ISG Provider Lens™ Data Center Outsourcing Archetype Report 2018
29 Mar 2018
by Pankaj Kulkarni
$3999
It is now common knowledge that the disruptive nature of new technologies is forcing
organizations to adapt themselves as digital businesses. All businesses, regardless of
industry, realize that they are not immune to this disruption and must have a strategy to
compete in the modern marketplace that is driven by tech-savvy consumers. To deliver
on this requirement, businesses need an infrastructure base that is adaptive to changing
market conditions, easily manageable and always available. Over the last few years, the
changing nature of business has dictated a fresh approach towards how infrastructure
is managed and consumed. From an infrastructure services perspective, this report on
services for data center management and transformation provides our view on how
typical businesses are at different stages of outsourcing, technology adoption and
maturity, and how the stages translate into different requirements. It explores how service
providers are adapting their portfolios and developing new competencies that appeal to
different clients across this spectrum.
Our research found that the data center managed services market is increasingly
moving towards an industrialized service delivery and consumption-based pricing
model. Industrialized services drive cost and efficiency improvements through a set of
repeatable and scalable processes that are applicable across several buyer organizations.
Industrialization has moved up from basic monitoring and management services to include
cloud deployment services, such as using bots to determine workload placement, and mass
migration of applications to the cloud using a factory-based approach. Consumption-based
services are delivered mostly through managed private cloud deployments, either hosted
or on-premises, which give enterprise clients an opportunity to offload assets and convert
capital expenses to operating expenses. Certain service providers also provided examples
of gainsharing contract models wherein they receive a percentage of their fee contingent on
achieving or exceeding IT output targets. Other service providers had examples wherein a
percentage of their fee was linked to business outcomes.
Ongoing monitoring and management services are growing at a slower pace while
transformational services are growing rapidly. The data center transformation journey
usually starts with consolidation and standardization, then moves towards activities such
as increasing the virtualization footprint, establishing private clouds with self-service
and chargeback mechanisms and connecting these on-premises environments to public
clouds, thus achieving a hybrid environment. In aggregate, most vendors report growth
rates between 10 and 15 percent for the overall portfolio of data center managed and
transformation services.
Automation is a key theme across all service providers. In fact, almost all service providers
already have an automation strategy in place which either revolves around tools
developed in-house or an integrated set of best-of-breed third-party technologies that are
branded under the company’s portfolio of infrastructure services. At a minimum, most of
these tools have capabilities such as event correlation that aim to reduce the number of
incidents. Other higher-end capabilities such as machine learning and self-healing systems
are also increasingly visible across service provider offerings.
In terms of long-term strategy, most service providers follow a “hybrid cloud is the norm”
approach. However, hybrid cloud models with bidirectional workload portability are still
emerging. While most workloads continue to run on-premise, a few service providers
believe that the public cloud component of the hybrid mix will experience a rapid uptick in
adoption over the next few years and may well flip the ratio of on-premises environments
to public cloud environments.
Forward-looking service providers are investing in software-defined capabilities that
provide an abstraction layer over and above the data center. These providers are enabling
further advancements in data center transformation services. This is in response to
demand from some enterprises that already have highly virtualized server footprints. These
enterprises are experimenting with network virtualization followed by storage virtualization
in their quest to achieve an infrastructure that is completely controlled by software and that
delivers superior agility. Such software-defined setups are aimed at supporting DevOps
practices such as continuous integration and continuous delivery (CI/CD). The ultimate goal
is a faster time-to-market, particularly for client-facing, web-based applications.
Service providers have invested heavily in state-of-the-art labs and centers of excellence
(COEs) to demonstrate proprietary and open source software-defined solutions to potential
clients by simulating real-world use cases. A few service providers are differentiating
themselves through technology vendor certifications for software-defined data center
(SDDC) designs. Many of these providers also have established partnerships with vendors
that provide enabling components for SDDC, such as VMware, or hyperconverged technology
vendors, such as Cisco and Nutanix.
In the future, the service provider ecosystem is likely to experience some consolidation,
especially in the mid-tier segment. The mid-sized service providers that made a late entry
into the infrastructure management services business missed out on the 20 to 25 percent
growth rates with high margins that their larger rivals enjoyed not too long ago. Without the
scale comparable to these larger rivals, it may be difficult for them to win large deals. At the
moment, they are attempting to differentiate themselves through a combination of
end-to-end service portfolios, flexibility and customization, narrowed industry focus and a
broad partner ecosystem.
organizations to adapt themselves as digital businesses. All businesses, regardless of
industry, realize that they are not immune to this disruption and must have a strategy to
compete in the modern marketplace that is driven by tech-savvy consumers. To deliver
on this requirement, businesses need an infrastructure base that is adaptive to changing
market conditions, easily manageable and always available. Over the last few years, the
changing nature of business has dictated a fresh approach towards how infrastructure
is managed and consumed. From an infrastructure services perspective, this report on
services for data center management and transformation provides our view on how
typical businesses are at different stages of outsourcing, technology adoption and
maturity, and how the stages translate into different requirements. It explores how service
providers are adapting their portfolios and developing new competencies that appeal to
different clients across this spectrum.
Our research found that the data center managed services market is increasingly
moving towards an industrialized service delivery and consumption-based pricing
model. Industrialized services drive cost and efficiency improvements through a set of
repeatable and scalable processes that are applicable across several buyer organizations.
Industrialization has moved up from basic monitoring and management services to include
cloud deployment services, such as using bots to determine workload placement, and mass
migration of applications to the cloud using a factory-based approach. Consumption-based
services are delivered mostly through managed private cloud deployments, either hosted
or on-premises, which give enterprise clients an opportunity to offload assets and convert
capital expenses to operating expenses. Certain service providers also provided examples
of gainsharing contract models wherein they receive a percentage of their fee contingent on
achieving or exceeding IT output targets. Other service providers had examples wherein a
percentage of their fee was linked to business outcomes.
Ongoing monitoring and management services are growing at a slower pace while
transformational services are growing rapidly. The data center transformation journey
usually starts with consolidation and standardization, then moves towards activities such
as increasing the virtualization footprint, establishing private clouds with self-service
and chargeback mechanisms and connecting these on-premises environments to public
clouds, thus achieving a hybrid environment. In aggregate, most vendors report growth
rates between 10 and 15 percent for the overall portfolio of data center managed and
transformation services.
Automation is a key theme across all service providers. In fact, almost all service providers
already have an automation strategy in place which either revolves around tools
developed in-house or an integrated set of best-of-breed third-party technologies that are
branded under the company’s portfolio of infrastructure services. At a minimum, most of
these tools have capabilities such as event correlation that aim to reduce the number of
incidents. Other higher-end capabilities such as machine learning and self-healing systems
are also increasingly visible across service provider offerings.
In terms of long-term strategy, most service providers follow a “hybrid cloud is the norm”
approach. However, hybrid cloud models with bidirectional workload portability are still
emerging. While most workloads continue to run on-premise, a few service providers
believe that the public cloud component of the hybrid mix will experience a rapid uptick in
adoption over the next few years and may well flip the ratio of on-premises environments
to public cloud environments.
Forward-looking service providers are investing in software-defined capabilities that
provide an abstraction layer over and above the data center. These providers are enabling
further advancements in data center transformation services. This is in response to
demand from some enterprises that already have highly virtualized server footprints. These
enterprises are experimenting with network virtualization followed by storage virtualization
in their quest to achieve an infrastructure that is completely controlled by software and that
delivers superior agility. Such software-defined setups are aimed at supporting DevOps
practices such as continuous integration and continuous delivery (CI/CD). The ultimate goal
is a faster time-to-market, particularly for client-facing, web-based applications.
Service providers have invested heavily in state-of-the-art labs and centers of excellence
(COEs) to demonstrate proprietary and open source software-defined solutions to potential
clients by simulating real-world use cases. A few service providers are differentiating
themselves through technology vendor certifications for software-defined data center
(SDDC) designs. Many of these providers also have established partnerships with vendors
that provide enabling components for SDDC, such as VMware, or hyperconverged technology
vendors, such as Cisco and Nutanix.
In the future, the service provider ecosystem is likely to experience some consolidation,
especially in the mid-tier segment. The mid-sized service providers that made a late entry
into the infrastructure management services business missed out on the 20 to 25 percent
growth rates with high margins that their larger rivals enjoyed not too long ago. Without the
scale comparable to these larger rivals, it may be difficult for them to win large deals. At the
moment, they are attempting to differentiate themselves through a combination of
end-to-end service portfolios, flexibility and customization, narrowed industry focus and a
broad partner ecosystem.
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