 after pandemic-related spending cutbacks in 2020. Although average budgets increased, HCI vendors must still contend with overarching data center consolidation trends that are limiting net-new HCI use cases, illustrated by 54% of respondents using HCI only to replace outdated hardware for existing workloads. Most respondents do not plan to shrink their HCI installments over the next three years, suggesting traditional servers and storage will face the greatest impact in the near term as organizations switch to HCI and migrate other workloads to SaaS and public cloud.

Competitive Landscape

Respondents believe that HCI vendors are differentiated by their abilities to run specific workloads. This is critical for vendors to account for in go-to-market (GTM) motions as customers give considerable weight to whether a vendor has specific experience with their use case. TBR believes experience with hybrid use cases such as backup, disaster recovery and DevOps will be key, as will industry-specific use cases that cater to sensitive data such as medical records in healthcare or transaction processing in financial services.

Learn more: Join TBR Aug. 11 at 1 p.m. EDT for an exclusive webinar during which Principal Analyst and Practice Manager Angela Lambert will review top takeaways and key implications from TBR’s 1H21 Hyperconverged Platforms Customer Research. Click here to save your seat!

The Hyperconverged Platforms Customer Research addresses hyperconverged infrastructure (HCI) vendors’ customer-centric questions, drilling down into key categories such as adoption and budget, purchase drivers, workloads and attributes, purchase patterns, and vendor selection. Although the report is HCI-centric, TBR also researches the answers to questions related to software and services, such as what types of security customers desire to attach to their HCI purchases and what additional services are desired to make an HCI purchase complete.

COVID-19 shifts demands in the HCI space, creating opportunity for nimble vendors

Accelerated demand due to COVID-19 has more vendors focusing aggressively on the HCI market opportunity

Over 40% of data center customers already consume hyperconverged infrastructure and have relatively strong loyalty to their incumbent HCI vendor. Still, 33% of respondents in TBR’s 2H20 Hyperconverged Platforms Customer Research report do not use HCI at this point in time, and HCI vendors will be focusing on this opportunity for market expansion.

Customers increasingly leverage HCI for digital-transformation-related workloads. The edge appears to be a key location for HCI installments, as the technology by definition is well suited for such deployments. IT modernization continues to increase demand for storage and compute capacity in remote and edge locations, and HCI is often the hardware of choice for such use cases.

Because there remains significant opportunity for private cloud and edge infrastructure — two uses for which HCI is heavily leveraged — competition is strong both from within and outside the HCI market landscape. Nontraditional competitors such as Amazon Web Services and ODMs increase their appeal by offering white-box private cloud hardware alternatives. At the same time, HCI vendors increasingly compete against each other and public cloud alternatives by offering new pricing models, as hardware commoditization squeezes the potential for differentiation through infrastructure innovation alone.

Impact of COVID-19 on Hyperconverged Platforms Spending

TBR’s Hyperconverged & Converged Market Landscape provides a high-level view of both markets, including key trends, recent alliance and acquisition activity, and analysis of the customer adoption cycle, including total market data. This report’s unique differentiator is its inclusion of nine deep-dive vendor profiles. This report largely focuses on which vendors are leaders, laggards and up-and-comers in the hyperconverged and converged markets, providing deep analysis into which vendors are differentiating themselves and how. TBR’s Hyperconverged Platforms Customer Research, which surveys 400 decision makers annually, addresses hyperconverged infrastructure (HCI) vendors’ customer-centric questions, drilling down into key categories such as adoption and budget, purchase drivers, workloads and attributes, purchase patterns, and vendor selection.

Market disruption creates HCI opportunity as customers look to consolidate data center footprints

Market disruption creates HCI opportunity as customers look to consolidate data center footprints

Insights

Digital transformation increases the volume of data collected and processed by organizations, making IT environments more complex to manage. Hybrid cloud is often the answer to this challenge, and many hybrid cloud environments leverage HCI as the underlying infrastructure for private cloud instances.

Microsoft’s play in the HCI market allows customers to keep their hardware vendor, unlike AWS Outposts. This is appealing to customers that have already selected a major hardware vendor but seek the flexibility of hybrid cloud.

TBR’s Hyperconverged & Converged Market Landscape provides a high-level view of both markets, including key trends, recent alliance and acquisition activity, and analysis of the customer adoption cycle, including total market data. This report’s unique differentiator is its inclusion of nine deep-dive vendor profiles. This report largely focuses on which vendors are leaders, laggards and up-and-comers in the hyperconverged and converged markets, providing deep analysis into which vendors are differentiating themselves and how. TBR’s Hyperconverged Platforms Customer Research, which surveys 400 decision makers annually, addresses hyperconverged infrastructure (HCI) vendors’ customer-centric questions, drilling down into key categories such as adoption and budget, purchase drivers, workloads and attributes, purchase patterns, and vendor selection.

COVID-19 necessitates data center investments, becoming a catalyst for digital transformation

COVID-19 shifts data center market demands as customers leverage the cloud to meet swift transformation needs

In 2020 IT decision makers around the world moved into highly reactive and tactical modes to mitigate COVID-19’s impact on their businesses, and data centers had to be provisioned rapidly for remote activities across all elements of the business stack, including IT. Although businesses’ initial response to the COVID-19 pandemic boosted certain on-premises provisioning, it also delayed large, services-laden transformation engagements. Economic uncertainty and uneven industry sector impact also saw some IT instances pivot to cash conservation. IT infrastructure vendors held strong against the murky IT backdrop, although some business shifted to ODMs more aligned to serving exascale cloud companies at the expense of more traditional or legacy technologies.

TBR believes this trend will continue through 2021. COVID-19 accelerated existing macro trends toward cloud-delivered technologies leveraging automation to strip away person-to-person contact from commerce. AI and machine learning (ML) will pull infrastructure along and push infrastructure deployments further to the edge.

Hyperconverged infrastructure (HCI) is the multifunctional building block for a lot of IT instances. HCI can sit at the ever-growing edge or in departmental or branch office data centers, and it can be used for modular scaling of private cloud deployments whether on premises or in colocation facilities. HCI growth, coupled with further cloud migration, pressures legacy and more traditional IT infrastructure. 

AI growth persists. Definition increases as emerging technologies become applicable to general use. Vendors and customers alike seek AI automation to strip labor’s hollow calories from all elements of business commerce and IT support. All these aspirations hinge on tight data governance rules and human compliance with those rules when putting data into the automation engine. That tight wrapper for consistent, shared information flows can be achieved through blockchain, described by EY Blockchain Head Paul Brody as the ERP equivalent for multienterprise business networks. 

This vision of the digital world also acknowledges the need for a new data engine to analyze the data and derive new insights to advance all elements of human existence. Quantum computing will be that new engine, and its performance will be to classical computing what the jet plane was to propeller airplanes. TBR expects 2021 to be a year with significant discoveries that push quantum computing further down the path to economic advantage. If deep scientific thought and “what if” analysis happen only when the world’s greatest minds can pursue their natural inquisitiveness, then it could be that COVID-19 generates the requisite science necessary for quantum computing to shift from discovery to emerging commercial application.

2021 data center predictions

  • Investments in 1H20 to modernize IT to meet COVID-19 requirements will lead to reduced data center hardware spend in 2021
  • Quantum computing advancements will persist, leading to an increase in M&A activity to consolidate capabilities
  • COVID-19 increases the presence of HCI in modern data centers

Technology Business Research 2021 Predictions is a special series examining market trends and business changes in key markets. Covered segments include cloud & software, telecom, devices & commercial IoT, data center, and services & digital.

Examine the role of VMware in the HCI market

“‘VMware has been neck and neck with Nutanix as the software HCI market leader,’ said Allan Krans, practice manager and analyst at Technology Business Research, based out of Hampton, N.H.”

Full article

Commoditization economics and emerging workloads disrupt the data center landscape

Commoditization mitigation strategies require business model shifts and an ever-watchful eye on exascale cloud entrants

Volume or value?

Toward the end of 2018 in the data center market, two distinct vendor strategies emerged: Vendors began either increasing sales volume or selling lower-volume but higher-value solutions. TBR believes that in 1H19, now that vendors have determined their camps, they will begin to craft competitive strategies directly targeting specific peers. For example, Dell EMC has publicly stated its intent to increase its market share in both servers and storage, and we believe the vendor will target key competitors to gain this share. Similarly, Lenovo’s large-scale data center investments imply significant competitive goals.

In February Lenovo unveiled TruScale Infrastructure Services. This directly competes with Hewlett Packard Enterprise’s (HPE) GreenLake and Dell EMC’s Cloud Flex. It also addresses customer demand for private cloud infrastructure that is financed like a public cloud offering. TruScale is available for Lenovo’s entire stack of data center infrastructure solutions. In April Lenovo unveiled a server portfolio refresh, which likely reinforces its TruScale solutions and increases its competitive edge against Dell EMC and HPE.

TBR believes that during the next few months, Dell EMC and HPE will fight back against Lenovo’s marketing tactics to preserve market share. HPE has an advantage in that it is pursuing value-centric data center sales, so it is likely willing to concede less-profitable sales to Lenovo or Dell EMC. Dell EMC’s stated objective to increase market share in servers and storage will increase competition between the company and Lenovo as both aim to scoop up HPE’s lower-margin customers.

ODM participation heats up as commoditization drives provisioning simplicity

Because data center hardware becomes increasingly commoditized as software capabilities become more advanced, we believe data center vendors will increasingly find themselves competing against ODMs, especially for larger deals. Smaller customers will still show a preference for OEMs as they need the additional software and services provided with OEM data center solutions. Lenovo’s manufacturing capabilities give the company an advantage in the hyperscale space, where Lenovo’s past financials illustrated some successes, and enable the vendor to differentiate from its OEM peers.

On the hyperscale front, ODMs are rising to dominance, but OEMs such as Lenovo remain a force to be reckoned with in the space. As cloud becomes an increasingly central piece of IT environments, public cloud providers seek ways to expand their environments as cost-effectively as possible to preserve profits. TBR believes very large enterprises are likely to explore leveraging hyperscale vendors as well for their on-premises environments if it is cost-effective.

Consumption-based pricing models tie to the commoditization march

TBR’s Hyperconverged Platforms Customer Research continues to highlight the correlation between private cloud installments and HCI. Most recent findings indicated that 80% of respondents leveraged their HCI purchase for a private or hybrid cloud environment. Since customers are already turning to HCI for cloud, it is a logical next step for vendors to price HCI like a public cloud solution to deepen the competition.

With their channel partners also engaged, Dell EMC, HPE and Lenovo are the three main players in the consumption-based pricing space. Their solutions are not limited to just HCI, but HCI is one of the solutions that can be purchased in this manner. The key value proposition of consumption-based pricing for data center vendors is the ability to bundle software and services into hardware consumption-based deals. This is likely to boost the margin on the solutions. Further, it guarantees larger deals, as in many cases, these consumption-based pricing deals lock customers in for a predetermined duration that has early termination penalties.

Technology Business Research, Inc. announces 2Q19 webinar schedule

HAMPTON, N.H. (March 4, 2019) — Technology Business Research, Inc. (TBR) announces the schedule for its 2Q19 webinar series.

April 10        Progress report: State of the NFV/SDN telecom market

April 17        Channel partner ecosystems will evolve to support digital adoption

April 24        Evolutionary IoT: Starting small and controlling costs

May 1           Obstacles and triumphs on the journey to cloud

May 8           Health IT converges around consumerization, value and ROI

May 15        30 minutes, 3 months, 3 years: Evolution of digital transformation

May 22        Bringing the best: Talent and technology in management consulting

June 12        The makings of the telecom edge compute market

June 26        Where will hyperconverged infrastructure fit in the modern data center?

TBR webinars are held typically each Wednesday at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. Previous webinars can be viewed anytime on TBR’s Webinar Portal.

For additional information or to arrange a briefing with our analysts, please contact TBR at [email protected].

Where will hyperconverged infrastructure fit in the modern data center?

Insights from TBR’s hyperconverged infrastructure research stream

As digital transformation progresses, customers’ data center environments evolve in kind. TBR’s hyperconverged infrastructure (HCI) research stream provides some indicators on the market’s motions. TBR unearths customer preferences centered on HCI and maps the anticipated progression of HCI adoption over the next five years. Deep dives into the evolving vendor landscape, HCI use cases and workload trends are key highlights within this research.

Join Geoff Woollacott and Stephanie Long as they share key insights around the current state of the HCI market, how digital transformation will impact this market’s momentum, and where TBR expects the market to head in the next few years.

Don’t miss:

  • The state of the HCI market
  • HCI’s place in the cloud market
  • HCI market leaders, disruptors and laggards

 

TBR webinars are held typically on Wednesdays at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. Previous webinars can be viewed anytime on TBR’s Webinar Portal.

For additional information or to arrange a briefing with our analysts, please contact TBR at [email protected].

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.