Magic Quadrant for Data Center Outsourcing and Infrastructure Utility Services, North America

This document was revised on 30 August 2012. The document you are viewing is the corrected version. For more information, see the Corrections page on gartner.com.

This Magic Quadrant focuses on management services for mainframe and centralized server environments and associated storage. It evaluates 20 service providers' ability to deliver data center (DC) managed services in North America, which includes the United States and Canada.

Future growth in the DC services market will emerge from new industrialized infrastructure offerings, such as infrastructure utility services (IUS) and infrastructure as a service (IaaS), while traditional services will face further pressure on growth and margins (for more details, see "A Market Map and Compass to Drive Your Enterprise Data Center Managed Service Business"). Cloud IaaS and platform as a service (PaaS) offerings that are part of IUS offerings and DC managed services are therefore included in this evaluation.

For definitions of these terms, see the following sections and Notes 1 and 2.

As in previous years, the Magic Quadrant excludes simple, dedicated Web hosting and co-location services.

Data Center

Gartner defines a DC as a centralized environment that provides support for computer equipment in a secure facility. Our definition includes the underlying network infrastructure and the processes and organization that support the environment, which generally include:

• System operations
• Tape operations
• Print operations
• Second-level DC support
• Production control
• Backup and recovery processes
• Technical support (for operating systems [OSs] and subsystems)
• Performance analysis and capacity planning
• Storage management
• System security and contingency planning
• Asset procurement and third-party management

Data Center Outsourcing

Data center outsourcing (DCO) is a segment of IT outsourcing (ITO), which always includes an IT management service.

ITO is segmented into DC, desktop, network and enterprise application outsourcing. This document focuses strictly on the DC.

ITO can include a portfolio of product support and professional services that external service providers bring together to provide clients with 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. These services are defined by service outcomes, technical options and interfaces, and are paid for on the basis of resource usage, allocation or number of users served.

RIM-Based Service Delivery

Remote infrastructure management (RIM) is a delivery model that providers often embed in DCO.

This is an acceptable approach for DCO relationships that are based on a client or third-party-owned DC, 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. The main provider is responsible for end-to-end service delivery, including management and control of the hosting subprovider.

Infrastructure as a Service

IaaS is a cloud-based service model that offers computing power through virtual server machines, storage, firewalls, load balancers, and networks including LANs with Internet Protocol (IP) addresses to process data.

IaaS providers supply these resources on demand from their own DCs.

For wide-area connectivity, the Internet can be used, or, in carrier clouds, dedicated VPNs can be configured. To deploy applications, cloud users install OS images on the machines, as well as their application software.

In this model, it is the cloud user who is responsible for patching and maintaining OSs and application software.

Cloud providers typically invoice IaaS services on a utility computing basis — that is, prices reflect the amount of resources allocated and consumed.

Source: Gartner (August 2012)

Vendor Strengths and Cautions

Acxiom

Acxiom, an infrastructure outsourcing services provider with total revenue in excess of $1.5 billion — over half of which derives from infrastructure outsourcing services — has over 200 DCO clients in North America, primarily in the U.S. Acxiom continues to seek business across many industries and various sizes of client organization. Its appearance in the Magic Quadrant for over 10 years indicates its longevity and maturity in this market.

Strengths

• Acxiom, a well-established provider of DC services in North America, has a solid base of midtier deals, with which it maintains its position as a sound and trustworthy choice for many organizations seeking a straightforward DCO provider with proven ability to execute. It provides DCO services through its Acxiom Infrastructure Management (AIM) division.
• Acxiom has substantial scale in managing mainframe environments. This enables it to offer competitive prices, supported by skilled and experienced resources and a sound base of tools and technologies for managing both mainframes and server-based environments.
• Clients expressed satisfaction with Acxiom's approach to relationship management, in terms of both its technology and management tools and the ease with which they can access its senior managers.

Cautions

• Acxiom focuses on its significant midsize client base in the U.S. and its related growth in Europe, so it might not be appropriate for large and globally distributed organizations with global DC processing requirements. Large customers that expect a vendor to take over assets and gradually become their global provider should exercise due diligence when evaluating Acxiom's ability to meet their needs.
• Some of Acxiom's IUS target deal parameters are less aggressive at driving client adoption than those of the large multinational providers because Acxiom specializes in midtier customers. As the market shifts to cloud delivery methods and models, customers should understand that Acxiom will need to catch up by changing its sales focus.
• Clients indicated that Acxiom does not spend enough time on its strategy, which they perceive to be a weakness. Acxiom does not develop and deliver leading technology solutions until many other vendors have already done so. It then follows their lead. Organizations that need to adopt emerging technologies early should carefully evaluate Acxiom's ability to meet their requirements in a timely fashion.

Atos

Atos Origin's acquisition of Siemens IT Solutions and Services (SIS), finalized in July 2011, positioned it as a repeat qualifier in the North American DCO and IUS outsourcing space. The resulting Atos brand has many clients in North America and DCO revenue in excess of $100 million, which is 15% of its global DCO revenue. Atos is seeking to grow its North American business and by doing so promote its goal of becoming a worldwide cloud-based service provider that serves clients as a "business technologist" with a two-layer strategy: industrialized services and value-added services.¹ Atos is focused on growth from large deals in North America, with its target customers being global organizations with revenue of between $5 billion and $20 billion, 40% or more of which derives from the U.S.

Strengths

• During a difficult year for most providers, Atos achieved growth in the DCO area, improved its margin, and continued to invest in its DC estate and services. This has enabled it to strengthen its reputation for service resilience and high availability, while reducing costs.
• Atos has accelerated its delivery of industrialized services with the announcement of an Atos Sphere cloud offering. While seeing private cloud adoption as key to its future, it has a good portfolio of application-specific IUS offerings, including SAP and Microsoft SharePoint. Atos reports that about 15% of its business comes from utility-style services, which it has primarily driven through renewals. It has also secured a few customers in the small and midsize business (SMB) sector, which it had not previously tapped.
• Clients indicated that Atos displays an excellent ability to deliver stable and reliable DC services of high quality, a focus on managing the relationship rather than the contract, and strong technical skills, especially in the area of mainframe support.

Cautions

• Atos must complete the integration of its infrastructure service delivery back-end, including a very aggressive DC consolidation program and a significant increase in global delivery capabilities. Furthermore, Atos must do this without impairing client satisfaction, an area in which, according to some reference clients, it has room for improvement.
• Atos's strong focus on the cloud and industrialization is yielding good results, but the company also needs to support its Canopy joint venture with EMC and VMware (announced in February 2012) with timely availability from mid-2012 of new offerings, including both industrialized DC solutions (IUS and IaaS) and industry-oriented solutions (such as software as a service [SaaS], business process as a service [BPaaS] and Hi-Tech Transactional Services [HTTS]), and to back these up with publicly announced case studies. This support is necessary for Atos to gain market share and mind share, reinforce its brand, and support key accounts in the quest to continue to lower IT costs, increase business efficiency and add business value. Ultimately, Atos will need to expand its use of solutions in North America, for example with its HTTS offering.
• Some clients reported that Atos has not meet their expectations in terms of proactively recommending and delivering innovation and continuous improvement, and of improving the integration of solutions across its delivery units. Atos must also be more proactive in seeking input from its clients about deals' progress and success and required changes — and do so at all levels of each deal. Clients added that Atos's road map for integration and the resulting global delivery structure was unclear and a source of confusion and concern regarding where and how Atos was leading them.

Capgemini

Capgemini, a company with global infrastructure revenue approaching $2.2 billion, achieved moderate organic growth in 2011, which it enhanced by way of acquisitions in Brazil (CPM Braxis) and France (Prosodie). Although these additions are not significant in terms of DCO and IUS capabilities, they help Capgemini solidify its position in growing delivery locations for remote infrastructure support services. In 2011, Capgemini generated 15% of its worldwide DCO revenue in North America and experienced a slight revenue decline due to two large deals not being renewed. Capgemini is seeking to expand its revenue and customer base by delivering multiple "as a service" offerings using cloud-based solutions that will enable clients to transform infrastructures based on new cloud-based delivery models.

Strengths

• Capgemini has a strategic and sizable DCO offering and is investing strategically in infrastructure standardization, DC consolidation, new and enhanced tools for system management, "rightshoring" and related RIM services. Capgemini has an internal DC total cost of ownership (TCO) reduction target of 30%, which it strives to meet so that it can improve its price-competitiveness and margins.
• Capgemini is investing in developing new centers of expertise and cloud-based offerings, which include "as a service" offerings, such as the private IaaS offering it sells in North America and Europe. Capgemini, which is part of the Open Data Center Alliance steering committee, claims that nearly 13% of its DCO revenue already comes from utility services. Half of that is from storage services and the rest is distributed almost evenly across infrastructure utility for SAP (IU4SAP) and IaaS.
• Clients applauded Capgemini for its high-quality technical skills and DC operations, and its flexible and proactive attitude to managing the relationship rather than the contract. They also revealed a high level of confidence in Capgemini's resources for low-cost locations, DC consolidation expertise, SLA management, and strengths in terms of tools, processes and methodologies.

Cautions

• Capgemini's investment in infrastructure service industrialization is a step in the right direction, but the company has focused more on global delivery and customized engagements than standardization and multitenancy, and therefore is still perceived as a conservative outsourcer. This could hinder its ability to increase the growth of its DCO business, particularly in North America, as it will face strong competition on many aspects of deals in a crowded regional market focused on optimizing infrastructure costs.
• From Capgemini's current transaction-based deals and those it has in the pipeline, it is clear that the company has so far approached the North American market more with "point" solutions than full DCO offerings. Although this is not in itself a bad thing, it could hinder the company's ability to grow and penetrate this market. U.S. companies considering Capgemini should recognize and understand its point solution approach, especially for deals requiring global delivery. They should also review Capgemini's ability in "as a service" integration deals, where Capgemini can provide the aggregation point for multisource agreements encompassing DCs.
• Clients reported that Capgemini must be more proactive in delivering innovation, and in other areas, including continuous improvement and root-cause analysis. They also said that Capgemini should fine-tune its ability to function as a single entity in deals that span multiple geographies. Some clients added that Capgemini lacks tools and process expertise, including for ITIL, though other clients indicated otherwise — this suggests inconsistencies in delivery capability.

CGI

CGI is a global provider, headquartered in Canada, that provides IT infrastructure and application services as well as business process services. Its annualized revenue is $4.3 billion. CGI uses a global delivery model with onshore, nearshore and offshore locations — it has 125 offices in dozens of countries — for industries including government, financial services, telecommunications, utilities, manufacturing, retail, distribution and healthcare. In 2011, CGI achieved modest revenue and growth and invested in several new solutions, including cloud email, cloud storage and the bundling of IaaS with industry IP applications to create SaaS offerings. It also developed strategic partnerships to increase SaaS applications on certified IaaS infrastructure solutions. In assessing the DCO and IUS market, CGI made an offer to acquire Logica. The offer has been accepted, but the transaction has yet to be completed.

Strengths

• A broad range of deals across multiple industries, including the public sector, is the foundation for CGI's approach, which includes a DC component with cloud-based offerings and infrastructure consulting services used to target specific industries. CGI continues to invest in automation, as well as standard tools and processes, across its DC and disaster recovery solutions. It is also continuing with the "greening" of its DCs and shifting remote capabilities to low-cost locations.
• CGI continues to increase its already high percentage of virtualized servers in DC deals. This makes it a good choice for many organizations seeking a provider that understands how IUS solutions work and that delivers services built on the underlying virtualization-based technologies of cloud solutions.
• Clients indicated that CGI consistently fulfills deal requirements, including meeting SLAs, performing root-cause analysis and making continuous improvements. They added that CGI remained flexible when they needed to change their deal requirements.

Cautions

• Although CGI has a plan for IUS-based services, including remote infrastructure monitoring and management, which will be bolstered by the acquisition of Logica, in Latin America it has yet to implement its plan fully. This could leave it short of capacity and cause it to lag behind the competition in the quest for deeper penetration of the North American market, at least in the short term. Therefore, for the next year or two, U.S.-based customers should check CGI's ability to meet their needs by evaluating its ability to deliver economies of scale through multitenancy DC offerings and low-cost remote capabilities.
• With its heavy focus on business with U.S. federal government (which accounts for approximately 80% of its U.S.-based DCO deals), CGI has yet to penetrate the U.S. commercial market sufficiently. This makes it a somewhat unproven provider for the requirements of companies in its chosen focus industries. Although CGI has commercial experience outside the DC space, clients considering CGI for DCO and IUS services should carefully review references to confirm CGI's understanding of U.S. commercial requirements, along with contract structures and behavior drivers such as incentives, penalties, gain-sharing arrangements and benchmarking.
• Some clients indicated that CGI was reactive rather than proactive with regard to deal challenges and problems. Others indicated that it failed to communicate issues up its internal management chain, which resulted in senior CGI managers believing deals were working well when, in reality, they were not. A few clients stated that innovation and continuous improvement of deals were not priorities for CGI, which dented customer satisfaction. Customers should include in their contracts with CGI an innovation and continuous improvement process supported by appropriate incentives and penalties.

CompuCom

CompuCom, a company with revenue of $2.25 billion, continues to show strong organic and inorganic growth, with a year-over-year increase of 28% bringing its DC service revenue to $84 million in 2011. CompuCom continues to focus on supporting clients with specifically constructed consulting and system integration services related to cloud discovery, migration and consolidation. In addition, it continues to invest in enhancing its proprietary IT service management solutions. It has over 50 DC accounts in the banking and financial services, energy and utilities, healthcare and pharmaceutical, manufacturing, communications and retail sectors.

Strengths

• CompuCom supports and embraces best practice approaches, such as benchmarking in contracts, which is one reason why it has a good track record for renewing sole-source deals. This indicates that organizations find it easy to do business with.
• CompuCom's workforce, including offshore resources, is often praised for its technical expertise in multiple technologies and its understanding of client environments, which enables it to resolve DC problems effectively.
• Clients reported that CompuCom is good at helping them when starting out with virtualization. They added that CompuCom is willing to take on work that is unrelated to the contract and proactive in terms of continuous improvement, including prioritizing the resolution of their problems. They considered that this "proactivity" and prioritization highlights CompuCom's focus on customer satisfaction rather than financial outcomes.

Cautions

• CompuCom generally continues to rely on partners to deliver its DC utility service offerings, so clients should ensure any contract with CompuCom stipulates an appropriate level of transparency and accountability for the management of add-on services. CompuCom has lower brand recognition in North America than the global leaders, so it must invest in marketing its capabilities.
• CompuCom focuses on providing managed services through client-owned facilities and assets, an approach known as asset-light delivery. Clients considering multiple DCO solution options should be aware that CompuCom's model delivers only a managed services solution. CompuCom's approach does not provide options, such as a hosted solution, so for clients desiring such a solution, CompuCom engages a hosting partner as part of the overall service.
• Clients indicated that CompuCom's standard service offering is not oriented toward the creation of state-of-the-art DCs, so its asset-light approach places the burden of expansion and contraction mainly on the client. Customers trying to build such a DC should ensure that CompuCom has the proof of concept to deliver the required solution.

CSC

CSC, a $16.2 billion global IT services provider with a worldwide revenue total of $6.5 billion from managed services, is one of the foremost players in North America's DCO market. Its overall DCO strategy is to enable clients to shift to IUS, with a focus on key emerging services enabled by its global DC and services reach. Conscious of the uncertain market evolution that it faces from a challenging financial position, and with a new CEO, CSC's strategic intent is to enable clients to evolve into IUS/cloud services through a variety of roles and models: brokerage and direct delivery, in-house and hosted approaches, and access to services both as stand-alone offerings and as part of more complex IT outsourcing deals.

Strengths

• CSC continues to aggressively enhance its portfolio of cloud-based DC offerings. This portfolio is centered on the IaaS layer (CloudCompute), extends to hybrid/private solutions (BizCloud) and is moving toward the application/business process layer (Application Cloud Enablement [ACE] for cloud refactoring and IU4SAP). A focus on service industrialization is improving CSC's vision and, if successfully executed, could boost its overall global growth.
• Although CSC's revenue was flat in 2011, the company secured a number of new clients, and it maintains a balanced pipeline across some of its key vertical markets, such as manufacturing, financial services and the public sector. CSC continues to invest in global delivery, including new DCs designed to deliver cloud and utility service solutions.
• Clients indicated that CSC offers a high level of performance in terms of operational delivery, aided by technical expertise and account management teams. They also indicated that CSC regularly meets deals' SLAs, has a strong continuous improvement process, and analyzes and solves problems quickly and proactively. Additionally, clients remarked on CSC's willingness to make changes to contracts to suit their business requirements.

Cautions

• CSC's necessary expansion into new countries and regions could hinder its focus on relatively large global markets where its infrastructure service presence remains limited. A growing footprint could also mean a more dispersed business, which might put its traditional outsourcing capabilities under pressure. Establishing a fast geographical expansion strategy for outsourcing will be a key priority for CSC's new CEO, who joined in March.
• CSC is not immune to the challenges that the shift to DC industrialization poses to large outsourcers. Its ability to manage this shift may be impaired by critical issues such as restructuring, contract charges and customer settlements. In exploiting its portfolio of cloud offerings, CSC will need to quickly develop a new go-to-market approach, and it must strengthen its ability to win deals with smaller clients while balancing the strategies of its ITO, hosting and cloud offerings. Finally, to improve its cost and service delivery efficiency, CSC could benefit from increasing its virtualization adoption rate.
• Clients indicated that CSC refers to the contract's wording before trying to solve problems. They also reported that it is reactive rather than proactive in delivering innovation and continuous improvement, and slow to respond when their business requirements demand changes to contacts. In addition, they stated that delivery of solutions by CSC's offshore delivery resources seems less than optimal.

Dell

Dell Services is the $8.3 billion business unit responsible for delivering Dell's DCO services to customers. Dell's outsourcing revenue growth was 8% in 2011, and it registered a compound annual growth rate of 14% for the past three years. In North America Dell delivers managed virtual hosting services to 65 clients, Dell Cloud with VMware vCloud Datacenter Services to 33 clients, Cloud for SAP (SAP modernization) to two clients, managed security services to 3,400 clients, managed network services to 117 clients and managed server services to 110 clients (Dell also plans to launch managed backup services in 2012). It delivers these DC services through seven key DC locations, and plans to add two more DCs in the coming year.

Strengths

• Dell continues to evolve its DC service solutions via several means, including investment in new solutions, such as cloud and standardized capabilities and a utility computing platform that aligns with its DC strategy, opening 10 solution centers worldwide and maintaining a cloud center of excellence.
• Dell is a solid provider in the midtier market, which includes organizations that employ between 1,000 and 10,000 people. The cloud investments it has made during the past year support this market.
• Clients stated that Dell is easy to do business with, solves problems without regard to the contract's wording, and detects and solves problems proactively. They added that it is easy to increase and decrease their use of Dell's utility solutions, and that Dell is proactive in providing improvements and innovations. They also indicated that their teams like working with Dell's common-platform "value-add" approach.

Cautions

• Although Dell has made good progress with its IUS vision and strategy, including the introduction of new offerings, customers must still complete due diligence, including reference clients that have IUS solution experience, to ensure Dell can meet their requirements and is mature enough for their risk profile.
• Dell continues to sell its hardware products to client accounts, which sometimes detracts from its service solutions. Dell has made good progress with its global delivery model and attending services, but its delivery capabilities remain unproven and are slightly behind the global capabilities of some of its competitors. Customers with complex multinational requirements should evaluate Dell's ability to execute with its new solutions on a global basis.
• Clients expressed concern that Dell is reluctant to make changes without referring to the contract, is timid about innovation, and needs to be more proactive in relation to problems of deal execution. Customers should ensure that they promote desired behavior through a contract structure that encourages continuous improvement, innovation and flexibility.

Fujitsu

Fujitsu is an IT services provider with estimated global DC managed service revenue of $4.1 billion, two-thirds of which is estimated to come from Japan and Asia/Pacific and a small percentage from North America. In North America, Fujitsu achieved a 15% revenue increase in 2011. It has made strides in bringing to North America solutions it previously delivered only in Asia/Pacific and Europe.

Strengths

• To accelerate its industrialization, Fujitsu is strengthening its capabilities in areas like IU4SAP and cloud IaaS, with a global cloud investment of $1.2 billion. Fujitsu's estimated share of IUS as a percentage of total DCO revenue is below the market average, which makes it a conservative outsourcer, but it is making an aggressive move to improve its market position significantly. In terms of global achievement, its cloud strategy is improving, with around 700 clients for local and global cloud services and about 100 clients for IU4SAP. This is driving moderate revenue growth, despite a significant reduction in Fujitsu's installed million instructions per second (MIPS) base in 2011.
• During the past year Fujitsu has improved its ability to deliver DCO and IUS services, enhanced and extended its DC footprint and capacity and global services via Fujitsu Global Delivery Centers and Fujitsu global offerings, and standardized its systems and process methodologies.
• Clients indicated that Fujitsu has a strong set of processes and procedures that support its service delivery. They added that Fujitsu's facilities were of high quality and that the company's technical skills are at a high level. They also stated that Fujitsu focuses significant resources on relationship and escalation management as well as continuous improvement.

Cautions

• Fujitsu's strategy and investment to standardize and centralize RIM services in key Global Delivery Centers is sound but late. Fujitsu's offshore delivery percentage (with major RIM delivery hubs in the Philippines and India) remains behind that of leading players. During a challenging economic period, this could impair Fujitsu's ability to satisfy customers' demands for lower costs.
• Although Fujitsu has won some business in North America, it is only just starting out in this market and has considerable room for improvement in terms of market awareness — specifically it needs to improve its market penetration and product and solution branding. Additionally, Fujitsu's message about cloud and outsourcing remains primarily related to the infrastructure layer — it remains mostly silent about the more disruptive aspects of new cloud-like business models, social networking and "big data." This exposes Fujitsu to stiff competition from many traditional providers, as well as new market disruptors.
• Clients stated that Fujitsu must improve its root-cause analysis processes for problem resolution. They added that that Fujitsu must improve its responses to changes demanded by their business needs. They also said that Fujitsu lacks a seamless and repeatable way to use its purportedly low-cost resources, delivery locations, and related tools and processes.

HCL Technologies

HCL Technologies, which is based in India, is a fast-growing $3.9 billion offshore service provider that, together with HCL Infosystems, comprises HCL Enterprises. In North America HCL generated over $500 million in DCO revenue in 2011 and had 129 clients. HCL offers a broad portfolio of DC and infrastructure services (including project skills to support DC rationalization and transformation) that can be combined with higher-level application and business process services to feed a verticalized and infrastructure-services-only sales model.

Strengths

• HCL is aggressively challenging traditional outsourcers and achieving notable growth in DCO revenue: 77% in revenue and 23% in clients during the past two years in North America. Beyond its strong portfolio and heritage and technical expertise in infrastructure services, HCL's growth is supported by the addition of important clients in key vertical markets, an increase in CxO interactions, plus a strong "pipeline" that sees an increasing portion of large (more than $100 million a year) ITO deals. HCL has proven that by being cost-competitive and taking a flexible approach to relationships it can win outsourcing deals in competition with incumbent market share leaders.
• HCL owns physical DC assets in North America, but these are limited in comparison with its competitors', so its offshore-based RIM and IUS services remain key offerings that help it gain traction. Among the Indian "pure plays," HCL is early in developing infrastructure utility (IU) offerings, and is achieving positive revenue results and high customer satisfaction. HCL's focus on a private utility approach could enable it to capitalize on the market's interest in private clouds and the related need for cloud brokerage and integration expertise.
• Clients give HCL very high marks for its flexible approach to deals in that it does not strictly abide by the terms of the contract but solves their problems quickly and efficiently. They added that HCL has excellent technical resources and a solid relationship management structure and processes, and that it performs well with its DC consolidation solution. They also indicated that HCL's use of low-cost locations was a key reason for selecting it, as was its ability to meet SLAs early and regularly.

Cautions

• HCL's utility offering is underpinned by a "dedicated servers approach," but even though the company has addressed concerns about security and compliance, this model, coupled with its asset-light DC approach, cannot match the potential economies of scale of one-to-many virtualized-server-based solutions. This results in higher prices — a competitive disadvantage that HCL must overcome. With the global economy still in flux, this could hinder the revenue growth of HCL's portfolio of utility offerings. Finally, HCL's IaaS remains a purely private cloud offering, which raises another potential barrier to its ability to penetrate large clients and increase its revenue.
• The number of customers located in HCL's DC premises (some of which are hosted by HCL, but most by third parties) is increasing, but almost half of HCL's DC business remains dependent on its clients' DC premises. This could easily impair its ability to rapidly increase the industrialization of its service delivery engine and limit the appeal of its DCO services to the mid-market and larger clients, especially the companies with global requirements that represent a significant part of North America's DCO market.
• Clients stated that HCL's use of partners raises concerns about its ability to control and manage the deal, especially when problems arise. They added that HCL's ability to support root-cause analysis and continuous improvement needs improvement. Finally, they stated that HCL's attention to innovation continues to lag behind its other processes.

HP

HP is a $127.2 billion provider of hardware, software and IT services for consumer and commercial markets. HP Services represents 28% of its global revenue. In its fiscal 2011 (which ended in October), HP reported challenges in terms of growth (up just 1.9%) and margin (down 1.6%). DCO represents a key component of HP's $15.2 billion in IT outsourcing service revenue and it uses significant capabilities, including more than 120 DCs, over 350,000 managed servers and 300,000 MIPS, which is the second-largest largest MIPS base. As a leading provider in this space, HP is focused on the challenging transition from its long-established and traditional outsourcing approach to the more standardized and homogeneous delivery models that complement its overall cloud solution strategy, which includes smaller utility/cloud-based deals and lower prices.

Strengths

• With over 25 DCs in North America serving 150,000 MIPS and 153,000 servers, HP's depth and breadth of DCO global capabilities and solid ITO transformation plans make it the primary alternative to IBM for truly global DCO deals. After introducing utility service offerings, in which it started investing in 2006, and acquiring EDS to increase mind share and revenue growth globally, HP is now investing in its Enterprise Cloud Services global portfolio strategy, which is an integral part of its broader company strategy called HP Converged Cloud. An integrated "hybrid IT delivery" theme is expected to include the full HP product and service portfolio, from planning to implementation and operation, and to combine traditional, private and public cloud service offerings. Additionally, HP is starting to bring European principles of energy efficiency to North America in selected DCs.
• HP's multiyear $1 billion investment, which focuses on DC consolidation, staff optimization, increased automation and efficiency, flexible and integrated solutions, and next-generation DCs, continued to progress in 2011. HP continues to deploy a single toolset for service management across all DCs. HP has a strong focus on global delivery, with a balanced combination of local, nearshore and offshore resources that deliver DCO services through its Best Shore Global Delivery Services approach, a RIM-based model. New-generation DCs are planned for 2012 in Sydney, Australia and Bangalore, India, which will strengthen HP's DCO foundation and capabilities.
• Clients gave HP high marks for consistent day-to-day delivery, continual meeting of prescribed service levels, and excellent relationship management structure supported by proactive and responsive personnel. They added that HP maintains a strong security and availability performance regimen, as well as a deep and integrated portfolio of solutions. They also stated that, along with its integrated solution, HP's global presence was a key factor in its selection.

Cautions

• Global cost pressure is stressing HP Services' margins, and growth will require additional value-added offerings, new target markets (such as SMBs) and/or lower prices. HP's May 2012 announcement of a workforce reduction amounting to over 27,000 personnel is likely to impact its service business, with uncertain repercussions. HP's investment in optimization and consolidation is likely to accelerate in parallel with a worldwide staff rationalization plan in order to increase its use of low-cost locations and improve overall solution efficiency. Customers should be aware that margin pressure on deals could result in service degradation or lead to requests to renegotiate contracts.
• To spur growth in its service business, HP must accelerate the rollout of new cloud solutions and services to increase the value of its utility offerings. Users of both traditional services and utility services must watch for potential service challenges during HP's migration to new services and beware of potential "solution lock-in" in relation to HP's technology or integration role.
• Clients stated that HP's pricing mechanism causes it to be far too strict when contract changes are required, and that it refers to the contract too often, while responding slowly to, or even ignoring, their requirements and problems. They added that HP should improve its approach to offering and implementing innovation and continuous improvement. They also said that HP should improve and refocus its approach to relationship management by paying more attention to third-party relationships and personnel resource management.

IBM

Approximately 40% of IBM's $40.9 billion Global Technology Services revenue comes from outsourcing services, and DCO is the foundation and largest segment of this business. IBM is the biggest and most significant global player in the DCO market. It owns or leases over 170 DCs, and has many more managed client DCs. It has a proprietary advantage in the mainframe arena, with more than 1,200 mainframes managed globally. As the largest incumbent in a hypercompetitive market, IBM has both opportunities and challenges, and it has begun to accelerate the evolution of its service offerings.

Strengths

• IBM maintains the most comprehensive presence, brand recognition and technical capabilities for DCO both globally and, in particular, in North America, with more than 175 DCs and over 1.3 million MIPS. It competes against both traditional, consolidated providers — HP (EDS) and Atos (Siemens IT Solutions and Services) — and nontraditional providers, such as offshore companies like HCL and industrialized service providers. IBM's recent SmartCloud Enterprise solution announcements — mostly scheduled for general availability during 2012 — increase the pressure for a reinvention of its traditional outsourcing business by moving toward a mixture of traditional and industrialized approaches.
• IBM is accelerating its efforts to deliver more business innovation and more efficient services to customers by combining all its capabilities to enable a shift to higher-value areas — the self-service attributes of commodity clouds — but with higher levels of service performance and management structure. Investments in global delivery processes and tooling and capabilities consolidation, completed in recent years, are the foundation for an acceleration to achieve service standardization and automation. But industrialized services must still be made visible through a transparent service catalog to improve customer satisfaction.
• Clients commended IBM for its strong technical and process skill sets and related service delivery capabilities, plus its ability to manage problem escalation and solve problems proactively. They added that IBM has excellent depth and breadth in its global delivery resources, a strong focus on process adherence, and commendable ability to deliver and manage SLAs.

Cautions

• A key aspect of IBM's industrialization and cloud service strategy involves building customized solutions and services on standardized, virtualized and automated (for example, industrialized) components. IBM, which has invested in this approach since 2009, also recognizes that a hybrid mix of managed services (outsourcing) and self-service offerings (cloud) requires careful, integrated predesign of both types of offering, as well as improvements in maturity and technology. Customers should pilot new IBM service offerings before deciding whether to adopt them in order to gain an adequate understanding of their features and limitations. In doing so, they should make use of IBM's migration services for cloud computing, which help customers evaluate the costs and risks of migration.
• Despite its leading position, IBM must win market share from competitors if it is to grow in the North American market, where falling prices are stalling growth and increasing the competitive pressure on margins. Despite gaining early traction in this market, IBM's focus on upselling to existing clients, as opposed to accelerating its growth in new target markets, such as SMBs, limits deployments of new SmartCloud industrialized offerings. In fact, we estimate that only a single-digit percentage of IBM's ITO revenue derives from utility/cloud services, which is among the lowest figures for the providers in this Magic Quadrant. This conservative approach may reduce IBM's potential to win mind share and new midsize multinational clients, and so limit its growth in North America. In this context, IBM's communications and marketing of new service offerings are still not differentiated enough.
• Some clients stated that a remaining challenge for IBM concerns its contract structure, which they view as inflexible — something potentially detrimental to the fostering of good relationships when performance issues arise. They consider that this inflexibility includes IBM's responses to requests for changes to SLAs, and its less-than-optimal pricing mechanisms. Some clients added that IBM should improve its problem determination and root-cause analysis process to address their challenges proactively. They also indicated that IBM needs to focus more on proactively driving continuous improvement and innovation.

Infosys

Infosys is a global IT provider with global revenue in excess of $1 billion, of which $500 million derives from DCO, IUS and RIM services. Of that $500 million, approximately half is revenue from clients based in North America. With new solutions such as its Smart DataCenter framework and iPRISE infrastructure process repository, Infosys also has a new focus on increasing its hiring of resources local to clients. Infosys achieved strong revenue growth in North America in 2011, with a 24% increase on 2010. Infosys manages 165,000 servers and 66,000 MIPS globally.

Strengths

• Infosys has expanded its North American business by means of a RIM solution offering broader DC management and by delivering DC solutions through four key locations in nearshore locations in Mexico and Brazil.
• Thanks to various cloud solutions, including BPaaS, for vertical markets such as financial services and insurance, retail, consumer packaged goods, logistics, life sciences, energy, utilities and communications, Infosys's growth outpaced the market's in 2011. By coupling its new solutions with process rigor based on Six Sigma, International Organization for Standardization (ISO) 20000, ITIL V3 and other methodologies, Infosys is well placed to keep growing in 2012.
• Clients stated that Infosys is flexible in its approach to the delivery of solutions and that it accepts challenges without regard to the contract language. They added that Infosys's staff have a high level of technical expertise and a strong focus on rigorous processes, aided by process tools to drive continuous improvement.

Cautions

• Although Infosys grew strongly in 2011, it remains an asset-light service provider that adopts the role of system integrator (SI) in using a large number of DCs and solutions owned by partners. This approach is a weakness for customers that require a service provider to have strong asset ownership, global reach and considerable flexibility to allow increases and decreases in usage as business needs dictate. Customers should analyze Infosys's solution structure and determine whether its strategy suits their needs.
• Infosys's business in North America is based primarily on point solutions, not end-to-end DC offerings. This is indicative of an asset-light SI and raises the issue of whether Infosys's asset-light model lends itself to full DCO or IUS solution requirements. With a service delivery model built on an ecosystem of partnerships, Infosys has less control than if it owned all its solutions, and is therefore vulnerable to the whims of its partners. Customers considering Infosys should understand its solution delivery model, including when it uses subcontractors, the identity of those subcontractors, and how the company subcontracts with its partners.
• Clients stated that although Infosys's onshore personnel demonstrate solid technical capabilities, the performance of some offshore support staff needs improvement. They added that Infosys's nonrepeating tasks are cumbersome and require additional management oversight to encourage the right behavior. They also stated that Infosys's relationship management structure needs to be more focused on customer requirements, especially when it comes to the need for changes.

Maintech

Maintech is a North America-based ITO service provider that focuses on the U.S. DCO market. This is the third consecutive year in which it has participated in Gartner's Magic Quadrant research, and it continues to grow its DCO business organically both by attracting new clients and increasing the size of existing deals. Maintech uses an asset-light-based solution, from which revenue approached $70 million in 2011. This represented year-over-year growth of approximately 10%, which was more than the market achieved. Maintech's strategy has been to provide a comprehensive suite of DC services, which it delivers primarily in client-owned DCs on client-owned assets.

Strengths

• Although Maintech is a small player with limited DCO offerings, it has added IaaS offerings to its portfolio and plans to market these to SMBs and the midtier the market, which providers have yet to give the attention it deserves. Maintech is ideally suited to clients looking for a small deal with a domestic supplier with broad on-site service delivery capabilities, including remote infrastructure services and monitoring.
• In 2011, Maintech demonstrated operational excellence and a high level of customer satisfaction. It also added new solution capabilities, such as IaaS and private cloud offerings. Furthermore, the addition of capabilities in offshore locations such as Sydney, Australia and Frankfurt, Germany has made this comparatively small provider an option for multinational companies based in North America. For organizations that need a provider to take over the running of their DCs, Maintech is worth investigating.
• Clients give Maintech high marks for service delivery excellence and express satisfaction with its flexible approach to contracting and depth of talent, especially for a comparatively small service provider. They also awarded high marks for ease of access to Maintech's senior managers, adding that the ability to talk to a decision maker quickly is of great value.

Cautions

• Although its capabilities have expanded, Maintech still does not offer a complete global delivery model, though it does have delivery capabilities in select markets in Asia/Pacific and Europe. So, although Maintech has so far met its service-level commitments, its selective approach to the market means it cannot pool resources across geographies to the same extent as leading providers with fully functioning global delivery approaches. This poses a competitive challenge that Maintech must overcome if it wants to become a global service provider. Customers requiring a global delivery provider with reach into secondary geographical markets should assess Maintech's capabilities carefully.
• Maintech focuses exclusively on managing client DCs — it does not provide cloud-based solutions, remains asset-light, has a limited investment strategy, and does not plan to manage mainframe environments or provide hosting services. Nor does Maintech offer a vendor-provided DC. Although Maintech remains a rock-solid service provider in the DCO space, its focus remains narrow for the area that it covers, and this will limit the scope of services it can provide and the number of customers ideally suited to its strategy. This is a cautionary finding for clients looking for a vendor to supply a number of services, including hosting.
• Clients indicated concern about Maintech's ability to provide DC services beyond standard, core operations, such as hardware setup, removal and break/fix support. Although Maintech has added some new capabilities, at least in the near future it is unlikely to expand its service portfolio to include such delivery categories as hosting, IUS solutions and mainframe MIPS, which means it will still lack a complete DCO/IUS solution to satisfy the market's demand for full service capability.

Northrop Grumman

Northrop Grumman is a multifaceted company with revenue of over $45 billion. It specializes in providing IT outsourcing services to federal, state and local government clients. It mostly maintains a government-only go-to-market approach for its outsourcing services. Its services include conventional outsourcing offerings as well as newer cloud-based solutions delivered primarily through private clouds. Northrop continues to grow its DCO and IUS revenue organically. Should Northrop become a provider of significant size and capability in the commercial sector, it would challenge many of the leading providers.

Strengths

• Northrop is experienced in delivering and supporting DCO and IUS solutions for all segments of state and federal government. Among its capabilities are unique qualifications to address governments' security and clearance requirements, and the private-cloud-based solutions that are common in the government sector, both in North America and globally.
• Northrop's knowledge of DC technologies and processes is a significant strength. In addition, its broader DC strategies, which include development of portable, dispersed capabilities for clients, are indispensable when providing services to the federal government and, in particular, the U.S. armed forces.
• Clients stated that Northrop provides excellent solutions and accompanying processes for the DC market, including cloud offerings based on virtualized technologies. Its predictable approach works well in the government market, which typically has immensely detailed contract and process requirements.

Cautions

• Northrop's sole focus on the government sector means its DCO capabilities largely focus on private clouds tailored to the unique needs of individual clients. Northrop uses its broad capabilities, including research and development processes, for a large number of government clients, but has only a very limited presence in commercial sectors. Before engaging in a deal with Northrop, commercial companies must check whether it plans to focus on their sector continually.
• Northrop continues to deliver primarily using a managed services model. It does not expect growth from DCO delivery through partners. It seeks to act primarily as an SI, particularly for infrastructure utility and private cloud solutions. Customers should evaluate the value that Northrop could add as an SI and how well this suits their IUS strategy, in contrast to contracting an IUS provider directly.
• Although Northrop's clients are generally unable to reveal details of their relationship with the vendor due to the nature of government contracting, some information is publicly available, and while customers can expect to encounter a degree of secrecy when reference-checking Northrop's clients, they must understand that this is not a reflection of Northrop's ability to deliver. They should scan the market for any publicly available information on Northrop's performance.

T-Systems

T-Systems, which is fully owned by Deutsche Telekom, generated approximately $6 billion in ITO service revenue in 2011, of which more than 60% came from Germany. T-Systems has been among the most aggressive providers in moving clients from traditional to utility and cloud-based outsourcing. It has transferred most of the advantages of service industrialization to its customers in terms of lower prices and increased flexibility. T-Systems treats its Dynamic Net-Centric Services as a strategic core belief and targets multinational companies in various industries. T-Systems has DCs in other key geographies, such as South Africa, the Americas and Asia.

Strengths

• T-Systems has a comprehensive portfolio of cloud and utility services and a detailed road map to 2013. It has a large customer base for these services in Europe and is now exploring the U.S. market. T-Systems is approaching the cloud broadly along with Deutsche Telekom, and this approach has led to joint solutions such as the recently announced De-Mail service. This collaboration shows a focus on security in the cloud and cloud-ready consulting services as differentiating capabilities.
• T-Systems is investing in strengthening its network of DCs, but so far there has been no expansion in North America. To improve its overall DCO margin and competitiveness, T-Systems is increasing its use of offshore and nearshore delivery facilities.
• Gartner has spoken with T-Systems customers at various events and in the course of our regular interactions with clients. North American clients stated that T-Systems has strong service delivery capabilities, acts quickly when problems arise, shows flexibility about deal structure (including an emphasis on solving problems, rather than a focus on the contract's wording), and has a strong organization structure and governance model for relationship management. Additionally, clients stated that T-Systems' SLA adherence is strong and its service delivery is well supported by tools, processes and methodologies.

Cautions

• Europe, led by Germany, is by far the largest contributor to T-Systems' revenue and profitability. T-Systems would benefit from having more clients in North America to strengthen its position and support revenue growth in 2012 and beyond. So far, it has not introduced all its offerings to North America, and it has yet to exploit its advantage in terms of industrialized offerings to help it expand in this region. T-Systems' move into North America is based on a tactical, deal-by-deal approach, which will impair its ability to win business from global companies based in North America that require a strong global positioning from their service providers, together with high visibility and capability in North America.
• In 2011, T-Systems invested in improving service quality and customer satisfaction via its global delivery engine, having encountered several issues with transition quality the previous year, mostly in Europe. A general improvement in service levels is acknowledged, but continued focus on customer satisfaction remains a requirement. This is particularly true if we consider that the increase in T-Systems' offshore delivery percentage and its aggressive DC consolidation plans could undermine the improvements made so far. T-Systems' role as a provider of IT services to Deutsche Telekom is also growing, which is likely to reduce its focus on growth in North America, a region where competition for industrialized service solutions is increasing quickly.
• The T-Systems clients we spoke to said that the company should hone its ability to respond in a timely fashion to their business needs, including requirements for changes and innovative solutions, particularly for cloud-based offerings. They added that T-Systems needs to work on its continuous improvement processes and responsiveness to problems, indicating that its staff are slow to respond to their problems, partly because of a need to get corporate approval.

Tata Consultancy Services

Tata Consultancy Services (TCS), a newcomer to this Magic Quadrant, generates over $1 billion in revenue from IT infrastructure services. Of this, $500 million is DCO and IUS revenue, $300 million of which comes from North America. TCS manages 85 clients in North America, with 255,000 servers. It achieved 40% growth in North American DC revenue in 2011, which was well ahead of the market's growth. TCS focuses on providing services to customers' DCs, mostly in large deals with large (Fortune 500) clients. TCS is expanding its network of RIM delivery centers.

Strengths

• TCS has over 25 delivery centers around the world: global centers in India and China; regional centers in Hungary, Mexico, Uruguay and Ecuador; and three nearshore delivery centers in the U.S. and Canada. This positions it to deliver global solutions to clients based in North America using RIM solutions in combination with clients' DCs. Taking into account planned IUS solutions, TCS is building a strong market position in terms of DCO and IUS delivery capabilities.
• TCS uses its e-suite framework: a cloud enabler to develop and deliver cloud-based solutions. TCS delivers cloud-based solutions to SMBs and provides BPaaS and other solutions to various market segments. These solutions rely largely on the remote delivery capabilities that TCS has developed and implemented and that are part of its strategy to take advantage of low-cost offshore delivery centers.
• Clients gave TCS high marks for the skills of its offshore delivery center personnel, the tools, processes and methodologies associated with its offshore delivery models, and the well-coordinated and seamless delivery of solutions by offshore personnel and those resources used to provide operational support at clients' DCs. Additionally, clients stated that TCS is flexible about contracts and pricing structures.

Cautions

• Like other providers, TCS has focused on an asset-light strategy that has delivered high growth, but this could impair its ability to attract some customers. Similarly, TCS's focus on large DCO deals will limit its ability to create, test and implement cloud solutions, especially those based on public clouds. TCS has a public cloud solution, but must demonstrate that it can capitalize on its investments and experience in geographies where it currently competes — otherwise it could be all but locked out of sizable DCO and IUS market segments. Although TCS has a sales team based in North America, like all providers that focus on large deals, it depends on third-party advisors for a substantial share of its new contract introductions, which limits its potential share of the market.
• TCS has no application-specific IU solution models — for example, unlike almost all the other providers, it lacks an IU4SAP delivery model — which leaves it with a smaller solution "toolbox" than its competitors. This is another inhibitor of growth. In addition, TCS's cloud and IUS solutions and its nondedicated DCO service solution are limiting from a client perspective.
• Clients indicated that TCS's thought leadership and continuous improvement processes need attention, and that its offshore delivery locations, although filled with highly skilled technical staff, have much higher-than-average turnover ratios, which leads to a loss of "deal knowledge capital" and variable customer satisfaction ratings. Some clients added that TCS is slow to react to their problems and requests as it seems unable to find or assign the necessary resources.

Tech Mahindra

Tech Mahindra generated $550 million in IT services revenue in 2011. North America contributed 40%, and DCO over 65% of that. Tech Mahindra offers complete DC services, including design, build, consolidate, transform and steady-state operations. Tech Mahindra has continued to invest in its Private Cloud Management Platform, in order to scale capacity in its DCs as growth dictates, and created both an Automation Factory, allowing for incremental and continuous improvements, and DC hosting capabilities in emerging markets through partnerships. In North America, Tech Mahindra generated approximately $107 million in DCO revenue in 2011, about 10% of which came from utility and cloud-based offerings. It manages over 134,000 servers for North American clients.

Strengths

• Tech Mahindra uses its cloud management platform, a scalable multitenancy platform, through a Unified Service Operations Platform (USOP), and additional seating capacity in "iROC" facilities at offshore delivery locations achieved via hybrid cloud solutions delivered by partners. During 2011, the company invested in further developing its solutions, including customer service portals, service automation and security solutions designed to enhance client experiences. It also provided DC solutions through its own DCs as well as backup DC locations onshore in North America.
• The overall viability of Tech Mahindra's DCO solution is based on the fact that its growth in this segment has been above the industry average (at over 50%), and the company is investing to maintain its momentum. Tech Mahindra will attempt to move the midmarket segment toward cloud-based services, while withdrawing investment in traditional DCs, thereby positioning its DCO with assets and rebadging as the foundation on which it plans to differentiate itself from some of its asset-light competitors.
• Clients remarked on the consistent high quality of the staff in Tech Mahindra's RIM locations, strong supporting tools, including those for ITIL, strong processes and procedures, and a focus on delivering the solutions required with a focus on the client's needs, not the wording of the contract.

Cautions

• Although Tech Mahindra has begun investing in DC locations, it lags significantly behind many larger outsourcing providers. Furthermore, its plan for additional investment does not include a substantial increase in North American DCs. This leaves it slightly in front of asset-light providers but behind asset-based providers. Customers expecting to receive the benefits of an asset-based company with strong remote capabilities such as RIM should ask when Tech Mahindra expects to increase its DC capacity.
• Mahindra IT and Business Services is the go-to-market name for the combined Tech Mahindra and Mahindra Satyam. Full legal integration has not yet been completed, but the planned integration is reflected in marketing communications. (For simplicity, we refer to the organization simply as Tech Mahindra elsewhere in this document.)
• Clients noted that attrition-related challenges remain for Tech Mahindra, particularly in the remote components of DCO and IUS solutions such as remote monitoring and management. They added that Tech Mahindra provides many "point solutions" but is not seen as providing end-to-end DC solutions, which indicates either that the company's sales and marketing processes need attention or that end-to-end solutions are not a priority for Tech Mahindra — but whatever the reason, Tech Mahindra needs to correct this misperception. Clients considering Tech Mahindra should require it to identify clearly its complete DC solution and show how it will fund and staff a bench of capable resources to reduce disruption due to staff turnover.

Unisys

In 2011, Unisys achieved double-digit DCO revenue growth of $778.8 million, of which North America accounted for approximately $270 million, Europe for $148 million, Asia/Pacific for $201 million, and Latin America and the Caribbean for $120 million. This shows that Unisys is a global provider of DCO services. Unisys also increased its profit to $206 million and reduced its debt by $464 million, which shows that the financial challenges of the past few years are almost all behind it. Using a combination of internal private, hosted private and public cloud solutions, Unisys brings its clients a set of offerings that have a consistent methodology across all DC deployment models (including external clouds), that use standards, and that have policy-driven management and comprehensive SLAs. Using these cloud solutions for its IUS model, Unisys provides utility pricing — with volume assumptions based on the client's demand plan — for an infrastructure that delivers the flexibility customers need to switch flexibly between service models in a "hybrid world."

Strengths

• Unisys has significantly increased its DCO capabilities for, and revenue in, North America by using its global resources, enhanced cloud solutions and a consistent methodology for building and evaluating DC characteristics. This optimizes its DC footprint across delivery models without impacting underlying technologies and processes. Unisys has also demonstrated its global capabilities in deals worth more than $50 million.
• Unisys uses what it terms a "single pane of glass" management stack solution for both cloud and traditional DC offerings — indeed, all its infrastructure and solutions. A self-service interface provides access and enables changes to both on-site and cloud resources in order to control costs, ensure compliance, support security requirements and manage the performance of infrastructure. This approach helps clients address the business change requirements that arise during every outsourcing deal.
• Clients stated that Unisys has regained much of its former strength, and they made appreciative comments about its fulfillment of their day-to-day requirements, proactive approach to overcoming challenges and ability regularly to meet SLAs. They added that Unisys has a positive attitude and a good customer focus.

Cautions

• Unisys has continued to recover financially, with year-over-year growth globally and a rebound in DCO revenue in North America in 2011. It achieved this growth primarily from existing clients, and it has not added enough new clients to indicate that it can maintain the same rate of growth. Slower growth is possible, especially in a price-sensitive market.
• Addressing its financial challenges for the past three years has hindered Unisys's ability to fully develop and aggressively promote its IUS solutions. Although Unisys appears to have turned the corner in its efforts to establish a sound financial position, clients — and especially prospective customers — should pay close attention to Unisys's ability and willingness to invest in new technologies and services (especially IUS solutions) that they are likely to need at some point.
• Clients stated that Unisys needs to deliver more consistently with its shared resources, and that staff turnover is impairing the consistency of delivery in some deals. They added that Unisys needs to enhance its processes for continuous improvement and root-cause analysis. Customers should perform due diligence to ensure that Unisys's ability to deliver is a good match for their workload, solution and skill requirements.

Wipro

Wipro is an infrastructure provider with revenue approaching $100 million in the North American DCO and IUS market. It provides DCO and IUS services through a combination of client-based DCs and its own DCs. Wipro provides cloud-based IUS offerings, but these are young and have yet to prove themselves in the market. The company manages almost 50 DC clients in North America and supports several thousand servers and associated storage requirements across multiple industries, including financial services, manufacturing and retail.

Strengths

• Wipro continues to demonstrate a strong retention rate of 94% for DCO and IUS clients. This indicates that it is delivering on its commitments to clients — a good sign for organizations seeking a long-term provider of DCO and IUS services.
• Along with several other participants, Wipro has demonstrated an ability to deliver RIM-based solutions that often drive down costs for clients.
• Clients noted Wipro's flexibility in addressing their issues and challenges, such as implementing programs to deliver quality services using standard methodologies and processes such as ISO, ITIL and Six Sigma.

Cautions

• Wipro's cloud and IU strategy is still maturing. This is a reflection of its evolving corporate strategy and need for an enhanced marketing message.
• Wipro is working to move away from its image as a low-cost provider and become a value-added market leader, but the behavioral and consultative-skills-based changes needed to achieve this aim have not been made throughout the organization. Customers should ensure that Wipro is not overreaching or committing to work it is not ready to deliver.
• Clients noted some challenges with managing changing resources and related training. Customers should identify critical roles and language in their contracts to encourage Wipro to minimize any disruption associated with staff turnover.

Xerox

Xerox is a $23 billion global provider of IT solutions. Of this total, $255 million derived from DCO in 2011, which represents a significant increase over 2010's $101 million. Total contract value is $1.27 billion. Xerox added seven new DCO clients in 2011, in which year it had 58,000 MIPS under management and 29,000 servers. Providing North American DC services through eight onshore delivery centers and with support from nine offshore delivery centers, Xerox continued its DC expansion in 2011 through consolidation, deletions and the addition of new locations. In the mainframe sector, Xerox's zCloud solution (a multitenant service offering for AIX, Linux and mainframe applications), zEnterprise (a software rationalization solution to review software licenses and reduce software expense) and implementation of CA Technologies products were among the new investments it made during the year. It also invested in, and refined, additional platforms, including Power, SPARC and System z, and invested in network cloud expansion and PaaS.

Strengths

• A large part of Xerox's success has its foundation in tools, processes and methodologies. Xerox was the first company to achieve ISO 20000 (including multisite and multination) certification. It performs key performance indicator process reviews monthly and quarterly across all locations, executes standard processes across all locations and has Statement on Auditing Standards (SAS) 70 and Statement on Standards for Attestation Engagements (SSAE) 16 controls standardized across all DCs.
• Xerox has increased its efforts to expand cloud computing solutions and process standardization across solutions using ITIL V3 processes. It also uses its ISO 27001 certification for DCs and Lean Six Sigma quality process to deliver high-quality solutions that are seamless and repeatable.
• Clients stated that Xerox is highly flexible to work with when changes are requested to the solution delivery model, with the result that customer satisfaction increases even when Xerox may not be following its own processes. They added that Xerox regularly meet SLAs, and performs root-cause analysis and continuous improvement proactively.

Cautions

• Xerox's investments are much needed, but somewhat late, so it has some catching up to do. This puts it at a slight disadvantage in terms of having less experience and fewer deals to use as reference points. With new solutions comes a learning curve, and it will take time to adjust to the market's peculiarities, especially for newly minted and branded Xerox solutions. This could hamper Xerox's success, at least in the short term. Customers should carefully evaluate Xerox's overall solution road map for these services and assess their readiness for these offerings in comparison to those from Xerox's competitors.
• Xerox continues to improve its ability to address client requirements outside the U.S., but has yet to scale up to meet the needs of multinational organizations. Customers with complex multinational requirements should carefully evaluate Xerox's ability to serve as a single provider in light of its geographical reach, the maturity of its solutions and its track record.
• Clients stated that they are concerned about Xerox's ability to drive innovation, given a shortage in the number of qualified staff to complete required projects. They added that Xerox needs to re-emphasize its processes for continuous improvement and root-cause analysis, and make formal and regular communications with them. Customers should include formal innovation plans, including measurements of innovation, in outsourcing contracts with Xerox.

Vendors Added or Dropped

We review and adjust our inclusion criteria for Magic Quadrants and MarketScopes as markets change. As a result of these adjustments, the mix of vendors in any Magic Quadrant or MarketScope may change over time. A vendor's appearance in a Magic Quadrant or MarketScope one year and not the next does not necessarily indicate that we have changed our opinion of that vendor. It may be a reflection of a change in the market and, therefore, of changed evaluation criteria, or of a change of focus by that vendor.

Added

This year we have added Infosys, T-Systems and Tata Consultancy Services.

Dropped

Although some vendors that actively participated in last year's Magic Quadrant did not actively participate in this year's, we have not removed any vendors.

ACS, a Xerox Company now appears as Xerox.

Following its acquisition, Siemens IT Solutions and Services now appears as Atos.

This Magic Quadrant focuses on management services for mainframe and centralized server environments — including IUS — and the supporting storage requirements in order to evaluate each service provider's ability to deliver DCO services in North America. As in previous years, this Magic Quadrant excludes simple, dedicated Web hosting and co-location services.

Gartner included service providers that:

• Demonstrate they provide DCO services as a sole-source direct provider (we excluded DC services delivered entirely by partners or subcontractors)
• Show they have nonmarginal DC delivery capabilities
• Generate at least $50 million in DCO and IUS revenue from clients based in North America

Gartner excluded service providers that:

• Deliver DC services entirely through partners or subcontractors
• Exclusively deliver pure hosting services, such as collocation or simple/dedicated hosting services, or that take a purely rental approach to DC capabilities
• Engage in DCO service relationships that are not bundled — for example, when the client owns one contract with the hosting provider and one contract with the RIM provider

We required each service provider included in this Magic Quadrant to brief the authors and present its vision of the market and ability to execute within that market, including the specific geography.

We also asked providers to detail their:

• Service line, investment and other main financial indexes
• New-generation DCs, "green" IT and physical consolidation plans
• Global delivery, RIM and low-cost delivery locations
• IUS offerings, clients, servers, and samples of SLAs and pricing
• Deal pipeline, deal structure and sales performance
• Value proposition, key differentiators and win/loss elements

We also asked each service provider to supply us with contact details for five reference clients, whom we contacted as part of the review process. In addition, during the past 12 months, Gartner analysts spoke to over 500 clients who asked about providers' DC capabilities, faced challenges with their DCO/IUS provider, or were seeking information about which companies can provide DCO and IUS services to meet their requirements. The reference clients identified by the providers in this year's Magic Quadrant were generally more positive than those identified for last year's.

Evaluation Criteria

Ability to Execute

Gartner evaluated the providers on the quality and efficacy of the processes, systems, methods and procedures that enable their performance to be competitive and effective, while positively affecting revenue, retention and reputation. We judged providers on their ability to capitalize on their vision and their success in doing so, as well as on their North American footholds in terms of resources, coverage, seamless delivery within different countries and ability to meet customers' requirements.

Product/Service

This category, which we weighted "high," involved evaluating each provider's capabilities and the services it offers. We gave special consideration to practice area profile and service capabilities in North America, service definitions, effective "resourcing" and transition management. The categories of services for our study are:

• Practice area profile and service capabilities, which focuses on:
  • Overall North American 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
  • Amount of MIPS and servers managed
• Core services and SLAs, which focuses on:
  • The management of SLAs, which includes the provision of core and ancillary DC services, such as full facilities management, remote management, customer on-site support, capacity/configuration planning and consulting on consolidation
• Resource and transition management, which measures each service provider's ability to:
  • Effectively provide relevant resources to the customer
  • Efficiently migrate 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

Overall Viability

This category, which we weighted as "high," includes an assessment of the financial health of the organization's DC operations, and the likelihood that the individual DC 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 DC segment during the past three years. We asked each service 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 "high," 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 "high," 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 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 its brand and business, increase awareness of its services, and establish a positive association between service/brand and provider in the minds of buyers.

Customer Experience

This category, which we weighted as "high," evaluated reference clients' overall satisfaction with the provider's service and their relationship, taking into account Gartner's other interactions with clients. We obtained access to reference clients by asking each provider for five North American 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. These include client satisfaction, incentive plans for account teams, and continuous improvement processes both 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 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 related to ITIL processes — and other certifications available for all sites or specific DCs or clients.

We spoke to the providers about their main procedures (operational, transitional, program management, relationship management and change management) and asked reference customers for their 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.

Source: Gartner (August 2012)

Completeness of Vision

Gartner evaluates service providers on their ability to articulate logical statements 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 understanding of how they can exploit market forces to create opportunities for their organizations.

Market Understanding

This category, which we weighted as "high," assessed each provider's corporate view of the DC services and outsourcing market in North America. We evaluated how each provider is trying to address the main requirements of North American clients. We also looked at the main effect that new technologies, delivery models and services are likely to have on each provider's business and delivery models in the short term and the 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 the broader offering

Marketing Strategy

This category, which we weighted as "standard," looked at each provider's main marketing messages relating to DCO services in North America.

In particular, we considered:

• Current and future value propositions for DCO in North America
• 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

Sales Strategy

This category, which we weighted as "standard," required each provider to illustrate its overall sales strategy for DCO (for example, direct vs. indirect selling via partners, allies and channels), its reactive answers to RFPs as compared with its proactive statements, its stand-alone offerings as compared with those bundled with other services, and its dedicated sales force as compared with a shared 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 North America
• The number of offers issued during the past 12 months, as well as the number of offers 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

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:

• Ability to integrate client assets, including DCs in North America
• Ability to transfer DC staff from client to provider in North America
• Approach to combining standard service elements into customized service delivery to provide flexibility and low-cost services

Business Model

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: client specific requirements (driving client satisfaction) and the industrialized, centralized delivery of DCO services (driving low costs and protecting margins).

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 an 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 its strategy for centralized delivery of standardized DC 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 reference clients 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 whole industries.

In particular, we considered each service provider's:

• Penetration of different industries for DCO services
• Ability to demonstrate expertise in the vertical markets and business processes underpinned by DCO services

Innovation

This category, which we weighted as "standard," 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 the 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 reference clients for their judgment of their provider's ability to innovate, including the technical aspects of innovation, ability to lower costs and improve service, and 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 North America 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.

Source: Gartner (August 2012)

Quadrant Descriptions

Leaders

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 contains CSC, Dell, HCL Technologies, HP and IBM.

Challengers

Challengers execute well, but 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 contains Acxiom, Atos, CGI, CompuCom, Unisys, Wipro and Xerox.

Visionaries

Visionaries have a clear vision of the market's direction and are focused on providing services to meet its future needs. They need to improve their ability to deliver and their penetration of the North American market. The Visionaries quadrant contains Fujitsu and T-Systems.

Niche Players

Niche Players focus successfully on a particular service, a limited number of North American markets, or both. This narrow focus might affect their ability to outperform or innovate. The Niche Players quadrant contains Capgemini, Infosys, Maintech, Northrop Grumman, TCS and Tech Mahindra.

Organizations' unavoidable need to consolidate and refresh their DC estate, and even to create next-generation DCs, requires significant capital investment. Budgetary constraints, however, almost always lead them to evaluate alternative options, including collocation/hosting, DCO and cloud computing. Providers that are investing in physical and management capabilities to create and deliver low-cost, industrialized IUS are seizing this opportunity.

Organizations can use this Magic Quadrant to improve their understanding of the vision and ability to execute of 20 DCO and IUS providers in North America's changing market. This will help them select a provider that supports critical functions and business objectives for long-term DCO and IUS contracts.

Major forces are shaping the worldwide IT outsourcing market. They are affecting North American organizations' DC requirements and the way external service providers design, offer and deliver DC solutions and services. In North America, increasing volumes of storage, high-density computing technologies at a time of rising energy costs and environmental concerns, and a need to consolidate for efficiency and security highlight the physical limitations of existing DCs. At the same time, higher service requirements, such as 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, and the continued rise of industrialization (utility and cloud approaches) characterize North America's DCO market.

The forces shaping the world's IT outsourcing market include a challenging and uneven economic environment and continued industrialization of services, albeit at a slower pace than expected. Organizations continue to look for ways to reduce the percentage of their IT budget dedicated to running infrastructure and generally "keeping the lights on" — normally two-thirds or more. Service providers are striving to meet customers' infrastructure needs by creating and deploying preconfigured, standardized offerings that support economies of scale.

A sense of urgency pervades the market and challenges service providers' ability to scale and grow. They face hypercompetition on one side and a need to invest to develop and deliver new services and related competencies on another. In this scenario, providers need to make substantial changes to their internal structures and do so quickly. Their survival and prosperity in the coming years depends on the ability to create and deliver high-volume, lower-priced industrialized services (such as IUS and industrialized low-cost services [ILCS]).² Their only alternatives are to become highly specialized in delivering low-volume, high-margin infrastructure services that may become de facto standards for specific sectors over time, or to embed infrastructure services into IP-based industry-specific solutions such as SaaS and BPaaS, which extend beyond pure IT value and performance.

Below we briefly examine each of the key trends shaping how customers buy and service providers deliver DC managed services to fulfill the new service requirements of globally competing businesses.

Technology Trends

• Industrialization of IT services: The trends toward increased industrialization and cloud computing models affect DCs and critical business applications and data. These trends also drive adoption of IUS, embedded IaaS and, although it is still at an early stage of development, PaaS. Gartner predicts that by 2015, industrialized services will represent over 30% of the IT services market.³

• DC outsourcers are differentiating IUS through offerings designed to support application environments, not only through IaaS. The best IUS solutions are industrialized infrastructure solutions that assist clients in their cloud migration endeavors and are open, flexible, predesigned, highly automated, secure and reliable. The most recent IUS offerings are built on standard infrastructure blocks such as IaaS and PaaS, with elements designed to support a specific application landscape such as ERP, communication, collaboration and CRM. Providers in this Magic Quadrant claim that 18% of their clients already use IUS or IaaS offerings; over 35% of the reference clients contacted in this study claimed to use such offerings.

• Shift from public clouds to private clouds: Concerns about the privacy, security and compliance of public cloud services have fueled interest in private and hybrid clouds, as well as in industrialized infrastructure outsourcing offerings such as IUS. Outsourcers have responded by investing in developing private and hybrid cloud IaaS offerings.⁴
• Virtualization: Forty-five percent of the reference clients we contacted for this study have outsourcing deals that implement virtualization. Providers declare a ratio of 41% virtual servers across their estates in North America. Virtualization, such as virtualized storage and shared computing, is also driving the evolution of the DC toward industrialized services, such as IUS. The providers in this Magic Quadrant that offer IUS or IaaS account for approximately 29% of the clients using these services in North America.
• Automation: Users need to access highly flexible, standard infrastructure, in which the interfaces provided to clients reduce the amount of unproductive service management work. This is driving the rise of automated services. In the past few years in North America, the number of servers managed by each DC service staff member has increased at a compound annual growth rate of more than 15%. This trend will grow due to IUS 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 the clients surveyed in 2011 selected energy issues as one of their top challenges in DCs (after data growth, system performance and network performance). In response, service providers are engineering and optimizing the energy and cooling efficiency of their new physical locations. The median power usage effectiveness (PUE) that the vendors reported was 1.5.
• Continuous optimization of DCs: Driven by the need to protect profitability, organizations continue to standardize, automate, virtualize and rationalize DC services. Providers are focusing their services on new modular DCs that deliver greater flexibility, more effective power consumption, higher levels of usage, continuity and remote management.

Market Trends

• Growth in economies of scale and business: Ongoing and uneven economic issues and cost pressures continue to fuel interest in the industrialization of infrastructure services, including cloud computing services, that deliver economies of scale. Gartner's 2011 global user survey revealed accelerated uptake of IUS and IaaS approaches to infrastructure delivery because they help CIOs meet their major priorities.
• 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 DC, desktop, networking and 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, is 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. IUS offerings, such as IU4SAP (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.
• Industrialized low-cost services: Adoption of ILCS has changed the way IT services are consumed in a trend that affects both the market and technology. Gartner predicts that by 2015, low-cost cloud services will cannibalize up to 15% of top outsourcing players' revenue. As traditional outsourcing services adopt the cloud computing style, IUS represents an already viable, pragmatic and industrialized infrastructure solution. The North American market is dominated by DCO (its share is greater than 85%), and as economic conditions remain uneven businesses are increasingly migrating to IUS and cloud services, driven by a need for international competitiveness and lower IT costs.Increasingly, organizations expect vendors to embed provisions for security and integration into their overall IU solutions. This, along with a focus on resilience, automation and virtualization, will increase market adoption in 2012. Buyers will look beyond the benefits of volume scalability to the potential to align IT costs with business outcomes and consumption. Transition activities (and their complexity, cost and outcomes) and development environments (and their tools, process standardization, integration and features) will remain weak points that decrease client satisfaction. Some major failures in cloud computing delivery might deter clients, but will nevertheless create a learning opportunity for multiclient platform engineering (backup, contingency avoidance and limitation, disaster recovery and business continuity, and more rules for the use of shared services).⁵Industrialized services are now a de facto requirement to compete in this market, which is progressively challenging the investment capabilities of local and regional players. Although IUS offerings, such as IU4SAP,⁶ remain the most successful examples, 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 between 50% and 60%, which provides more flexibility to clients in terms of variability of volumes and pay-per-use models. Providers often manage this variability through a per unit or per user, per month billing mechanism. In addition, and regardless of the pricing mechanism used, the price of DCO and IUS services continues to drop each year, by between 5% to 7% at the low end of deals, to 8% to 10% at the high end.⁷IUS pricing is based on service use and proven, ongoing reductions in the fixed baseline (or subscription fees) and unit costs. This characteristic is fundamental to the benefits that providers and end users realize from a one-to-many service delivery model. Unsurprisingly, given the persistent economic challenges, many organizations confirm that a key attraction of IU offerings is the potential to optimize IT consumption to price (see "Competitive Landscape: Application-Focused Infrastructure Utility Services Enrich the Proposition of Data Center Outsourcing Providers").

Although the DCO market is mature, the trends described here continue to drive rapid change in the market, and business growth has progressively moved from traditional approaches to industrialized models. In the infrastructure managed services market, the lines between different approaches — co-location, 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. A recent Gartner survey 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 more popular than traditional approaches.⁸

The almost 100 reference clients that Gartner interviewed as part of the research process for this Magic Quadrant, together with information gained from almost 1,000 other interactions with Gartner clients in North America and elsewhere, have provided meaningful insight into the "pulse" of this market. Despite the market's changing state, most of these clients are satisfied both with the service they receive and the relationship with their provider. Although there are always some dissatisfied clients, overall DCO remains a viable and mature sourcing option in North America. Gartner recommends that customers use 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. In particular, they must understand that different providers are approaching service industrialization in different ways, which will determine the risks they face in a hypercompetitive market:

• Aggressive service providers are increasing their market share and capitalization by industrializing their service delivery to control costs and their service portfolios to sell low-cost service components as part of outsourced service offerings. (More providers have appeared to embrace this approach during the past year.)
• Conservative outsourcers continue to industrialize their service delivery ("industrialization inside") but avoid proposing and selling ILCS in order to protect their margins. Without a general acceleration of the economy, these providers will register flat to negative growth in their European and North American outsourcing businesses. (Fewer providers now take this approach, and those sticking with it will come under increasing pressure in the coming year to reduce their dependence on it or abandon it.)
• Laggards ("outsourcers in waiting") are not progressing with industrialization of offerings or service delivery, and are in trouble. Their service lines associated with infrastructure and horizontal services could begin to disappear in the next few years through loss of deals, mergers and acquisitions, and withdrawals from this market.⁹
• Cloud service brokers (CSBs) are multiplying as the distinction blurs between traditional services and IUS, mostly cloud-based solutions. CSBs (on which see "The Role of CSB in the Cloud Services Value Chain") can be dedicated cloud providers or more traditional providers that also offer aggregated, integrated and customized cloud and utility solutions. The main driver of such services is delivery from a functional integration perspective, but brokerage of core computing and utility offerings will pick up as cloud and utility services become more widely accepted as reliable alternatives to traditional DCO.

The North American market, which started and continues to lead the evolution toward cloud computing and IaaS, differs in key ways from the European market (see "Competitive Landscape: Data Center Outsourcing Service Providers, North America, 2010," "Competitive Landscape: Data Center Outsourcing and Infrastructure Utility Services, Europe" and "Stay Ahead of Data Center Outsourcing and Infrastructure Utility Market Trends in Europe"). Hosting represents 40% of the managed DC service market in North America, but less than 20% in Europe (for example, DCO plus hosting; see "Forecast: Infrastructure Utility Services, Worldwide, 2009-2013"). Unlike in North America, the variety of countries and languages across Europe has inhibited the growth of hosting companies and Internet providers (see "Data Center Managed Services: Regional Differences in the Move Toward the Cloud").

The 20 providers represented in this Magic Quadrant have combined revenues of $23.8 billion in DCO services, and they manage more than 296 DCs in North America. Most of these DCs are on the providers' own sites; others are on clients' sites or leased from third parties. Together, these 20 providers manage more than 2 million mainframe MIPS and over 1.8 million servers, of which an average of 41% are virtual. The providers vary significantly in size, number of staff and clients, number of DCs managed and geographical coverage. Their approaches to this service area also differ. Some view DCO as a strategic business; others consider DCs a necessary base capability for the delivery of end-to-end services that extend to network services and unified communications and collaboration (telecom companies), or to application and business process services (outsourcers and SIs).

The rise of asset-light service models, such as RIM, from Indian and other offshore providers, database administration services and asset-intense IUS and cloud IaaS services has further complicated the DC services market during the past few years. This market now includes several types of service provider, including traditional vendors, outsourcers, SIs, offshore players and telecom companies that also provide DCO and hosting providers. The level of competition, which is often based on the right balance of low cost, good quality and sufficient flexibility, is growing in North America's DCO market.