Magic Quadrant for Data Center Outsourcing and Infrastructure Utility Services, Europe

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1 Research Publication Date: 12 July 2011 ID Number: G Magic Quadrant for Data Center Outsourcing and Infrastructure Utility Services, Europe Claudio Da Rold, Gianluca Tramacere, Frank Ridder This Magic Quadrant examines 13 providers' abilities to deliver DCO and infrastructure utility services, as well as their vision for these services, in Europe. It will help you choose a data center service provider Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates. This publication may not be reproduced or distributed in any form without Gartner's prior written permission. The information contained in this publication has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information and shall have no liability for errors, omissions or inadequacies in such information. This publication consists of the opinions of Gartner's research organization and should not be construed as statements of fact. The opinions expressed herein are subject to change without notice. Although Gartner research may include a discussion of related legal issues, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner is a public company, and its shareholders may include firms and funds that have financial interests in entities covered in Gartner research. Gartner's Board of Directors may include senior managers of these firms or funds. Gartner research is produced independently by its research organization without input or influence from these firms, funds or their managers. For further information on the independence and integrity of Gartner research, see "Guiding Principles on Independence and Objectivity" on its website,

2 WHAT YOU NEED TO KNOW Organizations' unavoidable need to consolidate and refresh their data center estates, or even create next-generation data centers, requires a significant investment of capital and other resources. Budgetary constraints almost always lead organizations to evaluate alternatives to upgrading or building their own new data centers, ranging from colocation/hosting, data center outsourcing (DCO) or cloud computing approaches. Although the DCO market is mature, multiple trends are blurring the boundaries between traditional and alternative models, which are competing for the same clients' business. Providers that are investing in their physical and management capabilities to create and deliver new, low-cost, industrialized infrastructure utility services (IUS) are taking advantage of this opportunity. Organizations can use this Magic Quadrant to improve their understanding of the vision and ability to execute of 13 DCO and infrastructure utility service providers in this changing market (see Figure 1). This will help them select a provider for long-term DCO and IUS contracts that supports critical functions and business objectives. MAGIC QUADRANT Figure 1. Magic Quadrant for Data Center Outsourcing and Infrastructure Utility Services, Europe Source: Gartner (July 2011) Publication Date: 12 July 2011/ID Number: G Page 2 of 27

3 Market Overview Major forces are shaping the worldwide IT outsourcing market and affecting organizations' data center requirements and the way external service providers design, offer and deliver data center solutions and services. Together, the requirements to increase storage capacity, use high-density computing technologies, cope with rising energy costs, meet environmental concerns, and consolidate for greater efficiency and security often show the limitations of existing physical data centers. At the same time, higher service requirements such as for 24/7 availability, continuous data replication, fast delivery of new capabilities, high flexibility and low-cost delivery challenge the internal IT management capabilities of many organizations. As a result, increasing consolidation, global delivery, industrialization (utility and cloud approaches) characterize Europe's data center infrastructure outsourcing market. Below we take a brief look at the key technology and market trends shaping how customers choose, and service providers deliver, data center managed services to fulfill the new service requirements of globally competing businesses. Technology Trends Virtualization: Eighty percent of the European client references we contacted during this study have outsourcing deals with virtualization implemented and have a server environment that is more than 50% virtualized. Providers declare a ratio of 25% virtual servers across their data centers in Europe. Virtualization, such as virtualized storage and shared computing, is also driving the evolution of the data center toward industrialized services, such as IUS. Providers included in this Magic Quadrant claim that 15% of their clients are already using IUS or infrastructure as a service (IaaS) offerings (for definitions see Note 1); more than 30% of the references contacted in this study confirmed this. Automation: Users' need to access a highly flexible, standard infrastructure, in which the interfaces provided to clients reduce the amount of unproductive service management work, is driving the rise of automated services. In the past few years in Europe, the ratio of managed servers to DCO staff has increased at a compound annual growth rate of more than 25%, and the trend will accelerate due to IUS service standardization and further automation enabled by cloud IaaS technologies. Green IT and energy issues: The use of new and denser technologies is exacerbating power and cooling issues. As a result, 33% of clients surveyed in 2010 selected energy issues as one of their top challenges in data centers (after data growth, systems and network performance). 1 In response, service providers are engineering and optimizing the energy and cooling efficiency of their new physical locations, reducing their traditional power usage efficiency (PUE) of 2.0 to between 1.6 and 1.8 and aiming to achieve an average PUE of less than 1.3 for their new data centers. Continuous optimization of data centers: Driven by the need to protect profitability, organizations continue to standardize, automate, virtualize and consolidate data center services. Providers are focusing their client services in new modular data centers that deliver greater flexibility, more effective power consumption, and higher levels of usage, continuity and remote management. Separation between physical and logical location: Data center consolidation aims to reduce fixed costs related to the maintenance of physical sites, and the relative costs of the people in charge of managing the operations. As a result, providers and client organizations are separating data center functions from the physical assets and consolidating them in "data center operational hubs" or "control centers" that are often in low-cost locations such as Eastern Europe and India. Due to the increasing level of resource sharing, all facets of logical and application security are becoming more critical. Publication Date: 12 July 2011/ID Number: G Page 3 of 27

4 Market Trends Growth in economies of scale and business: Cost pressures continue to fuel interest in the industrialization of infrastructure services, including cloud computing, that deliver economies of scale. In fact, a global user survey showed an accelerated uptake of IUS and IaaS approaches to infrastructure delivery because they help CIOs meet their major priorities in 2011, which are to realize flexible infrastructure, execute growth projects and reduce IT costs. 2 More integrated services: To guarantee end-to-end integration in infrastructure management, client organizations expect providers to use existing low-cost capabilities to deliver integrated services covering multiple technologies, including data center, desktop, communications and help desk services. Industrialized services: In addition to virtualization and service automation, the need for low-cost IT services coupled with increasing standardization and acceptance of global delivery are driving the progressive industrialization of services. Industrialized services have become a de facto requirement to compete, and this is progressively challenging the investment capabilities of local and regional players. While IUS offerings, such as IU for SAP (see "Infrastructure Utility for SAP: Comparing Architectural Offerings") have proven the feasibility and success of industrialized services, cloud IaaS is accelerating the trend and forcing providers to combine their utility and cloud road maps, product names and terminology. This is creating further confusion and turbulence in the market. Evolving pricing models: For the most part, traditional DCO deals used to be fixed-price relationships with a fixed baseline of about 80% to 90% of the total contract value. Currently, the average fixed baseline is decreasing to between 55% and 65%, which provides more flexibility to clients in terms of variability of volumes and pay per use. Often providers manage this variability through a per-unit or per-user, per-month billing mechanism. Although the DCO market is mature, these trends particularly consolidation, virtualization, green requirements, automation and industrialization of new service offerings in the areas of IUS and cloud IaaS continue to drive rapid change. In the infrastructure managed services market, the lines between different approaches colocation, hosting, DCO, infrastructure utility and cloud computing are blurring as new infrastructure utility and cloud computing service offerings emerge. As these offerings compete for the same clients' business and wallet share, they gain prominence in the market. In fact, a recent survey 3 shows that the importance of these offerings in providers' portfolios is rapidly increasing because service approaches, such as IUS and cloud IaaS, are set to be even more popular than traditional approaches. The more than 50 client references that Gartner interviewed as part of the research process for this Magic Quadrant, and information gained from other interactions with Gartner clients in Europe and abroad, have provided meaningful insight into the "pulse" of this market. Despite changes in the market, most of these clients are satisfied with the service they receive in this area and with their relationships with providers. Although there are always some dissatisfied clients, overall DCO is considered a viable, satisfactory and mature sourcing option in Western Europe. Gartner recommends that client organizations use their risk-modeling processes to study all facets of the trends identified in this Market Overview section, identify all relevant risks, and put all necessary controls in place. The European market exhibits some key differences from the North American market (see "Stay Ahead of Data Center Outsourcing and Infrastructure Utility Market Trends in Europe") that started and continues to lead the evolution toward cloud computing and infrastructure as a service. Hosting represents 40% of the total managed data center service market in North America, but less than 20% of that market in Europe (that is, DCO plus hosting; see "Forecast: Infrastructure Utility Services, Worldwide, "). The different countries and languages Publication Date: 12 July 2011/ID Number: G Page 4 of 27

5 found across Europe have resulted in a market dominated by DCO and have inhibited the growth of hosting companies and Internet providers (see "Data Center Managed Services: Regional Differences in the Move Toward the Cloud"). European clients are starting to show increased willingness to accept the provision of consolidated European data centers, which are not necessarily located in a specific country. Therefore, we based the selection criteria for this Magic Quadrant on a country-by-country analysis structured around six regions covering Western and Eastern Europe. Although Indian providers did not qualify for inclusion in last year's Magic Quadrant, one qualified this year (as we had forecast). The entry of the first Indian provider, HCL Technologies, to this Magic Quadrant also signals the rise of a new delivery model for data center managed services. This model is more "asset-light" and based on remote managed services. As such, this required a clarification of our inclusion criteria (see the Market Definition/Description section that discusses remote infrastructure management [RIM]-based services) to include providers that engage in bundled DCO relationships while managing third-party-owned or client-owned data centers. Based on this revision, we invited other providers, such as Accenture, that are known for their "asset-light" approach to data center services to participate in this Magic Quadrant. However, Accenture responded to our request by formally stating that it did not meet our criteria for this study. In addition, BT Global Services did not qualify for inclusion in this year's Magic Quadrant due to a change in its data center services strategy. Other offshore providers did not fulfill all the requested criteria. On 1 July 2011, Atos Origin shareholders gave their final approval for the acquisition of Siemens IT Solutions and Services (SIS). The two companies are now merging their operations under the Atos brand. As agreed with the parties involved, since this study was carried out before the merger started, Atos Origin and Siemens SIS are positioned separately in this Magic Quadrant and will be analyzed as a merged entity in the next update. The 13 providers represented in this Magic Quadrant have combined revenues of over $17 billion from DCO services. They manage over 480 data centers in 21 European countries. Most data centers are at the providers' sites. Others are at client sites or leased from third parties. The 13 providers together manage over 1 million mainframe MIPS (millions of instructions per second) and more than 680,000 servers, of which an average of 25% are virtual servers. The "average service provider" for this Magic Quadrant generates about $1.3 billion from this line of business, manages over 50,000 servers, and has about 35 data centers in Europe. Each provider varies significantly in size, number of staff and clients, number of data centers managed and geographical coverage. Their approaches to this service area also differ. Some view DCO as a strategic business; others consider data centers a necessary base capability for delivering endto-end services that extend to network services, unified communications and collaboration (telecom companies), or to application and business process services (outsourcers and system integrators). Finally, the rise of both "asset-light" service models, such as RIM from Indian offshore providers, and "asset-intense" IUS and cloud IaaS services has further complicated the data center services market during the past few years. 4 This market now includes several types of services provider, including traditional vendors, outsourcers, system integrators, offshore players, telecom companies and hosting players. Levels of choice and competition often based on differing balances of cost, quality and flexibility are growing in Europe's DCO market. Publication Date: 12 July 2011/ID Number: G Page 5 of 27

6 Market Definition/Description European Countries and Regions For this Magic Quadrant, Gartner defines Europe as the combination of Eastern and Western Europe. For this Magic Quadrant, Gartner's definition of Western Europe includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the U.K. For this Magic Quadrant, Gartner's definition of Eastern Europe includes Albania, Bosnia and Herzegovina, Bulgaria, Czech Republic, Croatia, Estonia, Hungary, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Turkey and Ukraine. We subdivide Western Europe into the following regions: Data Center Western Europe, Northwest: Ireland and the U.K. Western Europe, Northeast: Denmark, Finland, Norway and Sweden. Western Europe, Central West: Belgium, France and the Netherlands. Western Europe, Central East: Austria, Germany and Switzerland. Western Europe, South: Greece, Italy, Portugal and Spain. Gartner defines a "data center" as an environment that provides centralized support of computer equipment in a secure facility, including the underlying network infrastructure, and the processes and organization that support this environment. These generally include the following items: System operations. Tape operations. Print operations. Second-level data center support. Production control. Backup and recovery processes. Technical support (operating systems, subsystems). Performance analysis/capacity planning. Storage management. System security/contingency planning. Asset procurement and third-party management. Publication Date: 12 July 2011/ID Number: G Page 6 of 27

7 Data Center Outsourcing DCO is a segment of IT outsourcing (ITO), which always includes an IT management service and is segmented into data center, desktop, network and enterprise application outsourcing. ITO can include a portfolio of product support and professional services that external service providers bring together to provide IT infrastructure, enterprise application services or both, to ensure the success of the service recipient's mission. Infrastructure Utility Services Gartner defines IUS as outsourced, industrialized, asset-based IT infrastructure managed services (below the functional business application layer). Service outcomes, technical options and interfaces define IUS, which organizations pay for based on resource usage, allocation or number of users served. Remote-Infrastructure-Management-Based Service Delivery RIM is a delivery model that providers often embed in DCO. This is an acceptable approach in DCO relationships that are based on a client or third-party-owned data center, and when a single service provider delivers RIM. In this case, the client signs a single service contract with one service provider for the whole set of DCO services. In this type of contract, the main provider is responsible for end-to-end service delivery, including management and control of the hosting subprovider. Inclusion And Exclusion Criteria This Magic Quadrant focuses on management services for mainframe and centralized server environments including IUS to evaluate each service provider's capability to deliver DCO services across Europe. As in previous years, this Magic Quadrant excludes simple, dedicated Web hosting and colocation services. Gartner included service providers that: Demonstrate that they provide DCO services as a sole-source direct provider (we excluded data center services delivered entirely by partners or subcontractors). Show they have nonmarginal data center delivery capabilities in at least three regions in Europe. Generate less than 70% of their total European DCO and utility service revenue in any single country in Europe. Generate a minimum of 10% of their total European DCO and utility service revenue in at least three European countries (not all part of the same region). Generate at least $100 million in annual European DCO and utility service revenue in Europe. Gartner excluded service providers that: Deliver data center services entirely through partners or subcontractors. Exclusively focus on and deliver pure hosting services, such as colocation or simple/dedicated hosting, or that take a purely rental approach to data center capabilities. Publication Date: 12 July 2011/ID Number: G Page 7 of 27

8 Engage in DCO service relationships that are not bundled as, for example, when a client has one contract with a hosting provider and a second contract with a RIM provider or that only manage clients' data centers remotely. We required each service provider to reveal its vision of the market and ability to execute. We also asked the providers to detail their: Service line financials, investments and other main indexes. Global delivery, RIM and low-cost locations. IUS offerings, clients, servers, samples of SLAs and pricing. New-generation data centers, green IT and physical consolidation plans. Deal pipeline, deal structure and sales performance. Value proposition, key differentiators and win/loss elements. Providers also had to supply at least five client references representing the geographic area and specific services under analysis. Added Orange Business Services and HCL Technologies. Dropped BT Global Services, which no longer qualified for inclusion because its new global strategy focuses on colocation, dedicated hosting and an emerging virtual data center hosting offering. In addition, BT Global Services increasingly uses partners, such as HP, to deliver managed data center services. Evaluation Criteria Ability to Execute Gartner evaluated the providers based on the quality and efficacy of the processes, systems, methods and procedures that enable each provider's performance to be competitive and effective, while positively affecting revenue, retention and reputation. We judged providers on their ability and success in capitalizing on their vision, as well as on their Western European footholds in terms of resources, coverage, seamless delivery within different countries, and ability to meet client requirements. Product/Service For this highly weighted category, we evaluated each provider's capabilities and services. We gave special consideration to practice area profile and service capabilities in Europe, service definitions, effective "resourcing" and transition management. The categories of services for our study are: Practice area profile and service capabilities focus on: Overall European DCO revenue, client numbers and staff allocated. Data and control center locations, ownership (provider or client), and size. Management team and position in the corporate structure. Publication Date: 12 July 2011/ID Number: G Page 8 of 27

9 Amount of MIPS and servers managed. Core services and SLAs focus on: The management of SLAs, which includes the provision of core and ancillary data center services, such as full facilities management, remote management, customer on-site support, capacity/configuration planning and consulting on consolidation. Resource and transition management measures each service provider's ability to: Overall Viability Effectively provide relevant resources to customers. Efficiently transition assets, workloads and facilities. Integrate staff coming from the client organization. Complete transition projects to implement a global delivery model, and to ensure business continuity in day-to-day service delivery. This category, which we weighted as "high," includes an assessment of the financial health of the provider's data center operations, and the likelihood that the individual data center business unit will continue investing to support state-of-the-art delivery within the organization's portfolio of services. In particular, we considered growth in the volume per unit (MIPS and servers) as well as revenue in the outsourcing data center segment during the past three years. We asked each provider about the outlook for this outsourcing segment of its business, as well as whether it expects revenue and margins to grow, decline or remain stable. Sales Execution/Pricing This category, which we weighted as "standard," assessed each provider's capabilities in all presales activities and the structure that supports them. We gave specific consideration to teams in charge of deal management, pricing and clarity of scope. We also interviewed clients to gather feedback about their experiences with the service provider in terms of negotiation and pricing. Market Responsiveness and Track Record This category, which we weighted as "standard," assessed each provider's ability to respond, change direction, be flexible, and achieve competitive success as opportunities develop, competitors act, customers' needs evolve and market dynamics change. We also asked clients for feedback on their providers' flexibility, continuous improvement and innovation. Marketing Execution This category, which we weighted as "low," assessed the clarity, quality, creativity and efficacy of programs designed to deliver an organization's message to influence the market, promote the brand and business, increase awareness of the services, and establish a positive association between the service/brand and the service providers in the minds of buyers. Customer Experience Publication Date: 12 July 2011/ID Number: G Page 9 of 27

10 This category, which we weighted as "high," evaluated the reference customers' overall satisfaction with the service and the relationship, taking into account other Gartner client interactions. We obtained reference customers by asking each provider for five Western European references for DCO services. We required that these references follow the geographic distribution needed to participate in the study and the different industries addressed. We also asked for samples of global reports on SLAs, customer satisfaction and other relevant measures during the past 12 months. In particular, we considered important elements of a successful DCO customer experience. Such elements include client satisfaction as part of the evaluation criteria and incentive plans for the account teams, and continuous improvement processes in place centrally and within the account management team. Operations This category, which we weighted as "standard," assessed each provider's ability to meet its goals and commitments, while satisfying contractual obligations for service delivery to clients. Factors include the quality of the organizational structure, skills, experiences, programs, systems, and other vehicles that enable the service provider to operate effectively and efficiently on an ongoing basis. In particular, we considered communication processes, quality control and assurance processes, relationships, contract and service delivery management, continuous improvement plans, methodologies especially relating to ITIL processes and other certifications available for all sites or specific data centers or clients. We spoke to the service providers about their main procedures (operational, transitional, program management, relationship management and change management) and asked reference customers for feedback about these procedures. We asked providers to supply information about the facilities and services they provide, the principal system platform they manage, locations, capabilities and resources, disaster recovery plans, physical and IT security, and backup procedures. Table 1. Ability to Execute Evaluation Criteria Evaluation Criteria Product/Service Overall Viability (Business Unit, Financial, Strategy, Organization) Sales Execution/Pricing Market Responsiveness and Track Record Marketing Execution Customer Experience Operations Source: Gartner (July 2011) Weighting high high standard standard low high standard Completeness Of Vision Gartner evaluates service providers on their ability to articulate logical statements convincingly about current and future market directions, innovations, customer needs and competitive forces, and on how well these map to Gartner's position. Ultimately, we rate providers on their Publication Date: 12 July 2011/ID Number: G Page 10 of 27

11 understanding of how they can exploit market forces to create opportunities for their organizations. Market Understanding This category, which we weighted as "standard," assessed each provider's corporate view of the data center services and outsourcing market in Europe. We evaluated how each provider is trying to address the main requirements of European clients. We also looked at the main effect that new technologies, delivery models and services would most likely have on each provider's business and delivery models in the short term and medium term. In particular, we considered each provider's: Vision for DCO services. Plans to differentiate itself from major competitors. System for segmenting and analyzing the target market to drive marketing and sales. Plans to position these services within a broader offering. Marketing Strategy This category, which we weighted as "low," looked at each provider's main marketing messages relating to DCO services in Western Europe. In particular, we considered: Sales Strategy Current and future value propositions for DCO in Western Europe. The importance of DCO services within the broader IT service portfolio. Channels for internal and external communications. The differentiation of a provider's message from its competitors' messages. This category, which we weighted as "standard," required each provider to illustrate its overall sales strategy for DCO (for example, direct selling vs. indirect selling via partners, allies and channels), its reactive answers to RFPs as compared with its proactive activities, its stand-alone offering as compared with offerings bundled with other services, and its dedicated sales force as compared with its general sales force. In particular, we considered: A high-level sales organization chart to illustrate the provider's go-to-market strategy. The number of dedicated personnel in Western Europe. The number of offers issued during the past 12 months, as well as the number in the pipeline. Countries covered by direct, local teams, as opposed to centralized teams. Client retention rate (driven by the ease of doing business with the provider and its focus on relationship management). Offering (Product) Strategy Publication Date: 12 July 2011/ID Number: G Page 11 of 27

12 This category, which we weighted as "high," required each provider to specify the most important aspects of the service offering that differentiates it in the market and delivers value to its clients. In particular, we considered each provider's: Business Model Ability to integrate client assets, including data centers in Western Europe. Ability to transfer data center staff from client to provider in each Western European country. Approach to combining standard service elements into customized service delivery to provide flexibility and low-cost services. This category, which we weighted as "high," asked each provider for a high-level description of its business model for DCO services, and how it fits within the provider's overall business model. In particular, we considered the ability to address and satisfy two competing requirements: clientspecific requirements (driving client satisfaction) and industrialized, centralized delivery of DCO services (driving low costs and protecting margin). To evaluate how well the provider's business model addresses account management, we asked for information about: The structure of the management teams used to support and manage customers. The average experience, knowledge and skill level of executive management and key customer-facing managers. Processes to address customer issues locally as compared with centrally, including customer access to the appropriate level of management within the service provider and to escalation procedures. To evaluate how well the provider's business model addresses delivery, we asked each provider to describe the strategy for centralized delivery of standardized data center services. We focused on how much of the service the provider bases on virtualized and automated platforms. We also asked for information about its approach to the global delivery model for DCO services, as well as established or planned remote premises. We asked each provider's client references for their judgment of the provider's business model, including account management and service delivery, and factored the answers into our evaluation. Vertical/Industry Strategy This category, which we weighted as "low," assessed each provider's strategy to direct resources, skills and offerings to meet the specific needs of individual market segments, including vertical industries. In particular, we considered each service provider's: Innovation Penetration of different industries for DCO services. Ability to demonstrate expertise in the vertical markets and business processes underpinned by DCO services. Publication Date: 12 July 2011/ID Number: G Page 12 of 27

13 This category, which we weighted as "high," evaluated each provider's position in the market as a thought leader and an innovator. It also evaluated each provider on its leadership and investment to achieve its vision, and to develop innovative strategies in the DCO market. In particular, we considered their answers to the following questions: What investments is your company making to sustain and enhance its vision for innovative DCO services? How do you offer innovation to your established and new customers? What innovative solutions have you provided to customers in the past 12 months? What global alliances do you have with other leading suppliers (and what investments support these alliances)? We also asked whether each service provider's utility-based offerings included: Highly standardized services, processes and SLAs. Virtualized and automated computing platforms. Utility pricing units. Reduced baselines and increased flexibility. We asked client references for their judgment of their providers' ability to innovate, including the technical aspects of innovation, their ability to lower costs and improve the service, and their "proactivity," adaptability and service flexibility. Geographic Strategy This category, which we weighted as "standard," looked at regional capabilities, global consolidation processes, local alliances and partnerships, including: Each provider's strategy to target markets in different Western European countries with the appropriate resources, skills and offerings to meet specific client needs. How infrastructure consolidation processes are affecting the practice area landscape. Relationships with product and service providers to add value, provide full-service solutions or bring innovation closer to clients. How each provider takes responsibility for managing the service delivered, even when using subcontractors or partners. We also asked reference clients for their feedback on local capabilities, and the current or potential effects of consolidation and global delivery processes. Table 2. Completeness of Vision Evaluation Criteria Evaluation Criteria Market Understanding Marketing Strategy Sales Strategy Offering (Product) Strategy Weighting standard low standard high Publication Date: 12 July 2011/ID Number: G Page 13 of 27

14 Evaluation Criteria Business Model Vertical/Industry Strategy Innovation Geographic Strategy Source: Gartner (July 2011) Leaders Weighting high low high standard Leaders perform skillfully. They have a clear vision of the market's direction and develop competencies to maintain their leadership. They shape the market, rather than follow it. The Leaders quadrant includes, in alphabetical order, CSC, HP, IBM and T-Systems. Challengers Challengers execute well today, but they have a less-defined view of the market's direction. They need to be more aggressive in outlining and communicating their strategy for the future. The Challengers quadrant includes, in alphabetical order, Atos Origin, Capgemini, Fujitsu and Siemens SIS. Visionaries Visionaries have a clear vision of the market's direction and are focused on providing services to meet future market needs. They need to improve their ability to deliver and penetrate the Western European market. This Magic Quadrant does not include any Visionaries. Niche Players Niche Players focus successfully on a particular service, a limited number of Western European markets, or both. This narrow focus may affect their ability to outperform or innovate. The Niche Players quadrant includes, in alphabetical order, HCL, Logica, Orange, Steria and Telefonica. Vendor Strengths and Cautions Atos Origin Strengths Atos Origin continues to consolidate and rationalize its DCO portfolio with its strong mainframe business and technical capabilities. However, its DCO revenue has declined slightly, due largely to the loss of a significant German client. Atos Origin has also enhanced its global delivery and low-cost capabilities in Poland and India, but may delay some of its plans to expand into Morocco and Egypt to mitigate the current political risks in those areas. Atos Origin has strengthened its focus on utility and cloud services as it further develops its Atos Sphere brand and "Atos in a box" offerings. Atos Origin delivers IUS and IaaS services to roughly 250 clients, including small and midsize businesses (SMBs) served through a virtual desktop, office and environment. In addition to considerably increasing its footprint, one of Atos Origin's key reasons for buying SIS is to further develop its industrialized infrastructure offerings. Publication Date: 12 July 2011/ID Number: G Page 14 of 27

15 Cautions Capgemini Strengths Cautions Clients praised Atos Origin for its transition management expertise and ability to deliver high-quality, stable and reliable mainstream data center services. They also praised its flexibility and performance in key areas, such as relationship and escalation management, as well as its technical skills, especially in the mainframe area. The acquisition of SIS, which is due to close on 1 July 2011, could fill Atos Origin's coverage gap in Germany, enable it to improve its positioning in North America (and marginally in Asia/Pacific) and create a European outsourcing leader. However, Atos Origin would need to manage the integration well and quickly to achieve these goals. Such big transactions usually disrupt a service provider's workforce and processes, limit flexibility and growth during the merger, and often affect client satisfaction, potentially derailing some relationships. Atos Origin's cloud services portfolio has not yet fully materialized; for example, its SAP Flexible Hosting is not yet a competitive IU for SAP offering. The number of virtualized servers is also below the average across the participating service providers. Atos Origin will need to focus on the practical implementation of its strategic-offering choices during the next 12 to 24 months because its competitors are already moving from first- to second-generation utility services in Europe. Clients reported that Atos Origin could improve the management of uncommon services or problems. Atos could also improve SLA management to aim proactively to go beyond the defined SLA performance in order to support continuous improvement. Capgemini grew significantly in 2010 and remains focused on the major themes shaping the DCO market. Capgemini's current restructuring effort aims to optimize its infrastructure services delivery engine, expand client intimacy toward multiple IT and business buying centers, and support the rise of utility-oriented data center offerings. Although late, Capgemini's focus on portfolio standardization is sound. This standardization and the ability to deliver remote infrastructure services rely on Capgemini's solid network of global delivery capabilities. Seven global help desks, six integrated management operating centers and a strong percentage of overall strategic data centers underpin these global capabilities. Clients praised Capgemini for its focus on service delivery resilience and reliability. Clients also praised this provider for its ability to leverage remote control centers in locations, such as India and Poland, its flexible approach to relationship management, and its performance in managing escalations. Capgemini's strengths in Europe differ from its strengths in other regions, such as America and Asia/Pacific. These inconsistencies may pose challenges for Capgemini when bidding for deals that arise in Europe and require services in other regions, but the acquisition of Brazilian services firm CPM Braxis is a clear strategic signal. The new infrastructure services organization will also need time to deploy all necessary changes to Capgemini's infrastructure delivery engine, while exploiting the provider, integrator Publication Date: 12 July 2011/ID Number: G Page 15 of 27

16 CSC Strengths Cautions and broker roles that Capgemini can play when offering cloud-oriented data center services. While its acceleration in infrastructure service industrialization is moving in the right direction, Capgemini has focused more on global delivery than on standardization and multitenancy. This may hinder its ability to compete on price and flexibility in a crowded market that will still focus on optimizing costs and ROI in Clients reported that Capgemini could more proactively support service improvement solutions, further strengthen the technical skills of its bench, and fine-tune formal procedures in areas such as service performance measurement and planning. CSC is evolving its portfolio of standardized services through a solid focus on global delivery that leverages various low-cost locations and through investments in CSC's cloud portfolio. This focus and these investments will further strengthen CSC's image as a service provider for hybrid cloud solutions that span public to private within the same architecture for example, the recently announced CSC BizCloud and Trusted Cloud services. CSC is investing in a cloud data center in Luxembourg and, later in 2011, in a client-owned cloud data center in Switzerland that other clients will share. CSC is among the vendors that still show a strong interest in taking over staff and data center assets as part of large and strategic deals in Europe. An example is the deal that CSC completed in 2010 with Zurich Financial Services in which Zurich transferred staff and assets to CSC without significant issues. Clients praised CSC for its robust and reliable data center services, the global reach of its bench, and its ability to manage transitions and potential subcontractors in DCO deals. CSC's increased focus on cloud-based utility services will lead to a reduction in the size of its deals and to the development of more hybrid delivery models spanning outsourcing, utility and cloud computing services. This will continue to challenge CSC's strategy and go-to-market model, which had traditionally focused on large enterprises and relatively large deals. CSC should clarify its plans to target and manage relationships in smaller opportunities and deals from a broader set of markets and companies, since these industrialized services will naturally address a broader set of midsize clients in Europe. CSC's expansion into new countries and regions, such as South America or Asia/Pacific, might reduce its focus on relatively large European markets in countries such as France, Spain and Italy where CSC's presence is still limited. A growing global footprint could also mean a more dispersed business that might put its traditional outsourcing capabilities under pressure. CSC should carefully monitor and manage the efficiency changes this expansion brings and further expand its low-cost staff capabilities. Clients reported that CSC could reduce the risk of overreliance on a few key individuals, more proactively promote industrialized solutions and continuous improvement in general, and manage service levels more effectively. Publication Date: 12 July 2011/ID Number: G Page 16 of 27

17 Fujitsu Strengths Cautions Fujitsu is focusing on improving its global integration as a service provider by leveraging its Global Cloud Service initiative that its corporate headquarters in Japan is investing in and supporting. Since April 2011, Fujitsu has focused on unifying and operating all its global delivery centers within a single structure. After years of focusing on innovation tailored to individual customer needs, Fujitsu is increasingly focusing on delivery of its IUS/IaaS offerings and the next generation of global cloud-based services. Corporate investments of around $1.2 billion in enabling technology support Fujitsu's global WAN initiatives and its Global Cloud Service initiative. In addition, Fujitsu's estate of virtualized servers in Europe has grown, though it is still slightly below the market average. Clients praised Fujitsu for its intimate focus on client engagements and related strong performance in escalation management, its ability to deliver resilient and secure data center services, and its focus on deploying homogeneous processes. Fujitsu's penetration of the European market remains uneven; for example, there is ample room for its footprint in France to improve. Although its European footprint is improving through market growth, Fujitsu must maintain a diligent focus on cost and efficiency, maximizing its leverage of IUS/IaaS services and global delivery to protect profitability. Fujitsu has oriented its cloud investment and focus on the infrastructure layer. This is in line with Fujitsu's "DNA," but may require it to evolve strategically toward application specialization and a more end-to-end view to support clients willing to judge cloudoriented solutions on application performance and related skills. The potential migration from current local IUS services to the new cloud platform will provide more service choices to clients, and this may lead to renegotiations and price and margin erosion. Clients reported that Fujitsu could improve its focus on supporting innovation and continuous improvement, its ability to leverage low-cost resources, and its performance when managing transitions. HCL Technologies Strengths HCL is proving to be a rising and credible although still niche provider for European clients willing to take a step-by-step approach to moving up from RIM to DCO, or to transitioning from traditional incumbent outsourcers to newer and cheaper providers. HCL manages a combination of third parties' and client-owned data centers; it does not own physical data center assets in Europe, although it does in the U.S. Among Indian players, HCL has been quite early in developing its utility offerings, which focus on a private utility approach that may capitalize on the market's interest in private clouds. Although HCL does not yet own physical data center assets in Europe, its offshore-based DCO and IUS services are gaining traction, and HCL could further leverage its strengths in vertical SAP implementations following its acquisition of Axon. Publication Date: 12 July 2011/ID Number: G Page 17 of 27

18 Cautions HP Strengths Cautions Clients praised HCL for its flexible approach to supporting client needs and peaks in demand; for its ability to deliver remote infrastructure services from locations such as India or Poland; and for balancing service delivery and personnel commitments effectively. Despite increasing investment in its IUS/cloud offerings, HCL cannot easily increase uptake of these offerings without investing in its data center resources, strengthening the visibility of its service offerings, and developing more uniform country coverage. For front-end local capabilities, HCL selectively leverages client skills acquired through deals and then uses significant numbers of "low-cost staff" to manage client assets. HCL's increase in end-to-end automation, in which it plans to invest $22 million, will be a measure of its long-term focus on profit, industrialization and nonlinear growth. HCL's "asset-light" approach may limit its growth and credibility in key markets such as Germany, France and Italy. Additionally, HCL cannot easily expand into the SMB market in Europe due to its limited size and limited penetration of this continent. This could hinder HCL's growth in the medium term, unless it changes its approach to partnerships and increases its local presence. Clients reported that HCL could improve the quality, consistency and management of its resources, and could mitigate issues around cultural understanding and proactively support improvements in innovation and service delivery. Clients also mentioned that HCL should strengthen its transition management skills. HP's solid footprint in the European market and its utility services offering have largely driven its DCO revenue growth in Europe. HP has strong DCO capabilities, solid ITO transformation plans, and is still investing in further consolidation, staff optimization, more automation and efficiency. HP continues to deploy a single toolset for service management across all its data centers. HP has a strong focus on global delivery, with a balanced combination of local, nearshore and offshore resources delivering DCO services through its Best Shore approach, a RIM model. HP has progressed the integration of its global offerings by rolling out HP Utility Services in North America (Alpharetta, Georgia and Littleton, Colorado) and Asia/Pacific (Singapore and Sydney), and deploying its Enterprise Cloud Services (ECS) platform in Tulsa, Oklahoma and Wynyard, U.K. for increased automation and flexibility. Clients praised HP for the depth and breadth of its global data center capabilities, which successfully use global delivery centers in low-cost locations (such as Bulgaria, Slovakia, India and Malaysia) for remote infrastructure services. Clients also recognized HP's ability to manage service levels efficiently over time, and its performance in managing relationships and escalations. HP's customer satisfaction has improved during the past year, but is still marginally lower than it was before the acquisition of EDS in Clients also perceive HP as lacking proactive innovation. HP plans to increase automation, further restructure Publication Date: 12 July 2011/ID Number: G Page 18 of 27

19 delivery and consolidate data centers. This involves halving its data center estate in the long term; it intends to close at least 12 data centers in the next two years in Europe. At the same time, it plans to roll out the new ECS-based utility services that it announced recently. The next two years will truly benchmark HP's capability to stabilize delivery, innovate services, satisfy clients and further grow its business in Europe. HP's approach to cloud services has been conservative to date with an immediate focus on enterprise clients' private cloud environments that may lead to managed services or technology deals. Although HP is deploying ECS to take on cloud clients in its data centers, HP has not so far invested in ready-to-use server and storage infrastructure like some of its cloud competitors. This might lead to a delay in clients adopting HP's cloud services and explain why HP's growth of managed virtual machines has been slower than that of its competitors. The new strategic orientation that HP has recently announced toward services and the cloud may change this approach in the coming years. Clients reported that HP could improve its agility in terms of implementation and problem solving, its focus on improving service delivery through innovation, and its performance in transition management. IBM Strengths Cautions IBM maintains the most comprehensive presence, brand recognition and technical capabilities in DCO in Europe. Nevertheless, it is competing with both traditional and increasingly nontraditional players, including offshore providers and more utility/cloudoriented providers. IBM is accelerating its efforts to improve customer satisfaction and related measures, although meeting all SLAs does not automatically mean every client is satisfied. IBM's structured approach to innovation could lead to new and more efficient services for its customers, but so far it has been industrializing its service delivery engine more than offering customers new industrialized cloud service offerings. In addition, IBM's strong focus on taking advantage of global delivery, common tools, homogeneous processes and standardization is likely to help protect its margins. Clients praised IBM for the quality of its technical skills, especially in the mainframe area, and its ability to support consolidation and resilience in the data center. They also praised IBM for its focus on managing transitions, leveraging global delivery (from locations such as India, the Czech Republic and South Africa) and deploying standardized methodologies. A key pillar of IBM's industrialization and cloud services strategy involves building customized solutions and services built on industrialized components, though IBM does not appear to be actively promoting industrialized utility services to clients. This can make it difficult for clients to unbundle services, take further advantage of multisourcing and buy utility services. Despite its leading position, IBM's communication and marketing of DCO services is not differentiating. In addition, a desire to upsell to existing clients, as opposed to marketing offerings to new target markets such as SMBs, drives IBM's deployment of new Publication Date: 12 July 2011/ID Number: G Page 19 of 27

20 Logica Strengths Cautions industrialized offerings. These factors may hinder its potential to win new blue-chip clients and may limit its market growth in Europe's "soft" economy. Clients reported that IBM could improve its ability to mitigate the effects of its complex organization in order to speed up decisions and changes. They also said that IBM could improve its knowledge of nonproprietary products and its focus on delivering innovation. Logica maintains a strong presence in Europe, and its prolonged focus on infrastructure outsourcing in key European markets supports its position. Logica's visible investments in its data center estate and its aggressive data center consolidation plan and accelerated investment in global delivery are likely to set the stage for future improvements and growth. Logica's cloud "story" is based on its utility developments in on-demand and real-time services and its partnerships, such as a strategic alliance with Microsoft for implementation services for Microsoft Azure in key industries. Logica's data center proposition also includes private cloud services (private, shared and automated/virtualized) and an ambition to offer application-related value-added services in addition to infrastructure-based cloud solutions. Clients praised Logica for its customer orientation, ability to consolidate data centers, and willingness to balance relationship and contract management efficiently. Although Logica has increased its capabilities in India and Morocco, it should further accelerate its global delivery expansion as it is currently behind its competitors in terms of its installed base of clients that use global delivery services and its ability to leverage global delivery. Logica needs to execute rapidly and carefully its data center consolidation program, planned to affect half its estate within five years, and implement a twin data center strategy to catch up with its main competitors. Beyond some gaps in mainframe services and the German market, changes in Logica's definitions, names and related branding of its service offerings are affecting its road map for industrialized data center services. This creates confusion, which hinders Logica's attempts to increase the visibility of its industrialized offerings, especially those that Logica has delivered in the Nordic region over the years. Clients reported that Logica could become more proactive to enhance deal performance, further speed up its problem management, further motivate some of its resources, and enhance the flexibility of its SLA management. Orange Business Services Strengths Orange Business Services (Orange) is a leading player in France and appears wellpositioned for network-based deals that include end-to-end SLAs spanning the data center. In 2010, Orange grew marginally in a tough market. Its consolidation of 78 data centers into 18 has streamlined Orange's global delivery engine and significantly improved its overall PUE. Publication Date: 12 July 2011/ID Number: G Page 20 of 27