Webscales will capture the majority of economic value of telecom edge compute market

Webscales have various initiatives underway that will disrupt aspects of telcos’ business model, posing a direct threat to their connectivity businesses and ability to capitalize on new value created from 5G and edge computing. Webscales’ rapidly expanding presence in the edge compute space and keen focus on private cellular networks — particularly in the U.S. — are prime examples of this trend.

Though webscales are posturing like they want to partner with telcos on new opportunities, edge compute partnerships involving a webscale and telco to date are more exploitative than cooperative in nature. Arguably, the highest profile agreement to date is between Amazon Web Services (AWS) (Nasdaq: AMZN) and Verizon (NYSE: VZ), and while Verizon has touted the monetization opportunities, it is providing little more than site access and network connectivity, while AWS’ intelligent edge capabilities provide the bulk of the customer value. In this relationship, AWS doles out a cut of the revenue to Verizon while holding on to the customer relationship and most of the value that emanates from the use of its platform.

The end state of this competitive dynamic will see telcos capturing even less value as they increasingly offload towers and other sites to towercos and data center real estate investment trusts (REITs), and as webscales own greater portions of the network.

Webscales and data center players invest in India to capitalize on the nascent digitalization opportunity

India has become the epicenter of webscales’ focus and investment among emerging markets due to the country’s large population and growth prospects. Alphabet (Nasdaq: GOOGL), Amazon, Microsoft (Nasdaq: MSFT) and Facebook (Nasdaq: FB) are all investing billions of dollars in equity stakes, infrastructure build-out, applications and platforms customized to meet the needs of the Indian market, and setting up business model structures. Reliance Jio, Bharti Airtel and Vodafone Idea are partnering with these webscales on various projects to realize this digitalization opportunity in India.

TBR’s Telecom Edge Compute Market Landscape, which is global in scope, deep dives into the edge compute-related initiatives of stakeholders in the telecom market, including telecom operators, cable operators, webscales and vendors that supply the telecom market. The research includes key findings, market size, regional summary, technology trends, use cases, operator and vendor positioning and strategies, and acquisition and alliance strategies and opportunities.

Indian IT sector may take a heavy hit as Covid batters US and Europe

“Boz Hristov, Professional Services Senior Analyst, Technology Business Research, Inc, said IT vendors — especially those exposed to the most volatile sectors such as industrials/manufacturing, retail and travel — will see a challenging period. The financial services sector will face headwinds, especially banking and capital markets, and less so insurance. This will further pressure Indian vendors that are significantly dependent on that sector, he added.” — The Hindu Business Line

Proximity or scale? Will Latin America’s startup scene challenge India’s?

Here’s a simple question: Can a startup scene in nearshore Americas rival the one in India? Could countries and markets geographically closer to the U.S. provide the kind of energy and entrepreneurship coming from India, particularly in emerging technologies?

A few weeks ago, TBR analysts spoke at length with a PwC partner in India about the startup community and learned how a few key elements have been coming together in recent years to make that country a growing hub for digital transformation innovations. And recently, we noticed a Nearshore America’s piece on the innovation investment in Latin America that made us consider how the two regions compare.

India has some distinct advantages, particularly as digital transformation begins to mature and offshoring, scale and agility become critical to sustained success in delivering IT services enabled by emerging technologies. India also has an education system naturally geared to support a global, English-speaking technology environment, plus increasing support from two different groups: global consultancies looking for creativity and international venture investors and banks looking for new and fast-growing revenue streams.

The questions for Latin America-based startups and their various backers, including local, regional and federal governments trying to incubate and accelerate innovation, likely do not center on competitors two continents away, especially as those startups remain focused mostly on their own markets. But both startup scenes look to the same global markets for investors, clients and, eventually, scale, so IT and emerging tech startups in Mexico, Chile, Brazil, Argentina and Peru need to consider how they compare and what will drive additional — global and sustained — interest and investment.

In early 2020 TBR will speak with consulting and IT services leaders across major vendors, including Accenture, PwC, EY and IBM, about their experiences in and expectations for the Latin America startup and innovation scene, where they see opportunities, and how global firms weigh the potential returns on investment in that region compared to in India.

From ‘breathtaking to very good’: PwC on India’s startup scene

According to PwC, Bangalore, India, is one of the leading startup cities that houses several blockchain and machine learning engineers, an assertion that is difficult to substantiate but one that probably feels accurate to the people on the ground in India who are working with the startup community. Focused primarily on financial technology (FinTech), driven largely by India’s United Payments Interface and its 10-plus million transactions per day, the startup community in India may need a few years to catch up to ecosystems like Boston or Silicon Valley, but the essential elements are in place, including support from large technology vendors, funding from a diverse set of resources, and assistance from experienced consultancies used to working as a bridge between small startups and enterprise-level buyers. Notably, the PwC report mentioned India startups have drawn funding from within the country, from U.S.-based investors, and from banks and sovereign wealth funds in Asia and the Middle East. Asked if PwC sees substantial differences in the size and nature of these funding streams, Talasila called out investments from Japanese investors as particularly robust in recent years, echoing a sentiment TBR heard during a recent visit to Gurgaon, India. Even with a FinTech focus, PwC said the startups have shifted from a copycat mindset to an emphasis on problem-solving and more fully developing a broad ecosystem, two elements that fit well with PwC’s go-to-market approach and overall consulting strategy. As is evident in the use cases that follow, the startup community has embraced working across all lines of business and tackling challenges beyond throwing software at a problem.

Digital potholes and drones defeating mosquitoes

Bringing the startup scene to life, Talasila described a few use cases, ranging from roads to drones to transfer pricing. One startup has developed a new means to measure road surface quality, potentially diminishing the time between a pothole emerging and concerned authorities fixing it. Another startup uses drones to measure mosquito infestations, a potentially massive-scale application across India and other parts of the world. According to PwC, the firm has been engaged, “at any given moment,” with three to five startups outside the FinTech space, including a new electric bus service that could help reduce pollution in India’s cities.

Policy, plumbing and being part of constant change

Before exploring expectations, we need to understand where things were and how much has changed. TBR’s interest in speaking at length with PwC on this topic stemmed in part from trying to better understand PwC’s role and how it has evolved along with the startup community. Talasila said the firm’s efforts around startups in India began in earnest three to four years ago, at a time when the startups were not particularly differentiated (“too many ‘me too’ startups”), and the firm sought advice from its own global member firm network on how to provide meaningful incubation and advice. While PwC US had deep relationships with some startups, the firm did not have an explicit program for early stage engagement. The Israel-based member firm, similarly, worked closely with that country’s nascent startup scene, but the lessons from Tel Aviv did not easily translate to India. As a result, PwC India relied on its own understanding of the market and the players, including the funders, to craft its own role within the startup ecosystem. Notably, according to Talasila, the firm quickly partnered with state governments and federal agencies on policy making with respect to startups, including areas like intellectual property and tax considerations. In PwC’s view, the firm acts as a valuable go-between, bringing government officials first-hand knowledge of the challenges startups face with tax, audit and compliance issues.

Growing traditional revenues in IT services remains a challenge

TBR’s quarterly IT Services Vendor Benchmark published last week, with the following comment from lead Senior Analyst Elitsa Bakalova: “Vendors are scaling transformational portfolios; however, lingering growth challenges in traditional service areas challenge revenue performance. Trailing 12-month IT services revenue growth, at 1.9% year-to-year in U.S. dollars, was down 140 basis points sequentially in 2Q19 and 670 basis points against the year-ago compare. While vendors are not making major downward revisions in revenue growth targets for 2019, revenue growth for the benchmarked vendors has been decelerating due to growth challenges in commoditized traditional service areas; increasing competitive pressures, especially around advisory, implementation and management of next-generation solutions, such as transformational engagements around digital and cloud; and potential macroeconomic uncertainty.”

Additional commentary

“This week TBR publishes its 3Q19 IBM Initial Response, focused on IBM’s corporate and Systems Hardware performance. As the first formal report since the announcement of IBM’s z15 in September, this report will dive into some of the implications of this new launch across the broader portfolio while continuing to provide analysis on IBM’s quantum computing investments and developments. Implications of the Red Hat buy will be highlighted in this report as well, but deeper analysis on this topic can be found in TBR’s IBM Cloud Initial Response. Be on the lookout for TBR’s 3Q19 IBM full report, which publishes on Nov. 6, for a more in-depth look at these topics.” — Stephanie Long, Analyst

“IBM is using its advisory, digital design and technology expertise to win and execute holistic transformational projects and drive management consulting revenue growth in 2019. Value-led and IBM-asset-powered solutions; collaborative innovation, such as in the IBM Garage facilities; and specialized consulting expertise and talent, such as in Global Business Services’ Digital Strategy & iX, Cognitive Process Transformation and Cloud Application Innovation segments, enable IBM Services to position as a digital reinvention partner for clients’ cognitive enterprise journeys.” — Bakalova

“As Julie Sweet takes over the helm, Accenture will continue to capitalize on its momentum, targeting Diamond clients by deploying industrialized, AI-enabled solutions. In FY20 we expect investment in ‘the new’ to help the company expand wallet share within existing businesses as well as position for new logo opportunities, inching total sales from ‘the new’ closer to 100%.” — Boz Hristov, Senior Analyst

Additionally, join TBR’s Professional Services team Oct. 16 for a webinar and Q&A on India-centric vendors, including how they compare to leading IT services vendors and which IT services vendors have the most to lose due to sustained success among those that are India-centric.

Interested in learning more about IT services, cloud, data center and IoT?  Contact TBR today!

Transform at the intersect: NIIT Technologies and the near future of digital and post-digital transformation

NIIT Technologies gets closer to buyers to provide deeper support in an evolving digital and post-digital market  

Opening the event, NIIT Technologies CEO Sudhir Singh described his efforts to recraft the company as a “post-digital firm,” including making cognitive a part of every NIIT Technologies engagement. He further declared NIIT Technologies had transitioned from being a vendor that works for clients to being a services vendor that works with clients and technology partners. Across the three-day event, multiple NIIT Technologies leaders and professionals echoed this sentiment around the shift from “work for” to “work with.” Clients also repeated versions of this message, indicative of the traction it has gained within NIIT Technologies’ ecosystem. At a strategic level, Sudhir Singh said his company intended to “move the center of gravity to the markets,” putting NIIT Technologies’ people where the company’s clients are. In that effort, NIIT Technologies over the last 18 months has opened new centers in Atlanta and Augusta, Ga.; Las Vegas; Princeton, N.J.; and Boise, Idaho. At the same time, Sudhir Singh reiterated an NIIT Technologies characteristic which TBR highlighted last year: staying focused on doing a few things exceptionally well. Now and going into next year, this approach includes limiting industries served, remaining selective in partnerships and identifying a limited number of emerging technology areas where NIIT Technologies can excel. Sudhir Singh said (and multiple discussions with NIIT Technologies professionals and clients confirmed) that banking, insurance, travel and retail/media make up the vast majority of NIIT Technologies’ clients, and one of NIIT Technologies’ strengths is a “hyper-specialization” within these industries. Matrixed across those four industries, NIIT Technologies delivers services in four technology areas: cognitive, data analytics, automation/integration and cloud. Staying within its core “swim lane” is the right approach as, according to TBR’s Digital Transformation Insights research, buyers often expect vendors to bring forward pointed, purpose-driven solutions rather than “blue sky” transformational ideas during workshops discussions.

Turning to the overall IT services market, Sudhir Singh focused on three main trends. First, “technology spend is increasingly nondiscretionary,” resulting in less worry on NIIT Technologies’ part about clients’ year-to-year IT budgets and a greater emphasis on long-term relationships and fully leveraging emerging technologies. Second, at a third or more of NIIT Technologies’ clients, the COO also acts as the CIO, furthering a trend toward digital readiness and adoption across all leadership levels within an enterprise. (Note: TBR’s Digital Transformation Insights Report: Voice of the Customer from earlier this year confirms these two trends.) Lastly, Sudhir Singh said that with cognitive being the “X factor” in IT services going forward, fully connecting the front, middle and back office while continuing to get customer experience right will drive most enterprises’ digital and post-digital transformation in the near term.

NIIT Technologies gathered roughly 170 clients, technology partners, industry experts, analysts and NIIT Tech professionals, for two days of discussions and informal meetings in Miami. The setting fostered casual conversations among clients and other attendees, with clients surprisingly receptive to TBR’s questions. NIIT Technologies had only one main stage presentation, an opening address by the CEO, with clients and industry experts driving the rest of the panel discussions and main stage presentations. 

India-centric professional services firms jockey for position in the digital world

Position as trusted advisers for enterprise customers’ modernization efforts

Technology specialists such as Salesforce and ServiceNow recognized the need of enterprises to have a trusted adviser for their modernization efforts and re-geared their service teams to capitalize on this opportunity. For instance, by verticalizing its service teams, Salesforce now provides industry-specific services to customers modernizing their infrastructure, architecting its portfolio against customers’ needs. While addressing customer needs around deploying Tier 1 provider solutions is critical to professional service firms, partnering with smaller technology specialists such as Tableau, Intuit and Epicor that lack the resources to become trusted advisers to prospective customers creates an avenue for growth in the digital realm. Within the applications space in particular, this represents a significant partner opportunity for professional service firms aiming to root themselves in the enterprise C-Suite undergoing digital transformation.

Where will tomorrow’s Greenfield opportunities exist?

The software-driven world has rapidly accelerated the presence of next-generation technologies in customer IT environments. Having software-defined architectures — from AI to blockchain — accelerates time-to-market for next-generation solutions. TBR believes this is especially true with containerized applications that technology vendors are increasingly targeting, evidenced by IBM’s acquisition of Red Hat for $34 billion, and VMware’s recent acquisition of Heptio.

However, rising adoption of hybrid architectures creates additional challenges for customers seeking to deploy containerized applications, as they must ensure the compatibility of on- and off-premises IT infrastructure with containers. This challenge has given rise to managed services around solutions like Kubernetes, with Platform9 announcing the first fully managed service for Kubernetes on VMware infrastructure in February 2019. TBR believes professional service firms that can foster relationships with various open-source container groups, or leading vendors like Red Hat, will be well positioned to work with enterprise customers seeking to deploy the solutions.

To date, India-centric services firms such as Cognizant, HCLT and Infosys have reference architectures, DevOps and advisory services related to leading containerized application frameworks, such as Kubernetes. While these services help educate prospective customers on the benefits of containers, TBR believes that without skilled headcount, such as senior DevOps application engineers, India-centric services firms risk missing out on the opportunity to partner with technology specialists with robust service teams like Microsoft and Google that are better positioned to guide prospective customers through deployments of emerging technology on their infrastructure. 

TBR reports quarterly on five India-centric IT services giants and includes analysis of their strategies and performances in the quarterly IT Services Vendor Benchmark. This special scenario has been drawn from and complements the most recent reports on these vendors. For further questions, see the TBR team.

Agile-ready everything: An India-centric special scenario

In Technology Business Research’s (TBR) April 2018 Global Delivery Benchmark, we noted that reskilling existing resources is taking precedence over aggressive hiring, resulting in decelerating headcount growth for the 14 benchmarked vendors in 4Q17. While vendors claim that digital-related revenues contribute from 25% to over 55% of their total services sales, existing engagements continue to require nondigital skills as well. Recruitment initiatives help vendors fill skills gaps in areas such as artificial intelligence (AI), Internet of Things (IoT) and analytics. At the same time, vendors continue to build local presence by opening innovation hubs to support agile-based service delivery. The return on these investments has yet to be quantified, but TBR will continue to monitor this trend as these facilities become ubiquitous to how vendors conduct business.

Workforce, workplace, offerings, partnerships

Based on previous forays by India-centric vendors into consulting-intensive offerings, TBR remains skeptical that a trend toward agile will radically change these vendors, but the exception could be TCS. As the largest, TCS will be the biggest battleship to turn around, but the public, deliberate, and staged approach may create the kind of permanence necessary for significant organizational change. TBR has witnessed an emphasis in recent years by consultancies prioritizing recruiting, retaining and reskilling of their talent, especially in emerging tech areas and the consulting offerings tied to those technologies. By leading with two people-centric initiatives, TCS may have charted the proper course. Now, will the company follow it? And will its peers chase its wake?

The tech is ready; geopolitics is hindering a global 5G rollout

Since ZTE (and Huawei) are major equipment providers globally, especially in India, the ban will impact network infrastructure and device ecosystems. — Chris Antlitz, Senior Analyst

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