2016 Trends in Cloud and IT Services Markets

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1 PREVIEW 2016 Trends in Cloud and IT Services Markets DEC 2015 William Fellows, Research Vice President Owen Rogers, Research Director Agatha Poon, Research Manager Katy Ring, Research Director Cloud transformation will take center stage as industry barriers fall and cloud-first strategies become the new norm. Cloud will become an agent for digital transformation, changing the game inside and outside of enterprises. As a result, outcomes will become increasingly more important than the technical underpinnings and inputs Research, LLC

2 ABOUT 451 RESEARCH 451 Research is a preeminent information technology research and advisory company. With a core focus on technology innovation and market disruption, we provide essential insight for leaders of the digital economy. More than 100 analysts and consultants deliver that insight via syndicated research, advisory services and live events to more than 1,000 client organizations in North America, Europe and around the world. Founded in 2000 and headquartered in New York, 451 Research is a division of The 451 Group Research, LLC and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication, in whole or in part, in any form without prior written permission is forbidden. The terms of use regarding distribution, both internally and externally, shall be governed by the terms laid out in your Service Agreement with 451 Research and/or its Affiliates. The information contained herein has been obtained from sources believed to be reliable. 451 Research disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although 451 Research may discuss legal issues related to the information technology business, 451 Research does not provide legal advice or services and their research should not be construed or used as such. 451 Research shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice. NEW YORK SAN FRANCISCO LONDON BOSTON 20 West 37th Street 3rd Floor New York, NY P F Geary Street 9th Floor San Francisco, CA P F Gower Street London, UK WC1E 6HH P +44 (0) F +44 (0) Liberty Square, 5th Floor Boston, MA P F ABOUT THE AUTHOR WILLIAM FELLOWS RESEARCH VICE PRESIDENT William is a cofounder of The 451 Group. As VP of Research, he is responsible for the Cloud & IT Service Markets channel at 451 Research. This channel provides a point of intellectual convergence for 451 Research around cloud computing, in much the same way that the industry is converging on cloud from all points. In addition to keeping tabs on players entering the cloud and IT services space with disruptive business models, new technology and innovations in service delivery, William has also created 451 s Digital Economics unit. II

3 Key Findings Cloud first is the new norm. With all of its advantages, why on earth wouldn t a company consider cloud first? However, it requires top-down, executive decision-making and the will to drive change management through the organization. Cloud first often introduces another silo of technology skills/expertise that can complicate matters, as legacy IT will be around for years. No single vendor can offer the end-to-end services that can satisfy all of a customer s IaaS, PaaS, SaaS and business processing as a service (BPaaS) needs, which is why a multi-cloud approach makes sense. Indeed, we expect customers will be using more than one cloud, if only for fiduciary responsibility. Multiple cloud vendors are available to meet different enterprise needs and best execution venue strategies are helping users match workloads to these resources. The emerging outcome economy will see increasing use of contracts where inputs are the -aas services that must be delivered while increased revenue or lower cost are the SLAs. Early adopters are beginning to have a more mature understanding of cloud technology s transformational capabilities and are looking for different kinds of external services. Systems integrators and service providers will need to raise their IQs to crack this next wave of buyer opportunity. In the public cloud market, the hyperscaler vendors will battle on price while the rest of the market tries to demonstrate value. OpenStack will become a Plan A for new projects in many organizations; however, it remains a relationship business rather than a transactional one. III

4 Executive Summary INTRODUCTION In last year s Cloud and IT Services Markets Preview, we examined the adoption of cloud in the enterprise and how the greatest future opportunity lies in the provision of value-added services on top of infrastructure. We believe as much as 70% of the opportunity for suppliers is selling the managed services that are delivered on top of infrastructure such as application business process hosting and security. Through 2015 we have seen the speed of change accelerate. Cloud first is the new normal. Enterprises are getting started with cloud and -aas deployments wherever possible, instead of starting new datacenter builds or developing infrastructure services that offer no further value than can already be found in public cloud. The speed at which enterprises go to public cloud and the extent to which they can ultimately shift to it depends on how shrink-wrapped cloud can become. Even in regulated markets it seems some of the barriers are coming down. Financial services firms are turning toward cloud in a significant way. Banks and insurance firms are realizing they can operate more securely on cloud than they can in their own datacenters; pharmaceutical companies and healthcare firms are likewise learning this. CIOs are mandating the inclusion of cloud responses to RFPs. Suppliers will need to respond with offerings that are pre-engineered for verticals and include some pre-baked processes in order to take advantage of this new wave of buyer opportunity. This report identifies five trends that will be important in understanding how this market will develop through Research s 2016 Cloud and IT Services Markets Trends Source: 451 Research, 2015 Successful Providers Will Move Beyond Infrastructure to Deliver the Outcome Economy Uberification Will Catalyze the Cloud as the Agent for Digital Transformation Vendors Will Differentiate on Value- Add and Leave Price to Hyperscalers SIs Will Realize Cloud Transformation Services Require New Cross-Functional Service Lines Tech Startups Will Shake Up Asia s Cloud Market Winners Suppliers that can deliver contracts specifying outcomes to be delivered on an -aas basis; companies that can develop or acquire skills and operational experience to support cloud transformation; providers that invest in customersupplier innovation Vendors that can deliver new user experiences and service models; provide tools for cost, compliance, utility, governance and auditability; or remove barriers to scaling applications; proven domain experts Service providers with integrated product portfolios or those willing to take risks to be different Service providers that adapt to better support the cloud transformation opportunity, and those that take advantage of cloud technology to develop innovative offerings Smaller companies and tech startups that zero in on niche market segments with differentiated service strategies; cloud players that prepare to take small steps toward service integration Losers Vendors that can t deliver full-service capabilities, provide a range of services to support best execution venue strategies or deliver guaranteed enterprise-grade offerings; vendors that lock in users or focus on technical capabilities and infrastructure rather than outcomes Traditional ICT firms that can t adapt to a more standardized service world; vendors that can t transition to sell consumptionbased services; providers that can t offer a software-defined model Service providers that charge a premium for IaaS without demonstrating end-to-end value; those that try to take on the hyperscalers in price wars without adding other value Service providers that offer cloud technology without embracing its power to disrupt existing ways of doing business; those that resist developing services that can be measured in terms of supporting business outputs and outcomes Cloud vendors that do not provide proper market education from the outset; local incumbents and established players that fail to transition sales propositions and retrain existing sales professionals IV

5 2016 TRENDS IN CLOUD AND IT SERVICES MARKETS METHODOLOGY Reports such as this one represent a holistic perspective on key emerging markets in the enterprise IT space. These markets evolve quickly, though, so 451 Research offers additional services that provide critical marketplace updates. These updated reports and perspectives are presented on a daily basis via the company s core intelligence service, 451 Research Market Insight. Forward-looking M&A analysis and perspectives on strategic acquisitions and the liquidity environment for technology companies are also updated regularly via Market Insight, which is backed by the industry-leading 451 Research M&A KnowledgeBase. Emerging technologies and markets are also covered in additional 451 Research channels, including Business Applications; Cloud and IT Services Markets; Data Platforms and Analytics; Datacenter Technology; Development, DevOps and IT Ops; Enterprise Mobility; European Services; Information Security; Internet of Things; Mobile Telecom; Multi-Tenant Datacenters; Networking; Service Providers; Storage; and Systems and Software Infrastructure. Beyond that, 451 Research has a robust set of quantitative insights covered in products such as ChangeWave, Voice of the Enterprise, Market Monitor, the M&A KnowledgeBase and the Datacenter KnowledgeBase. All of these 451 Research services, which are accessible via the Web, provide critical and timely analysis specifically focused on the business of enterprise IT innovation. For more information about 451 Research, please go to: V

6 Table of Contents TRENDS 1 Trend 1: Successful Providers Will Move Beyond Infrastructure To Deliver the Outcome Economy 1 Figure 1: Multiple Third-Party Vendors Offer Infrastructure as a Service Figure 2: Business Outcome and Availability Are Primary Drivers for Cloud RECOMMENDATIONS WINNERS LOSERS Trend 2: Uberification Will Catalyze the Cloud as the Agent for Digital Transformation 4 RECOMMENDATIONS WINNERS LOSERS Figure 3: The Average Price of a Compute Requirement Has Dropped 2.5% Trend 3: Vendors Will Differentiate on Value-Add and Leave Price to Hyperscalers 6 RECOMMENDATIONS WINNERS LOSERS Trend 4: SIs Will Realize Cloud Transformation Services Require New Cross-Functional Service Lines 8 RECOMMENDATIONS WINNERS LOSERS Trend 5: Tech Startups Will Shake Up Asia s Cloud Market 9 Figure 4: Cloud Computing as a Service Market Sizing in Asia-Pacific RECOMMENDATIONS WINNERS LOSERS VI

7 2016 TRENDS IN CLOUD AND IT SERVICES MARKETS THE LONG VIEW 12 FURTHER READING 13 INDEX OF COMPANIES 14 VII