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Cloud professional services revenue grows by double digits as pandemic increases demand for cloud migration

Cloud professional services market summary

Market overview

In the most recent iteration of TBR’s Cloud Professional Services Market Forecast, we projected the market would grow at an 11.7% CAGR between 2019 and 2024 as vendors balance the effects of COVID-19 with rapid growth in digital transformation. Opportunity for benchmarked vendors comes from the large number of customers still operating on premises, which leads to the need for advisory, consulting and implementation services, as plans to shift to the cloud come to fruition. Additionally, the pandemic will likely have many businesses reevaluating their IT road maps, causing an inevitable uptick in cloud adoption. As a result, cloud managed security and application services, especially during a new working-from-home reality, will prove opportunistic for benchmarked vendors. Meanwhile, for existing cloud users, the need for hybrid and multicloud environments will necessitate ongoing integration and management needs from technology-neutral vendors.

Market disruptors

Changes in general purchasing habits brought on by the COVID-19 pandemic have proved disruptive for many professional services vendors; however, the market is expected to rebound quickly as customers replace legacy IT systems with cloud solutions. As a result, managed cloud services is expected to be the fastest-growing subsegment of the cloud professional services market, especially as hybrid IT sprawl intensifies. However, some other submarkets, primarily application development and maintenance, will feel some pressure from automation, especially as adoption of cloud-native technologies rises and plays a role in suppressing labor-driven resources.

TBR’s Cloud Professional Services Benchmark covers the professional services that are critical to enabling customers to take advantage of available technology as well as the market opportunity that exists for firms that cater to service needs. Additionally, the benchmark analyzes the size, growth and leading providers of services around cloud environments.

Disrupting, but not disrupted: Accenture pivoted to become a solutions broker through innovation

No single vendor can do it on its own, not even Accenture

While maintaining a workforce bench that can operate in hybrid IT environments remains key to Accenture’s long-term success, managing relationships with core technology partners also adds another building block to the company’s foundation. As seen with talent-based conversations, discussions around Accenture’s ecosystem were part of almost every single presentation during the two-day conference. While Accenture maintains relationships with over 200 technology partners, SAP (NYSE: SAP), Oracle (NYSE: ORCL), Microsoft (Nasdaq: MSFT), Salesforce (NYSE: CRM) and Workday (Nasdaq: WDAY) are the top five platforms that truly move the needle for the company, helping it generate approximately 40% of services revenue.

From codeveloping solutions to engaging in joint go-to-market and sales efforts, Accenture recognizes the need to prioritize solutions with specific partners to operate in a more agile way, as the company rapidly departs from being truly technology agnostic. TBR does not necessarily think this is a bad move considering that the majority of Accenture’s clients operate in one or more of these technology environments, which alleviates the pain points around migrating applications workloads from on-premises only to hybrid IT environments. Additionally, according to TBR’s digital transformation insights research, the majority of DT buyers are in the “extension” phase, which entails buyers adding disruptive technology that allows for significant improvements to an existing ecosystem.

While Accenture, like many of its consultancy peers, often approaches client discussions with business outcomes in mind, maintaining functional expertise around a particular technology usually tips the scale in Accenture’s favor, considering that the IT buyer still maintains an active role in the DT services purchasing cycle.

Accenture Industry Analyst Conference 2019 was held at Accenture’s Innovation Hub, located in the Salesforce Tower in San Francisco. Accenture’s relationship with Salesforce, one of the top five platforms contributing to Accenture’s sales, has evolved over the years, especially as Accenture has made eight Salesforce-centric acquisitions, enabled by the Accenture Salesforce Business Group, to reach its current status. The two partners are well intertwined, evidenced by the fact that Accenture is the only partner that works on product and service cocreation with Salesforce as well as the global scale and commitment to training Accenture resources on Salesforce technologies including over 16,500 Salesforce-skilled professionals, 17 global hubs and over 55,000 training hours last year, among other attributes.  

TBR does not discount the importance of SAP, Oracle, Microsoft, Workday or any other partners — the first three of which were highlighted heavily during the conference through myConcerto for SAP and Oracle and Accenture Microsoft Business Group as well as through client use cases. However, we think the opportunity around Salesforce is somewhat unique considering it is born-on-the-cloud technology delivered in an “as a Service” model, toward which Accenture is moving its legacy and new business.  

During the two-day Accenture Industry Analyst Conference 2019 in early May, Accenture (NYSE: ACN) hosted close to two dozen analysts at its recently opened flagship Innovation Hub, which is strategically located in Salesforce Tower in San Francisco. As part of the event’s “Leading the epic disruption” theme, key topics, including Accenture’s investments in the new “new,” its partner ecosystem and its talent, were widely discussed, solidifying TBR’s view of Accenture as a market leading vendor but also raising questions about what is next for the company and what kind of disruption Accenture is facing and anticipating.     

VMware leans on partners IBM and AWS to go increasingly all-in on cloud

What’s new from VMworld on the cloud front?

VMworld 2018 in Las Vegas came to a close just a few short weeks ago, but the impact from the slew of cloud-related announcements from VMware and its partners continues to reverberate. After multiple changes in course over the past 10 years as VMware reacted to the shift toward cloud computing, the company has found a strategy that works. VMworld 2018 showed the company doubling down on its partnerships with leading cloud providers and addressing customers’ cloud management pain points.

To extend VMware’s relevance in the cloud management space, the company announced both an acquisition and a host of organic portfolio updates during the conference. Notably, the company announced its intent to acquire CloudHealth Technologies to further its multicloud management and operations capabilities with CloudHealth’s platform and expertise in Microsoft, Google and Amazon Web Services (AWS) clouds.

Portfolio updates were announced across the vendor’s Workspace ONE, VMware Edge, vRealize, vSAN, vSphere, VMware Cloud Foundation and vCloud Director portfolios. Additionally, partner program enhancements through the VMware Cloud Provider Program and announcements with key partners AWS and IBM in regard to partner-based cloud solutions were made as well. While the portfolio updates are notable, much of VMware’s relevance in the cloud space as of late is coming from its alliances and partnerships. It took the shutdown of VMware’s own vCloud Air service, but the vendor’s partner-led cloud strategy reinforces the value of VMware in cloud and hybrid environments.

VMware’s alliance with IBM is a decades-long, increasingly strategic partnership that now spans customers’ and cloud data centers as the two companies work together to help enterprises modernize their traditional and virtual environments into truly hybrid environments. VMware and IBM look to optimize customers’ existing IT assets with strategic cloud workloads and functions as well as the help of thousands of VMware specialists within IBM Services. Additionally, their tenured relationship turned even more strategic in 2016 as IBM helped VMware re-enter the public cloud market with IBM Cloud for VMware Solutions. At the conference, the two announced vCloud Availability for vCloud Director on IBM Cloud, a disaster recovery solution for multitenant environments that enables IBM Cloud to serve as a failover for workloads on VMware environments. After the successful migration of a few key legacy applications to VMware HCX on IBM Cloud for American Airlines in recent months, IBM and VMware also unveiled JumpStart enhancements, announced at VMworld, to help customers migrate their existing on-premises VMware workloads to IBM Cloud.

VMware’s partnership with AWS is very well known, in large part due to the number of customers using technologies from each of the two vendors and because of both companies’ former reluctance to address new delivery methods. VMware was very much on-premises focused while AWS was solely public-cloud focused, making the partnership and VMware Cloud on AWS a notable shift for both vendors. At VMworld 2018, the two companies announced the expansion of their relationship, including the global extension of VMware Cloud on AWS into Australia, a Cloud Provider Hub that allows partners to offer VMware Cloud on AWS as a managed service, AWS Relational Database Service on VMware, NSX integrations, price reductions, Log Intelligence for VMware Cloud on AWS, Instant Data Center Evacuation and more.

Let’s dig a little deeper into these two partnerships and solution sets

While much of the focus as of late in terms of VMware Cloud partner developments has been on AWS, VMware’s partnership with IBM has existed for a longer period of time and encompasses more than IBM Cloud for VMware Solutions, thus the bulk of the integrations are well established and the two announce new features, integrations and functionality as their portfolios evolve. To note, back in August 2016, VMware announced that IBM would provide the first service offering for VMware Cloud Foundation and also train more than 4,000 services professionals with expertise around VMware solutions.

In line with market trends, VMware is partnering with as many leading vendors in their respective technology markets as possible, ultimately to meet and exceed the demands from its customers for multivendor environments, integrations and interoperability across environments. Each of the aforementioned partnerships fits its own customer set, albeit with slight overlap, and addresses specific customer pain points. VMware and AWS are poised to capitalize on midmarket and small enterprise opportunities, with an emphasis on cloud specifically, while VMware and IBM are poised to capitalize on opportunities in the midsize and large enterprise sectors, with a hybrid IT emphasis, optimizing customers’ blends of cloud and legacy IT assets.

While VMware’s partnerships with IBM and AWS may seem like six of one and half a dozen of the other, the differences themselves when looking at hybrid IT as a whole rather than cloud only, where IBM and VMware naturally have a longer, more strategic relationship that encompasses virtual and cloud environments spanning customer and vendor data centers.

To make this a little easier to digest, we’ve developed a table that includes some key solutions recently announced by VMware and AWS and compares them to existing and new IBM and VMware solutions in regard to how customer pain points can be addressed. While the technical functions available from both VMware partners are aligned, many of the target customers will be different.

Information on IBM Cloud for VMware solutions and VMware Cloud on AWS for several customer pain points

It is our perception that the VMware and AWS partnership better suits organizations that embrace public cloud, whether for budgetary reasons, risk sharing or lack of IT staff. Alternatively, IBM is the partner of choice for IBM and VMware large enterprise customers. Joint IBM and VMware solutions are tailor-made for organizations with large on-premises data centers that remain fully functional and thus are not yet ready to be shut down in favor of public cloud only, serving instead as a blend between the old and new.

Sponsored by IBM

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