The market for data center managed and transformation services is growing 15 percent annually, fueled by growing enterprise demand for flexible, always-available, cloud-based infrastructure to support the pace and demands of digital business, new research from Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm, has found.
The ISG Provider Lens Data Center Outsourcing Archetype Report released today found the data center management services market increasingly moving toward an industrialized service delivery model and a consumption-based pricing model.
Industrialized services drive cost and efficiency improvements through a set of repeatable and scalable processes applicable across buyer types, the report said. Such services have moved up from basic monitoring and management 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, the report said.
Consumption-based services mostly are delivered through managed private cloud deployments, either hosted or on-premises, the report said, giving enterprise clients the opportunity to “offload assets and covert capital expenses to operating expenses.” Among the pricing models cited, the report noted providers adopting gainsharing approaches wherein they receive a percentage of the fee contingent on achieving or exceeding IT output targets. Some providers tie their fee to business outcomes.
“All businesses, regardless of industry, are becoming digital businesses, partly out of necessity to meet the needs of tech-savvy customers, and partly out of fear of being disrupted and put out of business by an upstart, born-digital competitor,” said Esteban Herrera, partner and global leader of ISG Research. “The need for infrastructure that is adaptive to changing business requirements, easily managed and always available is redefining the data center services space.”
Herrera noted ongoing monitoring and management services in this market are growing at a slower pace, while transformational services are growing more rapidly.
“The data center transformation journey usually starts with consolidation and standardization,” Herrera said, “then moves toward increasing the virtualization footprint, establishing private clouds with self-service and charge-back mechanisms, and connecting on-premises environments to public clouds and creating hybrid operating models.”
Hybrid cloud is the norm for most service providers, the report noted, with some believing the public cloud component of the hybrid mix will experience rapid growth in the next few years and surpass on-premises environments in workloads processed.
Automation is a key theme for all data center service providers, the report said. Using either tools developed in house or integrating best-of-breed, third-party technologies, providers are looking to automate event correlation to reduce incidents, while adopting higher-end capabilities such as machine learning and self-healing systems. Forward-looking providers are investing in software-defined capabilities that allow software to completely control infrastructure environments and deliver superior agility to support DevOps.
The ISG report said the data center services market is likely to experience consolidation, especially in the mid-tier segment. These smaller providers, having made a late entry into this market—and missing out on the 20-25 percent growth rates their larger rivals enjoyed in recent years—lack the scale to compete for large deals. Instead, they are differentiating themselves with service, flexibility and customization, industry focus and broader partner ecosystems.
The ISG Provider Lens Data Center Outsourcing Archetype Report analyzes providers serving the U.S. market by each of four buyer archetypes:
- Traditional: These enterprises have limited outsourcing experience and only outsource a fraction of their data center operations, typically for staff augmentation and cost savings.
- Managed services: This buyer is ready to move from small outsourcing relationships to a moderate level of hybrid cloud adoption and embrace multi-sourcing arrangements.
- Large-scale transformation: These buyers are third-generation outsourcers and view providers as strategic partners. They offer as-a-service, utility-based models to their business units, seek greater use of private cloud and wish to automate infrastructure management.
- Pioneering: These enterprises look to extend their transformation initiatives with software-defined networking and storage, optimize their hybrid cloud environments, strive to improve developer productivity and prefer a DevOps approach to managing their infrastructure.
Of the 25 providers assessed in the report, none were identified as leaders across more than two buyer archetypes. Leaders in two of the four archetypes included Atos, DXC Technology, HCL, IBM, TCS and Wipro. A customized version of the ISG report is available from Mindtree.
An executive summary of the ISG Provider Lens Data Center Outsourcing Archetype Report can be viewed on this webpage; a complete version is available to ISG Insights subscribers or for immediate, one-time purchase.