Gartner Magic Quadrant: Data Center Outsourcing and Infrastructure Utility Services, North America
Welcome to page 4 of 4 of our Gartner Magic Quadrant report coverage. Here, we look at companies in the Leaders quadrant. The quadrant includes the following companies sorted alphabetically:
GARTNER BACKGROUND: During 2015, CSC’s focus on restructuring included the separation of the U.S. federal workload into the CSRA entity in November. Cost optimization and product development improved its service margins, while Gartner estimates its global DCO/IUS revenue decreased by 17% to $2.5 billion, and North America decreased by 9% to $1.1 billion. This decline is partially because the company is driving more “as-a-service” models, replacing traditional managed services, and partially because of intense pricing competition. CSC managed servers have VMs declining 4% to over 46,000 and a 39% growth in physical to over 42,000. This is partially due to expansion in new business with the acquisition of Fixnetix, Axon and Fruition Partners. CSC has over 20 North American clients and 1,000 servers in its next-generation DCO/IUS offering that rely on cloud-based infrastructure with AWS and Azure partners. CSC supports Oracle with over 650,000 users and SAP with over 500,000 users, with both areas growing at 7%. CSC’s IaaS strategy takes a bimodal approach — both legacy and cloud — with integrated and automated delivery to support digital business transformation. CSC’s data center references had an average revenue of $12 million annually. On 24 May 2016, HPE announced that it will spin off its $18 billion enterprise services business and combine it with CSC’s $8 billion business. While the merger will not materially affect the two organizations until early 2017, organizations should be early and diligent in addressing changes as the two vendors figure out redundancies and organizational requirements to fill critical skills gaps in a timely manner.
- CSC’s strategy is moving to an asset-light infrastructure delivery, consolidating assets and increasing its reliance on cloud and hosting partners. Most of its engagements are now “as a service,” with exponential growth of deals lower than $1 million in total contract value.
- CSC has launched its next-generation delivery centers and managed cloud offerings with the CSC Agility Platform to provide seamless integrated and automated delivery across CSC-offered private clouds and market-available public clouds for key verticals, including banking, manufacturing, insurance and healthcare.
- Some clients report that CSC’s service delivery activities meet or exceed expectations. A few clients report hosting services are a strength, along with flexibility and quality of service.
- Despite strong growth in its as-a-service pipeline and deals, CSC lost business in DCO/IUS revenue during 2015. CSC must be able to sell quickly to existing customers and new prospects to compete against emerging offerings in a market where small or midsize clients are increasing while megadeals are decreasing.
- CSC has continued to make changes to its offering portfolio with the divestiture of the U.S. public sector, while acquiring expertise in ServiceNow with Fruition Partners and the brokerage market with CSC Fixnetix’s low-latency data center capabilities. This continued change in the offerings will challenge CSC, as it will require new marketing, management and expandable delivery capabilities to grow the offerings and maintain high service satisfaction.
- Some clients expressed dissatisfaction when it comes to CSC’s asset procurement and management. Some clients reported that access to skill sets and the number of FTEs on the account were a weakness.
GARTNER BACKGROUND: Gartner estimates HCL Technologies’ (HCL’s) worldwide DCO/IUS revenue of $1.8 billion increased 16% in the last year, driven by $870 million in North American revenue, which grew 14% during 2015 . HCL’s focus on automation and its investment in third parties’ next-generation data centers are creating a positive perception of the company’s DCO/IUS strategies. Gartner’s estimate of HCL infrastructure size includes VMs with a 72% increase to over 390,000 and a 3% contraction in physical to over 140,000. HCL has clients with 14,000 servers in its DCO/IUS offering that rely on cloud-based infrastructure with AWS and Azure partners. HCL supports Oracle with over 360,000 users, growing at 15%, and SAP with over 350,000 users, growing at 9%. HCL data center reference revenue averaged $16 million annually.
- HCL demonstrated one of the highest growth rates in 2015. HCL’s creation of megadeal pursuit teams is paying off as it pursues large renewal business with its strategy of increasing localization. HCL has become more selective on RFPs and is promoting more profitable offerings.
- HCL has a wide range of products and services around hybrid infrastructure management capabilities such as MyCloud, Cart, HCL Gold Blue Print and MTaaS, as well as other intellectual property rights (IPR) around PaaS, data analytics, enterprise applications and disaster recovery.
- HCL continues to develop Watson technology capabilities, along with its next-generation data center that is based on a twin data center reference architecture, and a hybrid cloud built on specific workloads. HCL has already delivered MyCloud Control, mostly for use in private cloud, but also in IUS/SaaS to control the SoftLayer, AWS and Azure platforms.
- Many clients cited high satisfaction overall with HCL, giving high scores for being very flexible with regard to changes or adjustments with SLAs, having robust standardized methodologies, and for workload transitions being well-planned and executed. Many clients also said HCL provides good value for the money, has a strong breadth and depth of service capabilities, and has the staffing and resources needed to meet widespread geographical coverage.
- HCL’s client base has a large share of the data center capacities in-house. This is an opportunity for HCL, but could also be seen as an offering mismatch, with clients deciding to retain data center workloads rather than outsourcing them to HCL.
- HCL is following an asset-light approach to data center and will continue to effectively manage all risks through third-party supplier contracts. As clients move to the cloud and require hosted private cloud capabilities, the use of third-party data centers will be critical to HCL.
- Clients are concerned with HCL’s ability to be a thought leader and challenges with HCL experience specific to their industry. Some clients were concerned about HCL having effective partnerships that will deliver value.
GARTNER BACKGROUND: Based on Gartner’s estimate and Hewlett Packard Enterprise’s (HPE’s) financial reports, 2015 results included over $1.8 billion in total DCO/IUS revenue in North America, down 6% from 2014. HPE continues to evolve its offerings with the announcement to offer public cloud services from partners AWS and Azure. HPE continues to manage the shift to VMs with a 46% increase to over 240,000 and a 30% decrease in physical to over 170,000. HPE supports Oracle with over 3.2 million users and SAP with over 2.3 million users, with both areas growing at 3.5%. HPE announced that it is starting to offer public cloud brokerage services. On 24 May 2016, HPE announced that it will spin off its $18 billion enterprise services business and combine it with CSC’s $8 billion business. While the merge will not materially affect the two organizations until early 2017, organizations should be early and diligent in addressing changes as the two vendors figure out redundancies and organizational requirements to fill critical skills gaps in a timely manner.
- HPE offers an array of services in the North American market addressing all industries, including managed servers, MIPS and storage in more than 30 data centers. HPE has the global footprint to compete for large-scale global DCO/IUS deals.
- HPE’s focus on infrastructure, utility and cloud-based services includes 1,500 clients globally, of which approximately 33% are located in North America. HPE offerings are based on its investment in the Helion cloud brand and its acquisition of Eucalyptus to enable AWS-compliant private clouds.
- Some clients stated that HPE has many ITIL-certified personnel and processes, which help it to consistently deliver services and consistently overachieve on SLAs. Clients stated that the HPE account team is very effective and can be a strong advocate for their needs within HPE. Clients also reported that HPE is effective at acquiring onshore or offshore resources with competent skills.
- HPE’s new strategic plan to not offer its own public cloud and instead embrace existing public cloud offerings is behind many competitors for this specific area. This delay in offering support for public cloud may have helped contribute to the Gartner-estimated DCO/IUS revenue erosion of 6%.
- HPE has a small number of customers trialing its Helion Openstack hybrid cloud platform, but it has yet to deliver any significant use of its AWS-compatible private cloud offering, Eucalyptus. HPE’s ability to lead with a cloud brokerage service with seamless operations will be proven with its new offering over the next 12 months.
- Some clients reported challenges with change requests taking too long to get pricing. HPE is challenged with delivery timelines. Some clients are challenged with HPE’s lack of technical depth in some areas of the operations.
GARTNER BACKGROUND: Gartner estimates IBM’s 2015 revenue to be roughly $9.5 billion worldwide in the DCO/IUS space, with the North America DCO/IUS revenue remaining flat for 2015 at a Gartner-estimated $4.5 billion. IBM remains the largest competitor in this market across cloud and traditional environments. IBM’s plans to increase revenue from its current strategic imperative (data, cloud and systems of engagement) from $25 billion in 2014 to more than $40 billion in 2018 appear to be on target, with $28.9 billion achieved in 2015. IBM offers two cloud platforms — the IBM Cloud Managed Services (previously known as SmartCloud Enterprise) and SoftLayer and brokerage access to all cloud models including Google, VMware, AWS and Azure. IBM is the largest mainframe management service business, with over 1 million MIPS under management. IBM supports 570,000 servers, attaining a 13% growth rate. IBM delivers in midsize and large infrastructure service deals and can scale to megadeals, with its key focus around verticals like manufacturing, financial, communication services, retail and distribution. IBM’s data center references had an average revenue of $62 million annually.
- IBM continues to make multibillion dollar investments in cognitive computing, automation and analytics tools to enable clients’ digital transformation agendas and support IBM’s evolution from a system integrator to a “services integrator,” based around hybrid cloud. IBM seeks to bring together the full breadth of its integrated offerings and industry expertise in all industries. IBM offers a hybrid mix of services split between traditional, public and private cloud, and provides expertise on managing hybrid complexity, cloud brokerage and orchestration.
- IBM continues to grow its cloud revenue. For 2015, IBM committed to investing $1.2 billion to expand its global cloud operations, addressing all major geographies to increase the reach and capability of its business’s IT operations.
- Many clients lauded IBM for its global presence, breadth of services offered, availability of expertise, scalability, reliability and security. Many clients praised IBM for its standardized services that can be augmented with broad offerings in public and private cloud.
- IBM’s internal restructuring is starting to impact its revenue, which remained flat for DCO/IUS in 2015. This will continue to be a challenge as more client deliverables move to cloud-based services with a primary focus on cost optimization that may not play to IBM’s strengths. In response, IBM has reduced its services portfolio from 255 to 95 distinct services during 2015. Customers who work with IBM should determine whether they may be impacted by these rationalization and standardization efforts.
- As IBM manages its strategy of brokerage services between its own SoftLayer cloud and enabling client use of alternative cloud services such as AWS or Azure, it must also address the market issue of scaling the operations to allow effective service for small cloud clients, which have continued concerns that IBM will not be responsive to their needs.
- Some clients report that IBM lacks agility and is slow to respond to client requests. Some clients also rate IBM low in cost competitiveness, cost of upfront capital expenditure (capex) and cost of specific service elements like storage.
GARTNER BACKGROUND: Gartner estimates Tata Consultancy Services’ (TCS’s) DCO/IUS revenue globally totaled $1.5 billion, with North American revenue reaching $805 million in 2015, an increase of nearly 38% over 2014. During 2015, Gartner observed that TCS is embracing the ability to drive transformation and cloud migration. TCS managed the shift to VMs with a 30% increase to over 540,000 and a 25% gain in physical to over 185,000. TCS has clients with 18,000 servers in its DCO/IUS offering that rely on cloud-based infrastructure with AWS and Azure partners. TCS supports Oracle with over 500,000 users and SAP with over 1.1 million users. TCS data center references had an average revenue of $20 million annually.
- TCS is actively implementing ignio as a cloud-based SaaS model. This neural automation system is in production with clients, and is currently achieving 40% productivity improvement in labor requirements, as well as exponential improvement in business process efficiency .
- TCS is investing in Canada with the addition of data center space to serve the market locally. It has effective offerings in hybrid cloud, and has embraced the use of public cloud for customers with 90% of the cloud workload in Azure and AWS and 10% in the TCS cloud.
- Many clients commented that TCS provided a cost-effective solution, and was flexible in meeting the client’s needs. Clients also commented that TCS’s standardized approach led to consistent deliverables and a high quality of service.
- Growth and success in the North American market are still predicated on an asset-light model that leverages client-owned data centers and colocation. With the expected growth of the TCS cloud and ignio offered in a cloud, the need for TCS data center space will prompt the need for additional public cloud resources.
- TCS is depending on automation and the abilities of ignio to maintain an effective labor pool, while meeting the 38% growth goal for services. While currently on track, this may lead to labor challenges if the planned effort to add 40 new clients to ignio in 2016 does not happen.
- Some clients report that TCS must improve its on-site resource skills for technical strength, and that TCS lacks innovation and thought leadership in existing client relationships.
Graphic: Gartner Data Center Outsourcing & Infrastructure Utility Services: North America Magic Quadrant Chart
Now that you’ve read about each company a bit, here’s a look at each company’s position on the Magic Quadrant chart…
Here endeth the Magic Quadrant recap.