Magic Quadrant for Data Center Outsourcing and Infrastructure Utility Services, North America
Gartner assesses 22 top providers of data center services in North America with total revenue exceeding $30 billion in terms of execution and strategic vision. This Magic Quadrant will help sourcing executives choose a provider in this crucially important and fast-changing market.
This Magic Quadrant focuses on management services for mainframe and centralized server environments. It evaluates the abilities of 22 service providers to deliver data center managed services across North America, including data center outsourcing (DCO) services and infrastructure utility services (IUS), which are often enabled by remote infrastructure management (RIM) services and increasingly include cloud computing components.
Future growth in data center services will come from new industrialized infrastructure offerings such as IUS and infrastructure as a service (IaaS), while growth and margins for traditional services will face further pressure (for more details, see "How Key Trends in the Data Center Infrastructure Outsourcing Market Will Affect Your Business"). Therefore, we include in this evaluation cloud IaaS and platform as a service (PaaS) offerings that are part of IUS and data center managed services (see Note 1).
As in previous years, this Magic Quadrant excludes simple, dedicated Web hosting and colocation services, and providers that entirely subcontract their services.
Gartner defines a data center as a centralized environment that provides support for computer equipment in a secure facility. This includes the underlying network infrastructure and the processes and organization that support the environment. These generally include the following:
- System operations
- Tape operations
- Print operations
- Second-level data center support
- Production control
- Backup and recovery processes
- Technical support (OSs and subsystems)
- Performance analysis and capacity planning
- Storage management
- System security and contingency planning
- Asset procurement and third-party management
Data Center Outsourcing
DCO is a segment of IT outsourcing (ITO), which always includes an IT management service and is segmented into data center, desktop, network and enterprise application outsourcing.
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 based on resource usage, allocation or number of users served.
Gartner defines North America as Canada and the U.S.
Remote-Infrastructure-Management-Based Service Delivery
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 data center, and when a single service provider delivers RIM. In that case, the client signs a single service contract with one service provider for the whole set of DCO services. In that type of contract, the main provider is responsible for end-to-end service delivery, including management and control of the hosting subprovider or subcontractor.
Source: Gartner (July 2014)
Accenture provides consulting, system integration (SI), outsourcing and software globally. Of its total revenue for fiscal 2013 of $28.6 billion (up 3%), its outsourcing revenue (from application, business process and infrastructure services) amounted to $13.2 billion (up 7%). Accenture pursues opportunities in which infrastructure outsourcing initiatives focus on business and IT transformation or underpin application and business process service delivery, especially if the accounts are managed by its industry business units and use its own software unit. Accenture owns no data center facilities in North America and delivers its DCO/IUS solutions through six partner-owned data centers. We estimate that DCO/IUS business represents around 10% of Accenture's ITO business, with approximately 42% of that revenue coming from over 150 North American clients.
- Accenture increasingly focuses on transformational deals where value and performance expectations center on a mixed environment of legacy and cloud-based solutions that need to be integrated and managed. Accenture's strategy aligns well with Gartner's Adaptive Sourcing layers (Innovate, Differentiate and Run),1 and increasingly, its strength will be based on selling its infrastructure service line as a platform for digital business and customized, differentiating solutions.
- Accenture's asset-light strategy means that it avoids traditional, static legacy deals oriented toward swapping assets (human and physical) and cost reduction, and those that are purely about increasing scale. Accenture has deep business understanding and relationships that can support growth and could potentially enable it to deliver an effective business-oriented solutions platform enabled by efficient data center services, which are increasingly focused on data center optimization and automation, cloud platform implementation (IaaS, PaaS, SaaS), and hybrid environment integration and management.2
- Clients state that Accenture's strengths include its ability to improve deal performance, vast array of personnel capabilities (including staff skilled in consulting and architecture design), demand-based compute and storage capacity management, technical road map adherence for resident application entities, automated PaaS solutions for application developers, capability to manage clients' needs proactively, responsiveness and flexibility.
- Accenture offers a range of infrastructure services under two main business models (with differing potential for industrialization),3 plus an emerging one, through its recently established direct sales force for infrastructure services. Client deal qualification and strategic choices (for investments, solutions, infrastructure performances and service levels) are now driven by the newly established Infrastructure Services organization, which has end-to-end responsibility (excluding profit and loss) for addressing the fragmentation risk that can arise from having individual key accounts and parallel channels. Over time, this will change the way Accenture selects deals to bid on.
- Only 8% of Accenture's managed SAP clients use its utility solutions, which reflects limited advancement in industrialized services for a provider focused on customized solutions. Price pressure is forcing Accenture to industrialize further, and its currently standardized SLAs are comparatively low, although higher SLAs are available — at a premium price — for more customized services. Accenture measures customer satisfaction at the level of the whole client relationship and cannot provide evidence of customer satisfaction measures for this individual service line; this limits its tuning of its industrialized infrastructure services portfolio.
- Some clients report that Accenture needs to improve its reaction time in critical situations, that its offshore resources lack the right skills and experience to carry out their assigned jobs, that costs — from time to time — are high, and that cost optimization results from clients' requests, not Accenture's initiatives. Clients also state that external solution or personnel options will not be considered unless they insist.
Acxiom focuses on the North American midmarket. It generated service revenue of $1.1 billion in its fiscal 2013, of which slightly more than $275 million came from DCO services. With almost 300 data center clients in North America (primarily in the U.S.), Acxiom continues to seek clients across many industries and company sizes, though it focuses on companies with revenues between $200 million and $2.5 billion. Recent organizational changes at the senior management level show that Acxiom has recognized the need to refocus on its infrastructure outsourcing strengths. Its continued appearance in this Magic Quadrant reflects its longevity and maturity in this market, as well as a clear market positioning and "sweet spot" among midsize North American buyers of infrastructure outsourcing services.
- Acxiom is an experienced ITO player with expertise in cloud, server, mainframe and storage services. It delivers those services primarily to the midtier North American market, with a very strong focus on customer service and satisfaction. Acxiom's IUS offerings for key areas of the data center make it easier for clients to achieve transparent end-to-end solutions that easily adapt to multitenant deployments. Acxiom remains flexible and continues to provide custom deployments outside its IUS product portfolio, with solutions founded on ITIL V3 processes and a strong relationship governance model.
- Mainframe outsourcing continues to represent a substantial part of Acxiom's DCO revenue. In addition, Acxiom's utility storage and dedicated cloud-based solutions grew in 2013. This enables it to offer competitive prices, supported by skilled and experienced resources, and a sound base of tools and technologies.
- Clients express satisfaction with Acxiom's automation of processes, knowledge of market trends and visible actions in response to those trends, which include tailoring solutions to meet their requirements. Acxiom's technical personnel receive high marks across the board. Its security policy and practices also get excellent grades. Acxiom's change and relationship management processes and related personnel were singled out as having excellent skills. In addition, clients praise Acxiom's ability to provide cost-effective services based on its internal efficiencies and lower procurement and/or operational costs.
- With virtually all of Acxiom's business and growth, both real and planned, based in North America, this vendor is not well-suited to the needs of large and/or globally distributed organizations. Large customers, both domestic and global, that expect a vendor to take over assets and gradually become their global provider should be particularly careful when evaluating Acxiom.
- Although Acxiom's profitability remains strong, and its stock price is up year over year, its infrastructure revenue, including DCO, is slightly down this past year. Combined with the fact that Acxiom's IUS solution has yet to take hold in comparison with those of competitors, this means that, although Acxiom has refocused its energies upon its strengths, clients should ensure that Acxiom can meet their solution needs. Additionally, since Acxiom, with its focus on midtier customers, continues to shift steadily to cloud-based delivery methods and models, customers must understand that the company remains in "catch-up mode" as it changes its sales focus to utility-based models.
- Some clients indicate that Acxiom's solutions require monitoring for SLA compliance and to ensure that agreed "corrections" are adhered to. They also indicate that the knowledge transfer process is difficult. They state that Acxiom's cloud offerings must rapidly evolve to be competitive, as they perceive Acxiom to be late in adopting new cloud-based technology solutions. Prospective clients should ensure they will receive appropriate service levels with associated penalties and incentives, that they complete their due diligence, particularly in relation to cloud-based solutions, and that, if necessary, they determine what Acxiom's capabilities are outside North America.
Since acquiring Siemens IT Solutions and Services (SIS) two years ago, Atos reports that it has achieved its objectives of improving its operating margin (now at 7.5%) and cash generation, and has increased its market capitalization by five-and-a-half times from 2008. Atos is a European company headquartered in Paris, France, and Munich, Germany. It is the second-largest European IT services provider, with overall revenue of $11.4 billion (up 0.6% from 2012) and a strengthening brand. It is pursuing an aggressive strategy through 2016 to increase its leadership in managed services, cloud service deployment and growth (both organically and through focused acquisitions4), in order to become a more global cloud-based service provider, and increase its share of the North American market, while also achieving growth of over 15% in Asia/Pacific and EMEA. In 2013, Atos generated over $320 million in DCO/IUS revenue in North America, from 88 customers, which indicates that many of its deals were worth more than $1 million annually. Atos expects to generate cloud-based service revenue of $1 billion worldwide by 2016, and that the cloud will account for 50% of its managed service business by 2020.
- Atos has strong planning and execution capabilities, which were demonstrated throughout its successful merger with SIS and by its role as service integrator for the Olympic and Paralympic Games. Atos has communicated a coherent message in terms of positioning its role as a "business technologist," and is working with partners like EMC, VMware (a partner in Atos' cloud brand, Canopy), Siemens (ongoing Atos investments of over $140 million), Microsoft and research institutions. Atos maintains a sound vision for the evolution of its DCO and IUS services toward a hybrid delivery model through its Canopy Cloud services, mostly operated from the company's Indian delivery centers. Atos increased its DCO/IUS revenue in North America by over 31% from 2012 to 2013, and it expects growth to continue in 2014.
- Atos continues to strive for an increased level of industrialization and quality in its service delivery, with a range of initiatives including Zero Incident, Top One Tier (TOP) — which is based on quality, innovation and talent — and end-to-end implementation of lean programs. Key roles have been established, such as a managed services head of operations for each Atos business unit, as have a dedicated project/transformation unit and a global security services unit. As part of a renewed data center consolidation process, the company's logical data center structure is moving toward four standardized layers. Despite consolidating, Atos reports a visible improvement in customer satisfaction compared with 2012, which has been confirmed by references.
- Clients indicate that Atos excels at technological changes such as complex system upgrades and migrations. They commend its speed of delivery and planning of commodity services (such as installations, moves, adds and changes), and state that other similar activities were completed accurately, on-time and with a high degree of professionalism. They also praise Atos' ability to work across a variety of environments in relation to both hardware and OSs, its flexibility and agility in adjusting processes and people to meet highly dynamic test environments, and its proactive suggestions for process improvements (ideas for how to improve client organizations' engagement with customers).
- Despite growth in this service area and despite innovation initiatives such as Canopy and Zero email, Atos' overall business growth has been flat (roughly 2.8% below the market average), as it has focused on the integration of SIS and improving its margins. This shows that Atos — despite its current efforts — must still increase its ability to transform front-end innovation into winning service offerings, efficient delivery and revenue flow. This challenge is shared with many other organizations in the digital era, but IT providers must excel here to be perceived as digital leaders.
- Atos' business remains too concentrated in Europe, a market where limited growth is expected. North America contributed less than 20% of Atos' data center revenue in 2013, and most of its IUS customers (over 70%) are concentrated in Belgium, Germany, the Netherlands and the U.K. This raises the question of whether Atos will successfully develop its North American business, despite its announcement of a strategic intention to double its size in this region by 2016. Canopy recently established four global hubs — in North America, Singapore, the Netherlands and Germany — that should start to deliver traction with a set of new offerings branded as Canopy and delivered by Atos' SI and managed services lines. These new cloud and IUS offerings account for only a small part — approximately $52 million — of Atos' DCO/IUS revenue, but together with its compute and storage IUS business, they bring Atos' global utility service revenue to over $500 million (inclusive of virtual desktop infrastructure [VDI] enterprise workspace), which is approximately 20% of its DCO/IUS revenue.
- Some clients indicate that Atos' process for provisioning noncommodity services is still difficult, and that the company lacks a proactive approach to standard technology refresh and patch management. Some also consider that Atos is inconsistent in reporting workload requirements and in the time it takes to close tickets, that attending measures are incomplete, and that those measures that are present require research in order to understand them and ensure that problems have been solved. Finally, clients report that Atos does not deliver consistently across multiple locations, with different processes and communication methods having caused confusion and frustration. In some cases, this has led clients to reduce the amount of work they assign to Atos.
Capgemini has a $2.3 billion infrastructure outsourcing business. Its DCO revenue in North America rose by 16% in 2013 to $348 million, with a significant portion of the company's total revenue coming from infrastructure services. In 2014, Capgemini is pursuing two major themes in its infrastructure services business: globalization (one global delivery unit for all infrastructure services) and simplification (including a global program of data center consolidation). Capgemini is continuing its drive toward a higher degree of industrialization, and to support this initiative it has created a Dynamic Services business unit that groups its cloud and integration services.
- Capgemini grew its North American DCO business by over 16% in 2013, signing deals that added five new names to a list of clients that now numbers over 140. By combining excellent revenue growth in North America with visible cost reductions based on technology advancements, Capgemini has increased its competitiveness, which in turn has resulted in margin improvements, improved cost modeling and a solid approach to deal qualification. As organizations aim to become digital enterprises, Capgemini's background in system development and applications could be differentiating, as long as its move toward offshoring and globalization does not prevent it achieving the required levels of customer intimacy, flexibility, agility and trust.
- Capgemini's strategic focus on integration services and cloud brokerage is a practical one that capitalizes on the company's knowledge of system integration and application services and enables it to move away, albeit slightly, from the ever-present competition on the commodity side of the market. Gartner views this in a positive light. We consider that, along with the company's relationships with providers such as EMC, Capgemini is on solid ground, at the very least in the short term. Capgemini has positioned its cloud brokerage services separately from its traditional managed service activities, thereby forgoing some potential synergies between cloud and traditional services.
- Clients state that Capgemini is flexible in its day-to-day activities and willing to adapt to unique circumstances at short notice. They also commend Capgemini's responsiveness and ability to adapt to different business models to suit their different business units.
- Compared with others in this Magic Quadrant, Capgemini was late to market with its industrialized offerings (for example, IaaS, SAP Run, Oracle Run), so its investment in ramping up a higher degree of industrialization in complex service environments needs to happen quickly — including implementation of SAP Run 3.0 with expected support for Hana in mid-FY14, and more workflow automation. In fact, its volume growth in 2013 has been mainframe-based, showing the need to accelerate its migration toward cloud-based utility services.
- Due to its strong focus on improvement initiatives, Capgemini is currently more focused on restructuring its service delivery than innovating in its service portfolio. Large parts of its improvement initiatives focus on global delivery extension, at a time when competitors are already focused on automation — something Capgemini must address soon to avoid falling behind again. Although the planned improvements will be beneficial overall, these initiatives must be managed carefully to avoid further reducing customer satisfaction.
- Some clients report that Capgemini needs to construct a transparent pricing mechanism and improve its ability to manage third-party escalation activities. They would also like it to propose automation and infrastructure utility/cloud-based solutions proactively and forcefully, innovate and fine-tune its resource management process. Finally, some clients state that Capgemini needs to improve its planning of scheduled downtime activities to ensure they are not caught off guard.
This is the second year in which CenturyLink has appeared in this Magic Quadrant. CenturyLink is slowly expanding its DCO/IUS capabilities and offers managed hosting on dedicated servers, private and public cloud IaaS, and colocation services. It operates data centers in 20 metropolitan markets throughout North America, as well as in locations in Europe and Asia, many of which are near major financial exchanges. Although CenturyLink does not report its DCO/IUS revenue, Gartner estimates that it generated over $180 million from this line of business in 2013.
- CenturyLink can handle extremely complex deals, including those involving large-scale e-commerce and enterprise application hosting needs. It has a very broad portfolio of supported infrastructure, middleware stacks and application environments.
- CenturyLink also appears in "Magic Quadrant for Cloud Infrastructure as a Service" and "Magic Quadrant for Cloud-Enabled Managed Hosting, North America," as a Visionary. The company approaches the DCO market as a natural extension of its strengths in hosting and IaaS, which is in contrast to the majority of DCO providers in this Magic Quadrant, which are building from a DCO base into cloud services. Combining these offerings enables CenturyLink to manage complex deals that can move from hosting to full DCO.
- Clients state that CenturyLink provides services without regard to the contract's structure, has excellent service reliability, continues to improve services, and remains flexible in its approach to deals. In addition, clients state that CenturyLink has excellent technical support, mostly from dedicated support teams, and that it provides the right technical advice to fine-tune requirements when changes are necessary. Finally, clients state that CenturyLink has mature operational processes and has a very strong focus on the customer.
- As CenturyLink already has several hosting and cloud IaaS offerings, moving to full DCO solutions could leave customers uncertain which solution best fits their initial needs and whether, or when, to move from one solution to the next.
- CenturyLink's focus on hosting and IaaS solutions means that its DCO capabilities largely center on cloud and IaaS solutions tailored to the unique needs of individual clients. This leaves it with very limited presence and experience in the DCO market. Before engaging in a deal with CenturyLink, companies must check whether it plans to focus on full DCO/IUS solutions, including full data center operations such as batch-processing and other operational activities.
- Some clients state that CenturyLink lacks sufficient coverage in certain geographic areas, with Asia highlighted as one where it needs more breadth to its services offerings. They also observe that CenturyLink is sometimes inflexible. Additionally, they state that CenturyLink's reporting mechanisms need improvement and that its technical knowledge is inconsistent across the globe, with pockets of excellent support and pockets of inadequate support. Finally, they consider that CenturyLink is slow to respond to new requests for service.
CGI acquired Logica in 2012, but the new company is less well-recognized than might be expected from its post-acquisition size of $10 billion in annual revenue. CGI generated $700 million in DCO/IUS revenue from North American deals in 2013, a 23% decline from 2012. This second straight year of decline indicates that CGI is at a critical stage in its development as a large, merged entity; it must quickly address and resolve the decline. Along with its traditional integration activities, CGI is running programs to standardize its services globally, adding new services in areas of strong innovation and striving for a more global go-to-market approach — a route that many of its competitors started down several years ago.
- CGI maintains a broad range of vertical solutions that it could use for cross-selling and to meet the market's requirements for more business-oriented discussions, rather than pure provisioning of DCO, IUS and cloud IaaS services. To support this approach, CGI can also draw on its business consulting practice and application and integration capabilities. To cope with a more global and industrialized service market, CGI is entering a consolidation and improvement phase in some areas of the world. However, its centralized council to control infrastructure service investment appears inadequate to create industrialized services as it covers only IT strategy, common processes, management toolsets, and design and technology investments.
- CGI's infrastructural propositions have good traction in North America (where it is Federal Risk and Authorization Management Program [FedRamp] and Third Party Assessment Organization [3PAO] accredited) and in the U.K. (more than in mainland Europe). Deal renegotiations and decisions not to renew unprofitable deals are two reasons for CGI's revenue decline. CGI's partnerships with Microsoft to deliver Exchange/Lync/SharePoint "as a service" and a burst capability for Microsoft Azure are global and contribute to deals secured in both North America and Europe. CGI's investment in DCO and IUS is sound; in 2013, it focused mostly on the basics by adding two data centers in North America, bringing its total in this region to 13. CGI has also invested in expanding its cloud IaaS solutions.
- Clients note that CGI's key strengths are the availability of qualified resources for each of its major infrastructure components and the dedication and flexibility of its resources during major outages. Some clients also observe that CGI acts more like a partner than a vendor, which helps to produce excellent deal results.
- CGI has a geographically oriented structure in which different presidents are accountable for each of its seven geographic segments, two of which are in North America — one each for Canada and the U.S. Although this structure enables a focused go-to-market approach, the regional autonomy increases the risk of inconsistent delivery and the need for service industrialization and operational consolidation in order to reduce costs and increase competitiveness and margins across the globe. It also makes key resource sharing a significant challenge, when needed in various local and global deals, and reduces CGI's ability to address global deals that span multiple countries, which, in turn, could limit its visibility in larger deals and the addressable CGI market. In 2013, CGI suffered declines in most of its leading key performance indicators (KPIs), such as revenue, customer satisfaction and SLA attainment. As a result, CGI's DCO/IUS business in North America shrank by 23.5%. CGI must monitor this trend carefully, especially as its North American operations could be adversely affected by negative publicity following its role in the development of the Affordable Health Care for America Act and hosting activities.
- CGI's integration of Logica and global delivery harmonization projects appear slow, as so far only two-thirds of its delivery centers run on a synchronized toolset and processes. This is underlined by its differing IUS/IaaS offerings in different countries and a few global customers being served by several, virtually independent, service organizations. Help desk processes are globally synchronized, but there are still multiple help desk toolsets, which can cause inconsistent reporting and elongated review and continuous-improvement processes. CGI's ability to take advantage of offshore resources is also less than that of its competitors. CGI would benefit from accelerating its integration and synchronization of projects, especially as it remains, unlike its competitors, very country-driven and fragmented.
- Some clients report that CGI's backup-and-restore reporting and metrics are weak and inconsistent, that when physical interventions are required CGI's process is not well-structured and results in poor outcomes, that available resource pools lack sufficient skills, and that it takes too long to get governance approval for anything to do with pricing. Finally, clients state that CGI's relationship management structure takes far too long to respond to new requests, and that responses include far too many caveats.
New Jersey-based Cognizant is an $8 billion IT services provider with an infrastructure service business that, in 2013, accounted for 4.5% of its U.S. revenue and 1.3% of its European revenue in 2013. Gartner estimates that Cognizant's DCO and IUS business contributed around $446 million in the U.S. Cognizant's focus is on three "levers" for driving simplification, building progressive solutions and running predictable operations. Its infrastructure service portfolio includes transformation services, managed services and consulting and professional services.
- Cognizant's DCO/IUS infrastructure business grew by a high double-digit percentage from 2012 to 2013, which reflects investments in DCO, including the development of intellectual property (IP) in fields such as hybrid IT, automation and service management, as manifest, for example, in its OnTarget and Cloud360 platforms. Its DCO/IUS services include multitenant IaaS for direct connectivity in customer environments within its data center infrastructure. Cognizant is also investing in next-generation cloud services, while developing industry-aligned solutions in fields such as digital asset management and clinical trial management. Cognizant follows a transformational, application and IP-driven strategy to infrastructure industrialization. Its strategic theme — "drive simplification, build progressive solutions and run predictable operations" — is sound and in line with its key strengths. Over time, this approach could limit Cognizant's revenue growth from traditional approaches based on RIM, renewals of earlier-generation ITO deals and consolidation-led client requirements that still provide the largest opportunities for growth in Cognizant's DCO/IUS business. Integrated approaches for businesses of different sizes, with integrated end-to-end SLAs, are one way in which Cognizant could increase its customer base.
- Clients commend Cognizant for its operational staffing capabilities, management oversight processes and associated personnel. Clients also state that Cognizant has a solid system-monitoring program and a proactive maintenance program, and that many of the associated activities focus on strong ITIL processes and implementation. Finally, clients compliment Cognizant's alignment with their business goals and its continuous-improvement process activities.
- Cognizant owns two data centers in North America, but most of its data center estate (currently 12 locations) is owned by partners or customers. Cognizant's marketing message in North America, while coherent, is low-key. Cognizant requires a louder voice to gain greater visibility as a provider of DCO and IUS in North America — regular communications that include case studies would help. Cognizant needs to use its sound approach to business solutions to help remedy its shortfall in market awareness.
- Cognizant's Virtual Data Center (VDC) is built on CenturyLink's white-label offering. The increasing number of managed hosting players in the DCO/IUS outsourcing and managed IT services market might raise competitive issues for Cognizant or reduce its ability to manage its growth when not relying on third-party vendors. Coupled with the increasing complexity associated with multiple cloud technologies and customer choices, this means Cognizant needs to manage its choice of data center partners wisely to avoid prices increasing with limited additional business value.
- Some clients consider that Cognizant should take a more proactive approach to operationally focused issues. Clients also report that some of Cognizant's resources are less than optimally qualified for the specified tasks, that its scoping and estimating of projects are weak, and that its transition processes and automated solutions are less than ideal. Finally, clients report that Cognizant needs to integrate all its service offerings so that it can provide a holistic, end-to-end solution where needed, and that the company has difficulty solving challenging problems without assistance from client organizations.
CompuCom's revenue exceeded $2.2 billion in 2013, of which $1.2 billion came from services. It continues to achieve both organic and inorganic growth in the DCO/IUS market. CompuCom reported data center growth to approximately $120 million in 2013, a year-over-year increase of 2%. CompuCom continues to focus on supporting clients with customized consulting and SI relating to cloud discovery, migration and consolidation solutions. It continues to invest in IT service management, toolsets and portal technologies, along with operations centers both onshore and offshore. CompuCom manages 331,618 physical/virtual servers and 41,528TB of storage. As an asset-light service provider, CompuCom delivers its solutions through client and third-party data centers, but it also plans to add its own data centers.
- CompuCom delivers value through cross-functional integration by capitalizing on operational economies of scale in its service operation centers, and by using cloud-readiness assessments and client service road maps to create an operational blueprint and service road map for each client's future requirements. This approach is supported by quality initiatives using ITIL, Six Sigma, COBIT and other best-practice methodologies.
- CompuCom has completely rearchitected its portfolio, based on three primary components: end-user computing, service management and cloud-based (enterprise- and community-based) solutions. Its approach includes IUS and IaaS solutions, convergence of end-user and data center requirements, and planned data center acquisitions. In this way it is positioning itself to achieve continued growth and leading levels of customer satisfaction and loyalty.
- Clients report that CompuCom maintains experienced account relationship management personnel and solid incident and change processes, that it is especially responsive to their requests and problems, and that its personnel have a comprehensive understanding of the services they provide. Clients also state that CompuCom has a strong and well-implemented ITIL methodology, that its data center business is secure, and that it conducts yearly audits to ensure it meets standards including Statement on Auditing Standards 70 (SAS 70) and Statement on Standards for Attestation Engagements 16 (SSAE 16). Clients indicate that CompuCom has a strong ability to work with them to adapt as their business requirements change, and that it is responsive to their requests. Additionally, clients indicate that CompuCom has stable, high-quality resources.
- CompuCom relies on partners to deliver its data center utility service offerings. While many of its partners are long-established and formidable companies, prospective customers must ensure that any contract with CompuCom stipulates appropriate levels of transparency in, and accountability for, the management of add-on services. Although improving, CompuCom's brand recognition in North America remains somewhat lower than that of the global leaders, so it needs to invest substantially in marketing its capabilities.
- CompuCom provides managed services through client-owned facilities and assets, an approach, known as asset-light delivery, that minimizes the use of in-house resources and maximizes outsourcing opportunities. Clients considering multiple DCO solution options must understand CompuCom's delivery model and engage with it as it fits their requirements. Those that want a direct hosting solution must recognize that CompuCom does not offer one and either accept its partner-based hosting solution or look elsewhere.
- Some clients indicate that CompuCom's communication process for continuous improvement, reporting and other day-to-day activities is less than optimal. In addition, some state that CompuCom must offer more cloud-based solutions that provide the capabilities and improvements they expect. Finally, clients state that CompuCom finds it challenging to deliver operational efficiencies and associated cost reductions, manage its data center labor pool and control cost increases.
In 2013, CSC had a strong focus on cost optimization, which improved its service margins. It generated $14.5 billion in revenue in 2013 — a slight increase. Its DCO strategy spans traditional and more industrialized solutions packaged into a global solution portfolio, and includes a tagline about next-generation products and capability-based network access. CSC's cloud strategy focuses on empowering its clients' IT organizations to become cloud service brokers. CSC is a full-service provider with a broad value proposition across infrastructure, application and business process layers.
- CSC's DCO strategy is shifting from a traditional outsourcing and cloud-weighted approach to an integrated approach across managed services, cloud services and IUS. This makes service integration and migration a key theme of its solution strategy. Evidence of this approach is CSC's acquisition of ServiceMesh, a cloud management company, in late 2013. This acquisition will lengthen CSC's cost optimization journey, on which it embarked after Mike Lawrie, its new CEO, arrived in 2012. It is clearly essential that CSC executes well this strategic shift from a large, diverse installed base of legacy data center services to an asset-light, service-integration-oriented, partner-based, value-added approach to service delivery.
- CSC has continued to invest in its portfolio by enabling more, and enhanced,"as a service" solutions, such as cloud-based IaaS, infrastructure utilities for ERP, and mainframe as a service. It is also shifting to a more partner-based model, as part of the second phase of its three-phrase turnaround plan, by restructuring and realigning itself from a highly commoditized model to a more value-added approach to service solutions. Key partners on its journey are AT&T for network and cloud services, EMC2 and Hitachi for storage, and HCL Technologies for sharing India-based resources and collaboration on application modernization programs.
- Clients commend CSC for its high-quality technical skills, which include patching, application support expertise and expertise in security services. They also value highly CSC's account management performance and ability to use automated solutions in that area. Finally, clients stated that CSC has ready-to-use, well-known and structured processes.
- Despite strong growth in storage utility offerings and slight mainframe service growth, CSC's cloud and utility services businesses are still relatively small in comparison with its installed base for traditional services. CSC's share of managed virtual servers is at the low end for competitors in this Magic Quadrant. The acquisition of ServiceMesh, along with CSC's new partnerships with AT&T and HCL, are likely to result in much stronger momentum in this area. It might also help CSC increase its win rate, which would help it to grow its DCO business more aggressively.
- CSC is still completing its restructuring plan, which aims for revenue growth and improving margins, but Gartner estimates that its DCO revenue declined by double digits due to renegotiations and CSC's exiting from various DCO contracts. Furthermore, the satisfaction level of CSC's reference customers has dropped significantly, compared with the last Magic Quadrant. CSC is adding some smaller clients based on a cloud subscription model and is visibly increasing its storage services. Overall, CSC is not yet active enough to position itself as a "fast innovator" in the Innovation layer of Gartner's Adaptive Sourcing model, which might weaken its position as a potential value-added service integrator.
- Some clients report that CSC must develop better cross-functional resolution capabilities, including better collaboration with subcontractors and third-party vendors. In addition, clients state that some of CSC's pricing models are inconsistent with common industry models, which makes comparison challenging, and that pricing movements based on changes in deal size are one-sided. Finally, clients state that CSC's additional-service approval process is overly complex and inadequate, and that CSC's relationship management structure results in long waits for responses and less-than-adequate teamwork.
Dell Services is a $9 billion business unit responsible for delivering Dell's DCO services. Of this figure, $2 billion came from ITO services in 2013, and Gartner estimates that DCO accounted for $825 million of that $2 billion. Dell's DCO revenue grew by approximately 25% in 2013. Dell delivers managed services as Dell Cloud Dedicated, Dell's regulatory-compliant FedRAMP IUS, Managed Security and Managed Networking. In 2015, Dell expects to add cloud management, disaster recovery with a site recovery manager tool, and Global Dell Cloud On-site with Cloud Management. Dell delivers data center services through six key data center locations, and plans to add two more in the coming year. It also provides DCO services in 60 client-owned data centers. With the acquisition of Dell by a group led by Michael Dell in 2013, Dell is now a privately held company. Now that the acquisition is complete, the focus of Dell management can move to the execution of present deals and future solutions. The post-acquisition year will be a critical time for the development of Dell's IUS and IaaS solutions.
- Dell continues to evolve its data center service solutions via several means, including acquisitions such as that of Quest (a $2.4-billion software company), investment in new solutions such as cloud and standardized capabilities, a strengthened security services solution, and a utility computing platform that aligns with its data center strategy.
- Dell's transformative approach of addressing customers' requirements to modernize and optimize their data center environments to enable better business outcomes is based on its expanded capabilities in the IUS space. This has resulted in a 31% year-over-year increase for IUS deals. The ability to provide IUS solutions and drive revenue growth for these solutions is critical to any provider seeking to be a significant player in the future DCO market — and Dell clearly meets this requirement.
- Clients state that Dell regularly meets its SLAs, that it has predictable and reasonable pricing, and that it willingly addresses problems head-on and resolves them in a timely manner. They also indicate that Dell's operational processes are strong, its support tools and systems are sound, and that it has the technical skills to overcome the challenges of delivering high-quality DCO and IUS. Finally, clients praise Dell's relationship management teams and the opportunity to work with senior Dell executives on a regular basis and as needed.
- Although Dell's DCO/IUS vision and strategy are good (including offerings such as RIM and IaaS), the company's recent privatization could easily impair Dell's Ability to Execute, at least in the short term, as a new management team takes over. New leaders, new organizational structures and other changes will take time to develop, do Gartner recommends that customers complete their due diligence to ensure that Dell can meet their delivery requirements, that it has enough operational bandwidth, and that decision makers are in place and have the authority to do what is necessary to meet solution requirements.
- The protracted buyout of Dell left many tool and solution investment decisions on hold, so clients should do a risk assessment to ensure that Dell can meet deal expectations. Although Dell's solutions and services continue to make progress, its delivery capabilities remain relatively immature and slightly behind the global capabilities of some of its competitors.
- Some clients express dissatisfaction with Dell's automation of routine tasks (such as virtual server provisioning) to improve the time it takes to brings services to market, a lack of sufficient expertise in architecture and strategic functions and activities, and significant staff turnover in some data centers (perhaps an outcome of the protracted buyout battle). Other clients state that some "standard operating procedures" seemed to be new to Dell, resulting in more effort to create these procedures from scratch. Finally, Dell's service catalog approach is deemed complex and relatively ineffective.
Fujitsu's DCO business generated revenue of $4.2 billion in 2013, up $145 million from the previous year, primarily due to significant growth in North America and moderate growth in Asia/Pacific, its biggest region. In Europe, Fujitsu's business shrank by a double-digit percentage to $1.1 billion, compared with 2012. Its North American revenue mostly came from 170 clients, with services delivered from 19 data centers, seven owned by Fujitsu and 12 owned either by a third party or a client. Fujitsu's DCO services include remote infrastructure management, managed hosting, cloud IaaS and colocation.
- Fujitsu is working on a restructuring program to transform itself from a multiregional provider into a global provider. It will be supported in this endeavor by a new sales organization mandated to pursue larger multinational and global deals. A major part of the restructuring program is the establishment of a global delivery organization (GDO), which is long overdue. In part, this new GDO approach was the cause of strong revenue growth in North America, which is important if Fujitsu is to establish credibility as a global DCO provider. Fujitsu continues to invest in its DCO services, especially for cloud-based solutions. Fujitsu expects to have 25 cloud centers by the end of 2014, and it plans to expand its data center footprint in 2014 with three new data centers in Italy, France and the Netherlands, after starting to deliver cloud services to Spain and Portugal in 2013.
- Fujitsu is investing in a "single pane of glass" approach to manage and control cloud services alongside traditional services. Its Cloud Integration Platform covers different types of service architecture. This approach looks promising and, although not yet proven, it should help Fujitsu capitalize on its cloud solutions in DCO/IUS deals. Fujitsu is one of the few providers to have an industrialized offering for both primary ERP platforms: SAP and Oracle.
- Clients praise Fujitsu for its robust architecture and focus on consistent global service delivery and operations through world-class data centers. In addition, clients give Fujitsu high marks for its quick and positive responses to problems and its customer-focused team of service delivery personnel, including account management staff. Finally, clients praise Fujitsu's program management, mainframe support, relation management and flexibility as key factors in the success of deals.
- Although Fujitsu's North American revenue increased significantly in 2013, its European revenue decreased by 13% due to price erosion, customer portfolio cleanups and the promotion of more industrialized services to clients. In its drive to be a viable global provider, Fujitsu cannot afford to sacrifice established geographies for growth in emerging markets — it must retain its revenue and margins in mature geographies while growing them in immature geographies. At the same time, it appears clear that Fujitsu's industrialization journey is slowing on the back of its global delivery arbitrage programs, so Fujitsu would benefit from strengthening its focus on automation, which appears less intense than that of its competitors. For Fujitsu, automation happens mainly in new accounts, and less in the company's huge installed base. DCO virtualization levels are at or near the market average.
- Fujitsu has invested in two different cloud approaches: Fujitsu Cloud IaaS Trusted Public S5 (Xen-based) and Fujitsu Cloud IaaS Private Hosted (VMware-based). It has detailed plans to add an Oracle virtualization cloud. However, this cloud portfolio appears fragmented, with a hugely varied approach that could result in management complexities and make it harder to achieve economies of scale for each cloud solution.
- Some clients report that Fujitsu must improve its communication during outages and reduce its reliance on third parties for problem resolution by taking responsibility for ensuring that problems are resolved in a timely fashion. In addition, clients state that even small changes take a long time and that follow-up is inadequate. Finally, clients state that Fujitsu's internal collaboration is noticeably poor, and that it must adapt faster to new technology trends and improve the speed at which it hires staff to support clients' needs.
HCL Technologies, an offshore service provider, continues to grow aggressively in Europe and North America. In 2013, it generated over $500 million in European DCO revenue from around 70 clients. HCL remains strongly focused on industrialization and the cloud. It positions itself as a provider focused on preparation to meet the needs of the "enterprise of the future," while addressing the shift from labor to technology arbitrage.
- HCL continues to achieve a strong growth in the North American market, and has consolidated its position as a market disrupter, especially thanks to a successful pursuit of second-generation outsourcing deals. Its strategy to focus on enhancing customer knowledge is practical and could raise HCL's visibility, while also making it attractive to customers in terms of value and cost.
- HCL has committed ongoing investment to support industrialization of service delivery and portfolio management. As such, it relies on a growing range of utility and cloud-based services, underpinned by intellectual property and related tools that enable it to manage workloads across different platforms. HCL's infrastructure migration experience can also act as a springboard for application modernization opportunities.
- Clients state that HCL has strong operational execution capabilities and strong architecture, and that it delivers a strong platform experience and process automation. In addition, they state that HCL demonstrates flexibility and adapts rapidly to the changing technical landscape with strong technical skills. Finally, clients state that HCL is responsive to their changing business needs, has a deep understanding of their computing environments and has an outstanding approach to governance and relationship management.
- HCL's aggressive market approach toward infrastructure deals that come up for renewal will produce fast market share returns, but could have limitations once clients' digital innovation agendas require significant technology, vertical-market and business process expertise to deliver competitive enhancements and business outcomes. This is an area where HCL's visibility and mind share have significant room for improvement.
- Although using third parties for data center space is an acceptable approach, HCL's lack of physical data center presence forces it to manage the risk of delivering DCO/IUS through third-party supplier contracts for an increasingly large base of installed clients. Furthermore, reliance on managing client or third-party sites could be considered a risk by some buyers of DCO/IUS, and it might, in some situations, hinder HCL's ability to pursue one of its key strategic building blocks, namely building and implementing solutions for the "enterprise of the future."
- Some clients report that HCL's on-site relationship management team needs to increase the depth of its project management skills. Clients also state that HCL does not turn around proposals quickly enough, probably due to the need to seek approval from senior managers. In addition, HCL's crisis management team and related procedures are considered inadequate, and high staff turnover exacerbates the problem. Finally, some clients indicate that HCL's approach to innovation needs attention and focus; HCL's limited efforts in the areas of capacity planning, trend analysis and predictive problem management contribute to its lack of innovation.
Under the direction of CEO Meg Whitman, HP is moving from the "fix and rebuild" phase of its 2012 turnaround plan into the "recovery and expansion" phase. Its strategy is to focus on the "New Style of IT," which requires the company to move toward a portfolio of integrated solutions and services. HP's fiscal 2013 results included a total of $112.3 billion in revenue (down 6.7%), with IT services representing $32.4 billion (down 6.8%), according to Gartner's estimate, or roughly 29% of its global revenue. This is a revenue decline of 1.7 percentage points, while earnings from operations were down from 4.2% to 2.9%. DCO/IUS revenue represents a key component of HP's $14.7 billion (down 7%) in global ITO revenue and draws on significant capabilities, including over 390,000 managed servers (a 9% increase) and a large mainframe base in terms of millions of instructions per second (MIPS). Similar to other leading providers, HP is focusing on the challenging transition from a traditional outsourcing approach to one involving more industrialized services and the management of hybrid, or traditional and cloud-based, services.
- HP's North American market share remains solid with 156,986 MIPS, over 150,000 servers and 91,300TB of storage being serviced from over 30 data centers. The depth and breadth of its global DCO capabilities and solid ITO transformation plans enable it to compete for large-scale, global DCO deals. HP grew its DCO revenue in North America slightly in 2013. The new "One HP" strategy plays to the strengths of HP Enterprise Services as the foundation of the company's managed services and solutions, but the extension into an integrated set of end-to-end offerings, driven by a vertical view of customer requirements, should be driven by vertically oriented services and solution announcements that the entire company will execute. Covering the entire cycle of advice, transformation and management from a customer business outcome perspective requires HP Enterprise Services to mobilize more consulting capabilities.
- HP continues to invest in DCO. It is focused on improving and consolidating its data center facilities, developing a seamless delivery and management approach from mainframe to cloud infrastructure services, and expanding its portfolio of data-center-enabled projects and solutions services. HP has a strong focus on global delivery, with a balanced combination of local, nearshore and offshore resources that delivers DCO services using a global approach. HP has already closed more than 60 low-density data centers globally, consolidating in the process many hundreds of clients. In parallel, HP plans to open three new data centers in EMEA.
- Clients give HP high marks for its high service availability, flexibility and seamless multicountry integration. They observe that HP has many ITIL-certified personnel and processes, and that it uses these processes in daily activities. In addition, clients state that HP's problem management and SLA adherence are excellent, as are its performance and capacity planning. Finally, clients state that HP's follow-up and follow-through on questions and problems is excellent.
- In 2013, HP was executing its restructuring plan. Coupled with pricing pressures, this has stressed HP's services profit margin, despite a significant reduction in its global workforce. Although HP's cloud offerings are beginning to gain traction (HP reported hundreds of cloud-based solution clients in North America), the level of server virtualization is still below the market average. Therefore, HP would clearly benefit from accelerating its cloud services and driving growth through value-added offerings, targeting new business categories (such as small or midsize businesses [SMBs]), and re-evaluating its pricing. The complexity of the consolidation and restructuring plans has raised challenges to the maintenance of service quality, which can lead to commercial pressure and contract renegotiations. Gartner recommends that existing and prospective clients continue to monitor the effects of HP's restructuring on its service delivery.
- Although improving under the "One HP" initiative, HP remains a complex organization that occasionally struggles to bring its strengths together in end-to-end solutions. For example, during the transition from the previous generation of IUS offerings (beginning in 2006) to new managed services built on its ECS services, despite parallel investments in cloud computing and related consulting capabilities, HP looked more conservative about enabling clients to move to industrialized, hybrid environments. HP is involved in many cloud-based deals, but does not own enough integrated solutions to move quickly into value-added, end-to-end and vertically oriented solutions. Several clients have reported that HP has lost some of its financial flexibility due to the restructuring, which may create difficulties for some of HP's deals. HP needs to solve these problems and further industrialize its service portfolio in order to reverse the current trend in its ITO revenue.
- Some clients report that HP needs to provide more innovation to customers (as promised), adapt faster to new technology trends, and hire new staff more quickly to support clients' requirements. In addition, some clients indicate that HP's responses to problems are slow, and that it is also slow to quote and initiate new projects. Finally, some clients indicate that their SLAs are not always met and that HP "refers to the contract" too often, as opposed to resolving the situation first and considering the contract later.
In 2013, 38% of IBM's $99.8 billion revenue came from its Global Technology Services (GTS) division, for which nearly two-thirds of the revenue is generated by the Strategic Outsourcing practice. DCO remains the foundation and largest segment of this business. IBM is the largest global competitor in this market; it has the most data centers both globally and in North America. It also has the largest MIPS installed base, which makes it a mainframe management powerhouse with significant proprietary advantages. While IBM continues to optimize its back-end infrastructure service delivery engine, it is also pursuing an aggressive application strategy focused on cloud orchestration and operational value enablement. Despite its impressive cloud and innovation acceleration in 2013, IBM's overall revenue decreased (by 4.6%), as did its net cash from operations (down 10.7%), market capitalization (down 7.6% according to its annual report) and capital expenditure (down 12.5%). These declines reflect the challenges that industrialization and cloud transformation are bringing to IBM.
- IBM's clearly defined strategy incorporates social, mobile, cloud and analytics technologies and capitalizes on the company's depth and breadth of services. IBM's strong focus on big data and analytics is directed toward becoming a dominant player in the analytics business, drawing on the company's deep knowledge of traditional DCO to master new solutions and delivery models. To this end, IBM's cloud strategy and innovation plan have received investments totaling $7 billion, which includes acquisitions of SoftLayer ($2 billion) and Bluemix ($1 billion), big data and analytics acquisitions, development of Watson-based offerings and a cloud data center expansion plan. IBM is pushing SoftLayer in almost every outsourcing offering, but it remains the case that only a very limited number of GTS customers pay for these capabilities.
- IBM continues to broaden its focus on traditional DCO by delivering utility and managed cloud services coupled, as often as possible, with higher-level application and business process services. In doing so, IBM is using its acquired cloud capabilities to address the need for service industrialization. In 2013, IBM replaced its SmartCloud Enterprise (SCE) offering with SoftLayer. Applying analytics to large-scale data center operations gives IBM the potential to make significant improvements in quality of service (and related economics) while pursuing a more vertical solution approach; it gains, for example, the potential to deliver to multiple customers through its Innovative Solutions for Finance relationship with Dexia.
- Clients praise IBM for the depth and breadth of its technical resources, its excellent management processes (especially for facilities management), a positive executive involvement process, and positive day-to-day performance. In addition, they consider that IBM has excellent thought leadership and achieves consistent and quick delivery of innovation, which is rare in today's market.
- Even though the transition from IBM SCE to SoftLayer for existing SCE clients has been completed, the transition of existing clients for managed services built on top of cloud — formerly termed SCE+, but now IBM Cloud Managed Services — will be managed on a case-by-case basis. Additionally, the integration between these different technologies and layers (IaaS and PaaS) is unclear and points to the general challenge of industrializing the management of a hybrid traditional IT and cloud environment that is particularly important to IBM. Lack of integration may slow the effects of industrialization and leave some customers locked into nonstrategic technology platforms.
- Revenue growth is a requirement for high-profile organizations like IBM, but despite its leading position, this is difficult for IBM to achieve in a market where prices are declining, growth has moved from traditional to industrialized services, buyers are increasingly multisourcing, and competition increasingly comes from both large and small competitors. Although large deals are expected to materialize in 2014, IBM did not grow its DCO business (or overall strategic outsourcing practice) in 2013. IBM needs to further accelerate its delivery of industrialized vertical solutions and increase its empowerment of account-level executives by instilling more accountability and capability into client management teams. This could increase customer satisfaction and enable improved performance in terms of wallet renewal and wallet expansion, especially for customers that have yet to reach a significant size.
- Some clients report that IBM needs to develop a more flexible approach to relationship management, and strengthen coordination and communication between different IBM teams in order to make technical changes more quickly. In addition, some clients whom we interviewed stated that IBM lets the contract "get in the way" and, all too often, attempts to renegotiate current terms. Finally, some clients consider that IBM does not assign enough resources when managing subcontractors, is not responsive to the designing and pricing of additional services, and that when new services are identified, it is too slow in implementing them.
Infosys is a global IT provider that generated about 36% of its service revenue in North America in 2013. With Infosys' acquisition of new data centers (it now has 18 worldwide), development of Cloud Ecosystem Hub solutions, and continued use of its Smart DataCenter Framework and iPRISE infrastructure process repository, the company continues to mature as a DCO/IUS provider. Infosys has also expanded its training process to improve its employees' knowledge. Infosys achieved strong revenue growth in North America in 2013, with a 24% year-over-year increase.
- Infosys has expanded its North American business by means of a RIM solution that offers broader data center management capabilities, by delivering data center solutions through four key nearshore locations in Mexico and Brazil, as well as by expanding its data center facilities.
- Several "as a service" solutions, including business process as a service (BPaaS), for vertical markets such as financial services and insurance, retail, consumer packaged goods, logistics, life sciences, energy, utilities and communications, have driven Infosys' recent growth as they outpaced the overall market in 2013. By coupling its new solutions with continued process rigor, Infosys is well-placed to keep growing in 2014.
- Clients state that Infosys is flexible in its approach to the delivery of solutions, specifically in terms of handling scope increases and timely adoption of new technologies, such as virtualization. In addition, clients state that Infosys is willing to work with their internal staff in a very cooperative manner, and that it is willing to bring in resources compatible with their corporate culture and mode of operation and to collaborate on identifying ways to improve their relationship and overall productivity. Finally, clients identify key resource retention as a huge positive for Infosys and their relationship management teams.
- Although Infosys added a data center in the past year in North America and continued to grow, it remains a provider that primarily adopts the role of system integrator in using a large number of data centers and solutions owned by clients and partners. This approach remains 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' solution structure and determine whether its strategy suits their needs.
- Infosys' business in North America remains based primarily on "point" solutions, not end-to-end data center offerings. This is indicative of a still somewhat asset-light system integrator, which can, and often does, raise the issue of whether Infosys' current model lends itself to full DCO/IUS solution requirements. With a service delivery model primarily built on an ecosystem of partnerships, Infosys continues to have less control than a totally owned solution approach would confer, and it 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.
- Some clients state that although Infosys' onshore personnel demonstrate solid technical capabilities, they are somewhat lacking in technical depth. In addition, some clients say that Infosys' change management processes need improvement, innovation is not delivered consistently (if at all), and that the performance of some offshore support staff needs improvement. Finally, clients indicate that Infosys always wants to move work offshore, which has resulted in less-than-satisfactory delivery of their requirements, including service levels being missed and resource skills not being up to expectation.
Maintech is a North America-based ITO service provider focused on the DCO market in the U.S. It continues to grow its DCO business organically by attracting new clients and increasing the size of existing deals — its number of deals increased by 14% in 2013. As an asset-light service provider, Maintech grew its revenue to $90 million in 2013 — an 11% year-over-year increase — and in doing so outperformed the market as a whole. Maintech's continued strategy is founded on a comprehensive suite of data center services delivered primarily in third-party and client-owned data centers on client-owned assets.
- Although Maintech is a small provider with specific and somewhat limited DCO offerings, it has several IUS/IaaS/cloud-based deals and more potential deals in its sales pipeline. Its offerings should continue to grow, particularly for the SMB and midtier markets that remain Maintech's primary focus. Maintech continues to be ideally suited for clients looking for a small deal with a domestic supplier that has a broad set of solutions and provides on-site service delivery capabilities, as well as RIM services.
- Maintech's offshore capabilities in Sydney, Australia, Frankfurt, Germany and other locations make this comparatively small DCO provider an option for multinational companies based in North America. Although Maintech remains a Niche Player in the DCO market, it is positioned to add revenue with its current capacity, and it is continually exploring new markets for offshore remote services expansion. For organizations that need a provider to take over the operational activities in their data centers, Maintech is worth investigating.
- Clients continue to give Maintech high marks for service delivery excellence, including response time to problems and superior knowledge of the client's environment. They also give it high scores for customer satisfaction and a flexible approach to contracting. In addition, clients praise Maintech's technical and relationship management talent, especially for a comparatively small service provider. They also award Maintech high marks for ease of access to its senior managers, adding that the ability to talk to a decision maker quickly is of great value.
- Although some of its capabilities have improved and expanded, and it has delivery capabilities in selected global markets, Maintech does not offer a comprehensive global delivery model. Hence, although Maintech continues to meet 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 remains a competitive challenge that Maintech must overcome to become a global service provider. Customers requiring a global delivery provider with reach into secondary geographical markets must carefully assess Maintech's geographic delivery capabilities.
- Maintech focuses exclusively on managing client data centers, and while it has made strides in providing cloud-based solutions, it does not yet provide a complete suite of cloud-based solutions. Like some other companies in this Magic Quadrant, Maintech remains an asset-light DCO provider, has a limited investment strategy, and does not plan to manage mainframe environments or provide hosting services, and it does not provide a data center. Although it remains a rock-solid service provider in the DCO space, its focus remains narrow for the area that it covers, which limits the scope of services it provides 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.
- Some clients express concerns about Maintech's ability to provide data center services beyond standard, core operations such as hardware setup, removal and break/fix support; they specifically cite Maintech's slowness to get up to speed with new technologies and solutions as a key reason for not having expanded their business with Maintech. It remains unlikely that Maintech will 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.
Tata Consultancy Services
The global IT infrastructure services revenue of Tata Consultancy Services (TCS) crossed the $1.6 billion mark in its fiscal 2013, with over 60% derived from DCO services, of which 55% came from North America. TCS registered high double-digit growth in DCO/IUS revenue worldwide in 2013. It delivers its services from its 18 Competency Centers/RIM locations and 24 data centers across the world, and it provides technical depth through a vendor-agnostic global delivery model.
- TCS pursues an ITIL-inspired strategy that takes a comprehensive approach to automation (driving savings beyond labor arbitrage), business service management (connecting infrastructure performance to business KPIs — a growing client request across the market) and cloud infrastructure services. Its approach to automation is getting practical traction while moving from IT service management "fix scripts" that require substantial maintenance to reusable "knowledge objects" like events automation, provisioning automation and system management "run book" automation. Time will show how scalable and reusable this approach is across multiple customers, architectures, tools and application environments.
- TCS's DCO and IUS business in North America grew by roughly 25% to over $450 million in 2013, making it the second consecutive year of strong growth; furthermore, there are additional opportunities in TCS's 2014 pipeline. TCS's pursuit of its industrialized service approach gives it an above-average number of virtual machines covered as part of DCO/IUS services. TCS has also strengthened its global sales teams and technical personnel to increase its share of the second-generation outsourcing deals that incumbents are increasingly losing to newcomers.
- Clients praise TCS for its flexible, "can do" attitude, and its ability to listen to their concerns and act accordingly. Clients state that TCS brings regularly value to deals with continuous improvement as a key part of the equation, and that its senior management is actively involved in deals on a regular, formal basis. Clients also praise TCS for its flexibility and adaptability to customer needs and the accountability of the leadership teams assigned to each deal. Finally, clients state that TCS has a strong onshore/offshore delivery model that is part of its value proposition.
- Although TCS is moving away from an asset-light engagement model, it continues to deliver the vast majority of its DCO/IUS from client or third-party data centers. This leaves the choice of whether and when to change, expand or reduce in other parties' hands, which is always a risk, but particularly affects TCS's ability to continue building its solution set so that it can provide a full range of services to meet market demand. It must continue investing in TCS-owned data centers to reinforce its DCO offerings, expand its cloud-based solution and integrate client tools into its standard toolset as required. Gartner recommends that clients seeking a full-service outsourcing provider complete due diligence with respect to TCS's delivery capabilities.
- TCS's continued strategy to deliver cloud-based managed services through partners remains inadequate for the requirements of homogeneous service delivery to global accounts. In addition, TCS's IaaS approach may actually distance it from its objective of delivering value-added services, and it could find itself competing for commodity services. This would not provide TCS with the "fuel" to achieve its desired revenue growth.
- Some clients report that TCS needs to fine-tune its management of third parties, that it focuses too much on cost, as opposed to solutions, that it is slow to fully adopt new performance-monitoring tools, and that the breadth of its skills and its ability to hire the correct skills are less than optimal. They also note that TCS is lacking in its ability to propose and drive innovation. They state, in addition, that TCS needs to improve its communication processes, and that a significant capability disparity exists between its onshore and offshore personnel.
Tech Mahindra achieved $302 million in worldwide DCO revenue in 2013, 80% of which related to its North American operations, with 10% from cloud-based solutions. Its current strategy relies on two proprietary data centers in the U.S. and one in Europe, with telecommunication partnerships providing the remaining facilities. Its Infrastructure Remote Operations Centers (iROCs) supporting North American operations are based in India, Northern Ireland and Malaysia. Key North American investments include a storage-as-a-service platform with Hitachi, and data center facility expansion through leased spaces with partners such as CenturyLink. Supporting the data center expansion is an increased focus on data center transformation with additional solution architect capabilities.
- Tech Mahindra achieved 21% growth in the North American DCO market in 2013, and its investment in additional data center space and solution capabilities shows commitment to increasing its footprint and the depth of its capabilities in North America. In addition, Tech Mahindra's focus on large deals and declared willingness to consider "asset-heavy opportunities" could support further growth.
- Tech Mahindra's focus on supporting the data center transformation of its clients while exploiting key industrialization ingredients such as automation is sound and will prevent it falling into the commodity competition trap. The company's historical relationship with telco providers enables it to draw on cloud IaaS and hosting capacity (from providers such as AT&T, BT, CenturyLink, Equinix and NTT) as a platform to deliver more complex data center management services.
- Clients find great value in Tech Mahindra's proactive attention to network infrastructure in support of data centers and its guidance on, and proactive consultative approach to, new initiatives. Clients also laud Tech Mahindra's management structure and associated personnel, pointing out its timely and detailed follow-up on requests. Finally, clients applaud the depth and breadth of Tech Mahindra's skills, its flexibility and its timely availability.
- Tech Mahindra maintains low visibility in the North American DCO market (similarly to the European market), and its current footprint and business size is very small compared to all its competitors. Tech Mahindra's stated investments, relative to other providers in the market are low and oriented toward "point" solutions, rather than overall cloud-based solutions, which could easily hinder its ability to grow in the North American market. Tech Mahindra must continue to invest in its sales and marketing strategy to expand its brand awareness across the globe, as well as to engage potential customers at the right level, while quickly and succinctly addressing the relevant transformational pressure points.
- With recent wins and a pipeline more than have filled with deals in the telecom sector, Tech Mahindra is at risk if that sector suffers any downturn. In addition, the telecom market continues to move aggressively into the DCO/IUS market through significant acquisitions and organic growth. Finally, Tech Mahindra's value proposition seems to be focused much more on end-user services than on the DCO/IUS market, as shown by its recent investments in Workspace-as-a-Service.
- Some clients report that Tech Mahindra's communications need improvement, that its relationship governance is less than adequate, and that, from time to time, its flexibility is less than satisfactory. Finally, clients state that Tech Mahindra fails to provide proper innovation processes and that its offshore model delivery is subpar.
T-Systems considers DCO and cloud services as its core business. It continues to invest strategically by extending its offerings with a cloud integration and brokering layer, by onboarding new partners such as Deutsche Börse Cloud Exchange and salesforce.com, and by investing continuously in its Dynamic Cloud Services (DCS v3.0) platform. T-Systems' overall revenue in 2013 was slightly down, due to the sale of T-Systems Italia, and an increased focus on profitability growth from highly automated services, instead of growth from traditional DCO services. Its partnership with its parent, Deutsche Telekom, for key cloud-based business-to-business-to-consumer solutions, aimed at helping the retail, automotive, healthcare and utility industries reach out to their end-consumers using advanced networking technologies, and in areas such as mobile and machine-to-machine (M2M) services, may support higher growth rates in the future. Gartner estimates that T-Systems' North American DCO/IUS business grew approximately 30% in 2013, aided by some investments made during the year; however, extensive investments specific to North American, such as in sales and marketing, have yet to be made.
- T-Systems' strong focus on aligning its portfolio to the cloud evolution remains strong and is proven by the overall level of research and development allocated to this end and by its focus on its Dynamic Services portfolio, which supports midsize and large organizations. More than 2,300 cloud deals in 2013 show the increasing traction, especially in Germany, of cloud-based services; however there was little growth in the company's North American cloud-based business. T-Systems' movement of investments toward cloud-based industrywide services in areas such as M2M, automotive and healthcare — and its increasing marketing of these through, or with, Deutsche Telekom as individual product offerings, as opposed to enterprisewide outsourcing propositions — is a logical continuation of the standardization, industrialization and "productization" approach T-Systems took as one of the first DCO providers.
- T-Systems continues to pursue its margin improvement initiatives, and in 2013 it consolidated its data center estate with the closure of 17 data centers. It is committed to further reductions of infrastructure costs until 2018. Further consolidating delivery from 71 data centers today into 11 twin-core data centers in the future and moving toward more automated IaaS and Linux-based systems is T-Systems' approach to controlling costs and staying competitive. In pursuing this approach, its coverage of Europe is concentrated in seven countries (Austria, France, Germany, Netherlands, Spain, Switzerland and U.K.) in an attempt to balance reach and economics. Leading client retention rates in 2013 and good results from quality improvement programs demonstrate T-Systems' strength in terms of delivery built on industrialized services. Although much of its focus in on Europe, T-Systems also has an adequate North American footprint, with two data centers serving North America and an additional location planned as part of its DC11@2018 program.
- Clients state that T-Systems has excellent solutions capabilities, that its ability to deliver remains solid and that its relationship management team takes a proactive approach to managing deals. Clients also appreciate T-Systems' expertise in data center rationalization, including transition management, and its robust methodologies.
- T-Systems needs to grow the North American part of its DCO/IUS business. Although it has adequate coverage for its current client population and plans to grow its delivery capability, and although its recently announced restructuring initiatives assume further decline in the short term with a return to growth later, it is not clear whether any of this growth will be in North America. Clients must carefully assess T-Systems' restructuring plans to understand the impact on their own deals and on any future expansions that might be required. This is especially important for customers not yet ready for a high degree of industrialization of their infrastructure services. Finally, T-Systems' loss of market traction can be attributed to three primary reasons: Competitors reducing T-Systems' lead in industrialized systems by merging automated cloud services into their DCO offerings, T-Systems' reluctance to seek deals involving staff transfer (also caused by Germany's inflexible labor laws) in comparison with offshore-based providers that are still expanding their European workforces, and T-Systems' lack of commitment — perceived or real — to North America.
- Helped by its early start on industrialization, T-Systems has a higher percentage of industrialized and cloud-based services in its portfolio than most of its competitors. Driving customers toward even more standardization may prove difficult, however, as, according to clients, T-Systems' new solutions are not being identified during the sales cycles in North America.
- Some clients report that T-Systems has a shortage of skills in reserve and inadequate resource management capabilities, and that it is reactive, rather than proactive, toward additional opportunities. Finally, clients would like T-Systems to explore automation and industrialized infrastructure utility solutions more aggressively, to enhance its focus on innovation and industry relevance, and to bring those solutions to the table proactively.
Unisys, a North America-based company, generated DCO revenue of $757 million in 2013, with 41% coming from North America, 25% from Asia/Pacific, 19% from Europe and Africa, and the remaining 15% from Latin America. Unisys has over 170 clients in North America, maintains excellent margins, and despite a slight decline in 2013, is predicting solid growth in 2014.
- In 2013, Unisys achieved its fifth consecutive year of profitability and cash-flow generation, with debt reduction of $1 billion. This sustained financial performance has enabled investment in cloud brokerage offerings, management tools, and sales and marketing competencies. In its pursuit of growth, Unisys can rely on a pragmatic strategy spanning from large global customers (where Unisys can be part of a multisourcing approach), midsize multinational and Tier 1 national customers (for their full-scope potential) and OEMs (for end-user services).
- Unisys' vision is to differentiate its go-to-market message and vision by focusing on "people computing." Unisys seeks to enable IT organizations to become more service-oriented to their business stakeholders by enabling an IT-as-a-service model for end-user, data center and cloud transformation, one linked to and driven by an optimized user experience. This customer-focused approach is a key extension of the "mission critical" concept. This approach enables Unisys to target a wide range of organizations, with a "sweet spot" of between 20,000 and 50,000 users, but also the potential to serve smaller organizations (with around 500 users) with VDI and RIM offerings.
- Clients commend Unisys for its strong technical solutions, very strong focus on customer service, proactive approach to innovation and flexibility. In addition, clients state that Unisys is easy to do business with and has knowledgeable and committed personnel from top to bottom, and that its senior executives are engaged and aware of clients' business objectives. They also praise Unisys' speed of resolution, service orientation and technical expertise. Finally, clients appreciate Unisys' expertise in data center rationalization and day-to-day operations.
- Although Unisys has sustained annual profitability achievements, its profits could be in danger of slipping or evaporating should its revenue contraction continue. This contraction is exacerbated by Unisys' strong — and justified — push into the cloud-based solution market, in which prices are lower than in traditional data center deals. This puts further pressure on Unisys to grow its revenue and margins significantly and quickly, to offset the revenue cannibalization that cloud-based solutions bring with them. In addition, Unisys remains a hardware provider, and the entire hardware market is, at best, flat in terms of both revenue and profits. Although Unisys owns some strategically placed data centers in Europe, it remains largely a North America-based DCO/IUS provider. However, to sell to global accounts, Unisys' vision is to add global compute capacity via its strategic relationship with Microsoft (Azure).
- Some clients report that Unisys should enhance its service catalog and catalog-updating process, as well as improve its responses to project requests, especially by responding faster to pricing requests. In addition, clients state that Unisys needs to improve its third-party communication and management processes, and that it could be more agile and flexible when dealing with day-to-day operations, in order to reinforce its focus on relationship management, enhance its escalation management and fine-tune its resource management. Finally, clients want Unisys to proactively drive continuous improvement and innovation — for example, by exploring automation — and to fine-tune its resource management process.
India-based Wipro is a $6.9 billion IT services provider whose infrastructure services business accounts for 29% of its revenue. Wipro's DCO and IUS business contributes around $718 million in the U.S. and Europe, with North America representing almost 67% of the total. Wipro's DCO and IUS strategy has two main themes: a "positioning as a transformation leader" theme that includes its savings, winning and transformation strategy, and a "standardize at the core and differentiate at the front" theme that includes Wipro's global technology management and delivery. Wipro focuses its infrastructure services on horizontal offerings for six key industries: energy and utilities, retail and transportation, manufacturing and high-tech, pharmaceutics and health services, media and telecom, and banking and financial services.
- For Wipro, 2013 was another year of double-digit growth (13%) in its DCO and IUS business in North America. This growth partially resulted from an increased investment in building new data center facilities, across-the-board solution investments, and a focus on the ease of migration to industrialized and cloud-based infrastructure solutions.
- Apart from its focus on service delivery optimization (the "cost at the core"), Wipro is pursuing a strong go-to-market approach aimed at capitalizing on industry expertise ("value at the core"), not just in delivery but also in sales. This investment includes additional sales resources, solution architects for large accounts and special Incentives for renewal deals. Wipro is building partnerships with IPsoft for autonomics and CiRBA for migration support to strengthen its sourcing strategy across next-generation DCO deals and stand-alone offerings.
- Clients compliment Wipro for its excellent and reliable technical support team, for quick responses to questions, solution flexibility (including cloud-based solutions), day-to-day service delivery, and consistent processes and procedures (including provisioning and managing virtual environments). Finally, clients state that Wipro's relationship management teams are proactive in handling problems, making continuous improvements and dealing with new requests.
- Although Wipro's penetration of the North American market is growing, its penetration of Europe and Asia/Pacific still lags behind, which could deter multinational companies from considering Wipro for their DCO/IUS outsourcing initiatives. In addition, the traction of Wipro's IaaS-based offerings remains limited, and its utility offerings are still based on a pricing/commercial approach of contract length variability, leading to the need for more flexibility and options. Almost half of Wipro's outsourcing business manages equipment located in customer-owned data centers, which somewhat limits Wipro's opportunity to further standardize, industrialize or potentially share these resources across customers without considerable difficulty.
- Wipro must keep pace with technological changes, build the resilience to expedite its innovations, and communicate its value to customers by quickly acquiring the right skills, in the right places, thereby improving the customer experience.
- Some clients report that Wipro needs to improve its regular reporting procedures, specifically in relation to SLAs and continuous improvement, and that it should reinforce some of its data center solutions with infrastructure monitoring, server configuration and backup strategy and management. Furthermore, clients would like Wipro to eliminate the challenges that arise in relation to the "siloing" of its resources and the resulting poor workflow, and to improve its project and program management and advanced database administration skills. Finally, clients indicate that Wipro's lack of data center ownership in all geographies is a concern that hinders its ability to gain additional wallet share with existing clients.
Xerox is a $26 billion global provider of IT solutions. Of this 2013 total, $930 million derived from DCO, which represents almost flat revenue growth. Providing North American data center services through onshore/offshore data centers and delivery locations, and with over 8,000 technical resources in 29 global locations, Xerox has the capability and flexibility to address multinational companies' requirements. In the mainframe sector, Xerox's continues to use its zCloud solution (a multitenant service offering for AIX, Linux and mainframe applications) to gain ground. Its zEnterprise solution (a software rationalization solution for reviewing software licenses and reducing software expenses) is also gaining market share. With a growth strategy fueled by the Xerox sales organization and channel partners, Xerox has an aggressive growth strategy for the coming three years.
- Xerox's success is largely founded on tools, processes and methodologies. Xerox was the first company to achieve ISO 20000 certification (including multisite and multination). It undertakes KPI 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 data centers.
- Xerox has increased its efforts to expand its cloud computing solutions and to standardize processes across solutions using ITIL V3 processes. It also uses its ISO 27001 certification for data centers and the Lean Six Sigma quality process to deliver high-quality solutions that are seamless and repeatable.
- Clients state that Xerox has high-quality technical resources, both onshore and offshore, which ensures that a reliable set of DCO/IUS solutions are committed to deliver more than what is required. They note that these resources are flexible, responsive and maintain a high degree of professionalism and skills through constant training. In addition, clients indicate that Xerox's project and account management teams uphold a partnership approach to the deal by solving problems first and worrying about the details later. Finally, clients praise Xerox for its ability to scale up or down quickly, and for its ability to respond to new requests in a timely manner.
- Xerox's investments in cloud services and IUS 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 steeper 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 its readiness for these offerings in comparison with 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.
- Some clients observe that Xerox can be slow to respond to innovation and that it takes too much of a siloed approach to solutions, which causes delays in implementing new technologies and solutions. Clients also consider that its reporting processes lack enough information for them to make decisions easily about changes. They added that Xerox needs to improve its backup-and-restore procedures and provide a better balance of resources, especially for DCO and consulting. Finally, clients state that, from time to time, Xerox takes too much of a "keep the lights on" approach and not enough of an "improve the delivery" approach.
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, changed evaluation criteria, or of a change of focus by that vendor.
This Magic Quadrant focuses on management services for mainframe and centralized server environments. It evaluates each service provider's capability to deliver data center managed services and IUS across North America. Cloud IaaS and PaaS offerings that are part of IUS offerings and data center managed services are included in this evaluation. As in previous years, this Magic Quadrant excludes simple, dedicated Web hosting and colocation services.
Included are service providers that:
- Demonstrate that, while data center direct ownership is not requisite, they provide DCO services as a direct end-to-end service.
- Show they manage nonmarginal data center delivery capabilities (data centers owned by providers, clients or third parties) in North America; either in Canada, the U.S. or both.
- Generate at least $50 million in annual DCO/IUS revenue in North America.
Excluded are service providers that:
- Deliver data center services entirely through partners or subcontractors.
- Focus exclusively on pure hosting services, such as colocation or simple/dedicated hosting. Also excluded are providers that take a purely rental approach to data center capabilities.
- Engage in DCO service relationships that only manage clients' data center resources remotely or that are not bundled; for example, when a client has one contract with a hosting provider and a second contract with a RIM provider.
We required each service provider to disclose its vision of the market and Ability to Execute DCO/IUS. We also asked each to provide details of the following:
- DCO strategy, service line financials, investments and other main indexes
- Global delivery, including RIM and low-cost locations
- IUS offerings, clients, servers, examples of SLAs and pricing models (inclusive of cloud IaaS and PaaS offerings that are part of DCO/IUS services)
- New-generation data centers, "green" IT and physical consolidation plans
- Deal pipeline, deal structure and sales organizational structure and performance
- Value proposition, key differentiators and win/loss elements
Providers also had to identify at least five reference clients that represent the geographic area and specific services under analysis.
Gartner evaluates providers based on the quality and efficacy of the processes, systems, methods and procedures that enable each provider's performance to be competitive and effective, while positively affecting revenue, retention and reputation. We judge providers on their ability to capitalize on their vision, their success in doing so, and their North American footholds in terms of resources, coverage, seamless delivery within different countries, and ability to meet clients' requirements.
Ability to Execute is composed of seven main categories. The relevant weightings are shown in Table 1, and a description of each criterion is given below.
Source: Gartner (July 2014)
This criterion evaluates each provider's service delivery capabilities and the services offered. We give special consideration to practice area profile and service capabilities in North America, service definition, effective "resourcing" and transition management. The categories of service for our study are as follows:
- Practice area profile and service capabilities, with a focus on:
- Overall North American DCO revenue, client numbers and staff allocated
- Data center location, ownership (provider, client or third party) and size; control center location and size
- Management team and position in the corporate structure
- Amount of MIPS and servers supported
- Core services and SLAs, with a focus on:
- The management of SLAs, which includes the provision of core and ancillary data center services, such as full facilities management, remote management, customer on-site support, capacity/configuration planning and consulting on consolidation
- Typical SLAs offered to market for services and procedures for defining, reviewing, measuring and reporting SLAs
- Penalties or incentives that are tied to SLAs, including measurement of customer satisfaction
- Resourcing and transition management, which measures:
- Effective provision of relevant resources to customers
- Effective tools and procedures to assist with resource allocation
- Specific transition tools and methodologies for IUS and cloud transitions
- Practices in place to recruit, train and retain qualified staff, and the key skill sets and competencies of those resources
- Also, in relation to transition management and staff, with a view to the next two
years, we inquire into service providers':
- Ability to integrate staff coming from client organizations through competitive job offers achieved by addressing, in different countries, areas such as salary and benefits packages, retraining, career progression opportunities and minimized disruption to employees due to job relocation
- Typical process and project plan for transition, as well as procedures for shifting workload to the service provider's facility
- Feedback from clients on their experiences with transition projects and day-to-day service
This criterion includes an assessment of the overall financial health of the organization, the financial success of the provider's data center operations, and the likelihood that the individual data center business unit will continue investing to support state-of-the-art delivery of the organization's portfolio of services.
In particular, we consider:
- Growth in the volume per unit (MIPS and/or servers) and revenue in the DCO segment during the past three years
- Outlook for this outsourcing segment of the business, including expectations for growth, decline or stability of revenue, margins, units and unit prices
This criterion assesses each provider's capabilities in all presales activities and the structure that supports them. We consider teams in charge of deal management, pricing and clarity of scope.
We also interview clients to gather feedback about their experiences with the provider in the areas of negotiation and pricing.
Market Responsiveness and Track Record
This criterion assesses 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 ask clients for feedback on their service provider's flexibility, continuous improvement and innovation.
This criterion assesses 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 in the minds of buyers between it and its services and brands.
This criterion evaluates reference customers' overall satisfaction with the service and the relationship, taking into account other Gartner's interactions with the vendors' clients. We obtain access to reference customers by asking each provider for five to 10 North American references for DCO services. We require that these references observe the geographic distribution needed to participate in the study and the different industries addressed. We also ask for samples of global reports on SLAs, customer satisfaction and other relevant measures during the past 12 months.
In particular, we consider important elements of a successful DCO customer experience. These include client satisfaction, incentive plans for account teams, and continuous improvement processes in place both centrally and within the account management team.
This criterion assesses each provider's ability to meet its goals and commitments, including contractual service delivery obligations 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 consider communication processes, quality control and assurance processes, relationships, contract and service delivery management, continuous improvement plans, methodologies — especially relating to ITIL processes — and other certifications available for all sites and specific data centers or clients.
We speak to the providers about their main procedures (operational, transitional, and relating to program management, relationship management and change management) and ask their reference customers for feedback about those procedures.
We ask the 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.
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.
Completeness of Vision is composed of eight main categories. The relevant weightings are reported in Table 2, and a description of each criterion is given below.
Source: Gartner (July 2014)
This criterion assesses each provider's corporate view of the data center services and outsourcing market in North America. We evaluate how each provider is trying to address the main requirements of North American clients. We also look 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 consider each provider's:
- Vision for DCO and utility services, including IaaS- and PaaS-enabled offerings
- 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 a broader offering
This criterion assesses each provider's main marketing messages relating to DCO services in North America.
In particular, we consider:
- Current and future value propositions for DCO, IUS and cloud infrastructure services in North America
- The importance of DCO services within the broader portfolio of IT services
- Channels for internal and external communications
- The differentiation of a provider's message from its competitors' messages
For this criterion, we require each provider to illustrate its overall sales strategy for DCO (for example, direct selling vs. indirect selling via partners, allies and channels), its reactive answers to RFPs as compared with its proactive activities, its stand-alone offerings as compared with offerings bundled with other services, and its dedicated sales force as compared with its general sales force.
In particular, we consider:
- 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 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)
For this criterion, we require each provider to specify the most important aspects of its service offering that differentiates it in the market and delivers value to its clients.
In particular, we consider each provider's:
- Ability to integrate client assets, including data centers in North America
- Ability to transfer data center staff from client to provider in North America
- Approach to combining standard service elements into customized service delivery to provide flexibility, low-cost and cloud-enabled service offerings
For this criterion, we ask each provider for a high-level description of its business model for DCO services, and how it fits within the overall business model. In particular, we consider the ability to address and satisfy two competing requirements: client-specific requirements (driving client satisfaction) and 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 ask for information about:
- The structure of the management teams used to support and manage customers
- The average experience, knowledge and skill level of executive managers and key customer-facing managers
- Processes to address customer issues locally, as compared with centrally, including customer access to the appropriate level of management within the service provider and to escalation procedures
To evaluate how well the providers' business models address delivery, we ask each provider to describe the strategy for centralized delivery of standardized data center services. We focus on how much of the service is based on virtualized and automated platforms and how much uses cloud IaaS and PaaS platforms. We also ask for information about the provider's approach to the global delivery model for DCO services, as well as established and planned remote premises.
We ask each provider's reference customers for their judgment about the provider's business model, including account management and service delivery, and factored the answers into our evaluation.
This criterion assesses each provider's strategy to direct resources, skills and offerings to meet the specific needs of individual market segments, including vertical markets.
In particular, we consider 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
This criterion evaluates each provider's position in the market as a thought leader and an innovator. We also evaluate each provider on its leadership and investments to achieve its vision and to develop innovative strategies in the DCO market.
In particular, we ask providers to answer 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 ask for details about each service provider's utility-based offerings, including:
- Highly standardized services, processes and SLAs
- Virtualized and automated computing platforms
- Utility pricing units
- Reduced baselines, increased flexibility and cloud enablement
We ask reference customers for their judgment about their provider's ability to innovate, including the technical aspects of innovation, its ability to lower costs and improve the service by delivering innovative utility-based services, and its degree of proactiveness, adaptability and service flexibility.
This criterion considers regional capabilities, global consolidation processes, local alliances and partnerships, including:
- Each provider's strategy to target markets in different North American countries with resources, skills and offerings appropriate for 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 ask reference customers for their feedback on local capabilities, and the current or potential effects of consolidation and global delivery processes.
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.
Challengers execute well today, but they have a less well-defined view of the market's direction. They need to be more aggressive in outlining and communicating their strategy for the future.
Visionaries have a clear vision of the market's direction and focus on providing services to meet future market needs. They need to improve their ability to deliver and to penetrate the North American market.
Niche Players focus successfully on a particular service. This narrow focus may affect their ability to outperform or innovate.
IT budgets are still under pressure and an increasing percentage of IT spending is happening outside the IT budget, so rather than building or upgrading data centers, many organizations are turning to alternatives such as colocation and/or hosting, DCO, cloud computing and hybrid service approaches. The most compelling reason for this is that the data center services market can offer prices 50% lower than clients' internal costs.5 Given that infrastructure costs make up about 55% of the average IT budget, and that most of this figure comes from data center services, Gartner's Magic Quadrant ratings offer must-have support for informed decisions on how to spend a large portion of the IT budget.
This Magic Quadrant assesses the Ability to Execute and Completeness of Vision of 22 North American DCO and IUS providers. CIOs, infrastructure and operations managers, and sourcing managers can use this information and analysis to help them select a provider for mid- to long-term DCO and IUS contracts that support critical functions and business objectives.
Apply Gartner's Assessments to Your Specific Needs
Gartner's assessments do not suggest that clients should simply select service providers in the Leaders quadrant. Selection requirements are enterprise-specific, and vendors in the Challengers, Visionaries and Niche Players quadrants may prove more appropriate for a particular engagement. Each provider will have a different "sweet spot" that reflects the types of deal in which it excels, its culture and industry coverage, as well as the maturity of its service provision.6 In addition, the online features of this Magic Quadrant enable users to tailor evaluation weights for further analysis, based on the aspects most important to their organizations.
Additionally, clients should not disqualify a provider simply because it is not in this Magic Quadrant. Gartner's inclusion criteria result in our analyzing the most established providers in the infrastructure services market, but other IT services providers may present better alternatives for your business requirements. A Gartner analyst can help shortlist the most suitable candidates for specific client requirements and assist with a deal sweet-spot analysis of candidates.
The worldwide market for data center services — including DCO, IUS and cloud IaaS — remains the largest segment of the ITO market. The North American market is dominated by DCO (77%), and as the economy remains sluggish, more businesses are migrating to IUS and cloud services to increase their international competitiveness and lower IT costs. Prices for DCO have decreased annually by 5% or more over the past few years. Many CIOs are reconsidering data center building and expansion projects in favor of cloud computing, and some are looking to become "data center free" — or as close as reasonably possible — by the end of the decade.
The global data center services market (including DCO, hosting, colocation and IUS) was worth over $134 billion in 2013, to which may be added $9 billion from cloud services. Of that total, Europe contributed around $45 billion, plus $2 billion for cloud IaaS. In 2013, the DCO/IUS market came to $88.5 billion worldwide, with $33.6 billion coming from North America.
Collectively, the providers represented in this Magic Quadrant generated revenue estimated at $20.3 billion, which was 60% of the DCO/IUS market and 45% of the entire North American data center services and cloud IaaS market. For more detail about the geographical distribution of the data center managed services market and a detailed country-by-country and service-type analysis, see "Forecast: IT Services, Worldwide, 2012-2018, 2Q14 Update."
Gartner predicts that the key business indicators of data center service providers will improve significantly during the next five years and make them a more competitive outsourcing choice. Growth in data center services has shifted from traditional to new models, reflecting a shift in competitive delivery models. Providers are taking advantage of this with investments in creating and delivering low-cost, industrialized IUS, and both traditional and new providers are producing higher numbers of new offerings such as cloud IaaS and PaaS.
Growing Demand and Supply-Side Pressures Are Shaping the ITO Market
In addition to a challenging global economic environment and increasing service industrialization, clients are looking for ways to reduce the percentage of IT budget dedicated to running infrastructure and "keeping the lights on," typically estimated to be 66% or more. At the same time, service providers are under pressure to fulfill clients' infrastructure needs by creating and deploying preconfigured, standardized offerings that use new delivery models and support economies of scale, as well as to achieve the ideal steady state.
These pressures are challenging providers' ability to scale and grow.7 They face extreme competition, but lack pricing power due to weak articulation of value and differentiation, so clients tend to buy DCO services as if buying a commodity. Almost all providers offer a type of virtualized and shared infrastructure, utility hosting service, storage as a service, and IUS for specific applications (for example, SAP, collaboration and CRM), as well as various types of private, hybrid and public cloud services. In this scenario, DCO providers' survival and prosperity in the coming years depends on their ability to create and deliver high-volume, lower-priced industrialized services such as IUS and industrialized low-cost services (ILCS).8
Alternatively, providers need to become highly specialized in delivering low-volume, high-margin specialized infrastructure services, which may become de facto standards for specific sectors over time, or they must embed infrastructure services into specialized intellectual-property-based industry solutions that look beyond pure IT value and IT performance (such as SaaS and BPaaS). These value-added services could reduce pressure on prices and margins by enabling a potentially higher price premium. The forces affecting the market also affect organizations' data center requirements and the way external service providers design, offer and deliver data center solutions and services. These forces can quickly reveal the limitations of physical data centers, particularly when combined with other ongoing changes. Those changing elements include increased storage capacity requirements, the prevalence of high-density computing technologies, as well as the pressure to cope with rising energy costs, in response to environmental concerns and the consolidation of data centers for greater efficiency and security.
At the same time, many organizations must improve their internal IT management to meet heightened service requirements. As a result, increasing consolidation, global delivery and the continued rise of industrialization characterize North America's data center infrastructure outsourcing market in 2014. These factors will lead to progressive acceleration of change in this market and improved capabilities among the winning service providers.9
Gartner forecasts that the DCO/IUS market will show a moderate increase (2% in 2014) on a global basis as demand grows for external management of clients' dedicated, on-premises private cloud environments, as well as for external asset-light delivery of managed services. Managed units are increasing quickly (the worldwide number of managed servers has increased by a high double-digit percentage compared with last year), while strong price pressure is reducing the revenue per managed server, mostly due to the transition of client workloads to IaaS and IUS delivery models.
The DCO Market Is Mature, but Changing Rapidly
Although the DCO market is mature, several technology and market trends continue to fuel rapid changes as new offerings compete for the same clients' business and wallet share and gain prominence in the market. A deeper analysis of the technologies and trends affecting the data center infrastructure market is published in Gartner's Data Center and Infrastructure Management Services Radar.10
Industrialization of IT services: Industrialization and cloud computing models are raising the pace of change in data center delivery models, affecting both critical business applications and data, and driving increasing adoption of IUS, embedded IaaS and PaaS. In particular, industrialization of data center services has increased dramatically during the past few years, and it continues to lower prices and total costs.11
Data center 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 infrastructure utility offerings are built on standard infrastructure blocks such as IaaS and PaaS, with elements designed to support a specific application landscape, such as ERP, communications, collaboration and CRM.
IUS has had strong growth over the past decade and continues to gain traction. Gartner predicts it will deliver a global compound annual growth rate of 12.4% for the period 2012 through 2018, and that service providers support this with continued investment in bringing IUS to market. Growth will also be fueled by the cost reduction, efficiency and increased flexibility that IUS can bring to organizations. Through 2018, providers will continue to improve solution performance in key areas, such as transition, pricing, architecture, security, scalability and impact on/integration with related legacy environments. These improvements will allow providers to balance the risk posed by price erosion, which has already started to impact relatively mature offerings, such as infrastructure utilities for SAP (IU4SAP). Beyond margin protection, improvements will continue to fuel high growth rates, as lower-priced IUS offerings displace spending on traditional DCO services.
Providers included in this Magic Quadrant claim that 30% to 35% of their clients already use IUS or IaaS offerings. More than 26% of the reference clients contacted for this study confirmed that they already use these offerings. All growth in the data center sector has moved from traditional to industrialized delivery models.
Shift from public to virtual private and hybrid cloud: Concerns about the privacy, security and compliance of public cloud services have fueled interest in virtual private and hybrid clouds, as well as in industrialized infrastructure outsourcing offerings such as IUS and virtual private cloud services. Additionally, changes in the financial treatment of off-balance leases are expected to fuel asset-light IT approaches and industrialized services.12 Outsourcers have responded by investing in development of private and hybrid cloud IaaS offerings.
Virtualization: Virtualization techniques, such as virtualized storage and shared computing, are also driving data center evolution toward industrialized services.13 Many of the North American reference customers we contacted during this study have outsourcing deals with virtualization implemented and a server environment that is more than 70% virtualized. Providers claim that 55% of their managed servers are virtual servers. However, although virtualization is on the rise in outsourcers' data centers, most organizations (particularly those at lower levels of virtualization) have not seen a direct, linear correlation between the amount of savings from their deal and the degree of virtualization achieved.14
Automation: Increased automation coupled with virtualization can drive down clients' IT costs and enable them to restructure service delivery. Gartner predicts that remote infrastructure monitoring, virtualization, standardization and automation together could reduce the unit price for data center servicing by 50% in the next five years. In addition, automated services meet users' need for a highly flexible, standard infrastructure that reduces the amount of unproductive service management work. In the past few years, the ratio of managed servers to DCO staff has grown at a compound annual rate of more than 20%, and this trend will continue due to the IUS approaches of service standardization and automation enabled by cloud IaaS technologies.
Data center optimization and sustainability: Providers are focusing their client services in new modular data centers that deliver greater flexibility, more effective power consumption, and higher levels of utilization, continuity and remote management. Power usage effectiveness (PUE) for providers' managed data centers is now around 1.9 (see Note 2). Data center operations management is putting more emphasis on resource efficiency and carbon impact. Gartner predicts that by 2016, 30% of all data centers will measure carbon- and water-related usage efficiency in addition to PUE.
Separation of physical and logical locations: The need to reduce fixed costs related to physical-site maintenance is driving providers and client organizations to separate data center functions from physical assets and to consolidate them in "data center operational hubs" or "control centers." These centers are often housed in low-cost labor locations, such as Eastern Europe and India.15 Although the impact of global delivery was the immediate factor that prompted the separation of physical and logical locations, standardization, virtualization and automation will unleash the full potential of cloud-oriented offerings and transform how DCO services are defined, brought to market and priced.
The Boundaries Between DCO Services and Managed Hosting Are Blurring
The boundaries between the traditional types of infrastructure outsourcing — managed hosting, DCO, and DCO-related services such as RIM — are blurring. Over the next 10 years, these markets will converge, as service providers gradually migrate toward delivering their services on cloud-enabled system infrastructure, but there is an immediate impact across all these markets. Companies who have historically focused on one market are expanding the scope of their services. A new market is emerging between traditional managed hosting and DCO — the market for managed cloud infrastructure.
For DCO providers, the "managed cloud" is a natural expansion, as they routinely build and manage custom private clouds. Many have established reference architecture for private clouds, thus building the intellectual property for repeatable engagements. However, most are also trying to move toward ILCS that allow them to expand their market. As the number of DCO "megadeals" declines, DCO vendors have been looking to move into smaller deals with midmarket customers. The managed cloud provides a way for DCO providers to expand their market opportunities. By 2014, we expect that market consolidation will displace up to 20% of the top 100 IT services providers. For more on managed cloud infrastructure, the emerging market and vendors to watch in this space, see "Market Trends: Managed Cloud Infrastructure, 2013."
Growth in economies of scale and business: IT budget constraints continue to drive industrialization of infrastructure services that deliver economies of scale, including cloud computing. The number of virtual servers managed by the providers in this Magic Quadrant has increased by 48% from 2013, and price pressure, driven by direct competition from large providers (Amazon, Google and Microsoft), is showing the significant investment and scale that the industrialized service business requires.
Clients expect more integrated services: Clients are adopting more industrialized and cloud services, and they require end-to-end integration and infrastructure management of a hybrid set of IT services. Clients expect providers to use existing low-cost capabilities to deliver integrated services that cover multiple technologies, including data center, desktop, communications and help desk services. Service integration and management and cloud brokerage is a key area of development that virtually all outsourcers are pursuing.
ILCS continue to grow: ILCS adoption has changed the way IT services are consumed, to the extent that Gartner predicts that, by 2015, low-cost cloud services will cannibalize up to 15% of top outsourcing providers' revenues.16 As traditional outsourcing services increasingly adopt cloud computing, IUS present viable, pragmatic and industrialized infrastructure solutions.
Most growth in the infrastructure services market continues to come from IUS and IaaS. In the infrastructure layer, we forecast compound annual market growth in North America for IUS and IaaS from 2013 through 2018 of 12.4% and 35.3%, respectively, with absolute increases of $12.5 billion and $32.6 billion, respectively. In the same period, the traditional DCO market will be almost flat, with a decrease of $2 billion over five years.17 Increasingly, organizations expect vendors to embed provisions for security and integration into their overall IUS solutions, and are also looking for resilience, automation and virtualization. These requirements will increase market adoption in 2014. Buyers will look beyond the benefits of volume scalability to the potential to align IT costs to business outcomes and consumption.
On the other hand, the transition process from traditional to industrialized services (including the complexity, cost and outcomes of those activities) and to new development environments (including related tools, process standardization, integration and features) will remain weak points that decrease client satisfaction. In response, providers will accelerate their initial efforts to industrialize and make their migration services more repeatable and automated. Some major failures in cloud computing delivery might deter clients temporarily, but will nevertheless serve as learning opportunities for multiclient platform engineering — backup, contingency avoidance and limitation, disaster recovery and business continuity — and provide more best practices for the use of shared services.18
Industrialized services are now a de facto requirement to compete in this market, which challenges the investment capabilities of local and regional players by putting great pressure on the supply side and increasing market consolidation. While IUS offerings, such as those for SAP,19 remain among the most successful, cloud IaaS has accelerated the industrialization trend, forcing providers to combine their utility and cloud road maps, product names and terminology. Clients are putting further pressure on providers by resisting contracts that lock them into traditional infrastructure when a cloud delivery model might serve their needs better at some point during the contract. They are demanding IT agility and the ability to change service providers in order to improve services. These factors create further confusion and turbulence in the market.
Evolving pricing models: As new delivery models become the norm, it is important for customers to get savvier at contracting for industrialized services. Some are using gain-sharing pricing models as a way to give service providers an incentive to improve overall performance. Service providers must collaborate with clients to deliver services in a way that reduces cost and improves client-perceived business value.20
Most traditional DCO deals used to be fixed-price relationships with a fixed baseline of about 80% to 90% of total contract value. The average fixed baseline is decreasing to 60% across all reference customers, which provides more flexibility to clients in terms of variability of volumes and payment per use. Providers mostly manage this variability through a per-unit or per-user, per-month billing mechanism. Driven by the requirements to reduce the runtime cost of corporate IT services and deliver more business value and growth, CIOs and IT and sourcing managers are increasingly evaluating external, operational-expenditure-based options for their data center strategic-planning decisions.
IUS pricing is based on service use and proven, ongoing reductions in the fixed baseline (or subscription fees) and unit costs — defined as unit/use based in Gartner's most common pricing models research. This characteristic is fundamental to the benefits that providers and end users realize from a one-to-many service delivery model. Many organizations confirm that a key attraction of IUS is the potential cost alignment of IT consumption to price.21 Cloud IaaS has already changed clients' expectations for traditional data center services: they frequently ask questions like "Why does this cost so much more than what I can get from Amazon Web Services?" Price anchoring will be a perennial problem in this market, at least until cloud providers are in a position to reduce their list prices, as they have done in the past and are currently doing (so far in 2014, Amazon, Microsoft and Google have announced double-digit price reductions to some of their IaaS services and further increased their investments in data center capabilities).22
An analysis of DCO/IUS price evolution reports shows a 6% to 16% reduction in major price point elements (managed MIPS and Wintel servers).23 This is consistent with what is expected from ILCS pricing theory and with previous Gartner forecasts.24
Feedback From Magic Quadrant Providers' Clients Offers Market Insight
We surveyed and interviewed more than 80 reference clients as part of our research for this Magic Quadrant. The feedback we received, as well as the information we gained from interactions with Gartner clients in North America and abroad, has given us meaningful insight into the "pulse" of this market. Despite changes in the market, most of the vendors' reference clients are satisfied with the service they receive in this area — the average reference satisfaction is 7.9 on a scale of 1 to 10, up slightly from 7.5 last time.
Although there are always some dissatisfied clients, overall, DCO is considered a viable, satisfactory and mature sourcing option in North America. Gartner recommends that sourcing managers use their 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, clients must understand that different providers are approaching the effect of service industrialization in different ways, which will affect the risk they run in a fiercely competitive market:
- Aggressive service providers will increase their market share and capitalization. To do so, they need to industrialize their service delivery to control costs, as well as their service portfolios to sell low-cost service components as part of outsourced services offerings. They will suffer from revenue cannibalization until the growth of the new offerings returns them to revenue growth.
- Conservative outsourcers are industrializing their service delivery ("industrialization inside") but avoiding proposing and selling ILCS to clients in order to protect their margins. In the absence of a general acceleration of the economy, these providers will experience flat to negative growth in their North American (and European) outsourcing businesses. Being less exposed to cannibalization, their margins will be more protected, but they will be exposed to customer dissatisfaction and reductions in customer loyalty.
- Lagging outsourcers and outsourcers in waiting are not advancing their service industrialization, for either offerings or delivery models, and are in trouble. Their service lines associated with infrastructure and horizontal services will disappear through divestitures, mergers and acquisitions or bankruptcies.25 We predict that market consolidation will displace up to 20% of the top 100 IT services providers by 2014.26 Sourcing managers should therefore exercise great vigilance and follow best practices during all phases of the sourcing cycle to guard against potential disruption from providers' mergers, acquisitions, divestitures and major restructurings.27
Providers in the North American DCO/IUS Market
The North American market continues to lead the evolution toward cloud computing and IaaS. Hosting represents 45% of the managed data center services market in North America, but only about 21% in Europe. To understand the structure, dynamics and decision-making factors for your sourcing strategy, see "Data Center Outsourcing, Hosting or Cloud? Use Gartner's Market Map and Compass to Decide."
Until two years ago, HCL Technologies was the only Indian provider to qualify for inclusion in the Magic Quadrant, but since then, the offshore players Cognizant, TCS, Tech Mahindra and Wipro have entered. The 22 providers represented in this Magic Quadrant have a combined revenue of over $26 billion from DCO services. They manage over 300 data centers in North America. While most of these data centers are at the providers' sites, a few are at client sites or leased from third parties. The 22 providers together manage 1.25 million mainframe MIPS and 1.25 million servers, of which more than 45% are virtualized.
The "average" service provider in this Magic Quadrant generates about $1.2 billion from this line of business, manages over 90,000 servers, and manages more than 30 data centers in North America — the smallest provider has DCO/IUS revenue of less than $100 million, and the largest has DCO/IUS revenue exceeding $5 billion. The providers vary significantly in size, number of staff and clients, number of data centers managed and geographical coverage. Their approaches to this service area also differ: some are aggressive about industrialization, some are more conservative. Some view DCO as a strategic business; others consider data centers a necessary base capability for delivering end-to-end services that extend to network services, unified communications and collaboration (telecom companies), or to application and business process services (outsourcers and system integrators).
Finally, the rise of asset-light service models, such as RIM from Indian offshore providers, and asset-intensive IUS and cloud IaaS services, has further complicated the data center services market during the past few years. This market now includes several types of provider, including traditional vendors, outsourcers, system integrators, offshore players, telecom companies, hosting players and cloud specialists.
Levels of choice and competition — often based on differing balances of cost, quality and flexibility — are growing fast in the North American DCO market. CIOs can use this study to help make the best choice of North American data center service provider.
CIOs looking for truly worldwide service provision can use all three of Gartner's regional Magic Quadrants, which together cover almost the entire globe: the present document, "Magic Quadrant for Data Center Outsourcing and Infrastructure Utility Services, Europe" and "Magic Quadrant for Data Center Outsourcing and Infrastructure Utility Services, Asia/Pacific."
By 2015, low-cost cloud-based services will cannibalize up to 15% of top outsourcing providers' revenue.
1 See "Enhance Your IT Agility and Grow the Business by Optimizing the Three Layers of Adaptive Sourcing Strategy" and "Digital Business Acceleration Elevates the Need for an Adaptive, Pace-Layered Sourcing Strategy."
2 Accenture has developed key infrastructure offerings to underpin this vertical-platform approach, including a virtual private cloud (delivered in the U.K., the U.S. and Australia and New Zealand from partners' data centers) and a private cloud for SAP application offerings (see "IU4SAP Offerings: Accenture's Private Cloud Solution for SAP"). A new utility for Oracle environments is expected during 2014. Accenture has announced a deal with IPsoft to increase the level of intelligent automation in infrastructure monitoring and management in order to accelerate nonlinear growth of its over 17,000 resources employed for infrastructure remote monitoring.
3 The first model is based on RIM services to manage clients' resources. It will evolve into a hybrid cloud and legacy environment model, but with more limited industrialization and a top layer of multisourcing service integration and brokerage. The second model is based on a more asset-, utility- and cloud-based service platform that is increasingly aligned to vertical-market solutions and therefore associated with increased industrialization and delivery of SaaS and BPaaS.
4 Despite volumes and revenue growth, Atos managed 76 centers in 2011 and now manages only 56 (saving 10MW of power). It has plans to close 25 further data centers by 2016. New data center layers are as follows: cloud hubs for standard utility services, strategic hubs for consolidation and growth, local data centers (customer-specific) and peripheral data centers.
13 Virtualization has been among the top-five CIO technology priorities in the past five years. It is no longer mentioned as a technology, but "infrastructure and data center" is priority No. 2 and "cloud" is No. 5 (see "Taming the Digital Dragon: The 2014 CIO Agenda," page 27).
15 During 1H12, Gartner asked 81 reference clients — either via online survey or phone interview — for the most used location for low-cost labor. India attracted 57% of the responses. Poland attracted 20%, making it the main location for infrastructure services to Europe.
16 Gartner also predicts that, by 2015, more than 20% of large IT outsourcers not investing enough in industrialization and value-added services will disappear through mergers and acquisitions. Gartner expects outsourcers' strategies to address the expected reduction in ITO unit prices, driven by the rise of industrialized low-cost IT service offerings that fall into three broad categories, depending on the investment capability and aggressiveness of the provider (see "Gartner's Top Predictions for IT Organizations and Users, 2012 and Beyond: Control Slips Away"). Aggressive service providers will anticipate and exploit industrialization and low-cost trends, while the business models of conservative and lagging providers are more likely to be damaged by this evolution (see "Predicts 2012: The IT Services Journey Toward IT Industrialization Continues to Transform the Way Service Providers and Clients Engage").
18 Using a cloud service does not shift the burden of risk management entirely to either the provider or the customer. At minimum, the customer is still accountable for ensuring that cloud services can consistently and effectively support key business service availability and recoverability requirements. Massive failures could force business units to refrain from disintermediating the IT organization (by, for example, buying IaaS, PaaS or SaaS directly in the cloud), to make better estimates of their medium-term demand, and to accept more rules about change management (especially urgent changes, quick fixes to applications and direct fixes to production systems). See "Address Concentration Risk in Public Cloud Deployments and Shared-Service Delivery Models to Avoid Unacceptable Losses" and "Survey Analysis: Transition Toward Industrialized Low-Cost Services and Infrastructure Utility Services" (note: These documents have been archived; some of their content may not reflect current conditions).
21 See "Competitive Landscape: Application-Focused Infrastructure Utility Services Enrich the Proposition of Data Center Outsourcing Providers" (note: This document has been archived; some of its content may not reflect current conditions").
22 See "Outsourcing Trends 2013: Service Industrialization Enables a New Balance Between Value, Cost and Risk" (note: This document has been archived; some of its content may not reflect current conditions").
24 See "Riding the Wave of Industrialized Low-Cost IT Services" and "Potential Impact of Economic Downturn on IT Infrastructure Outsourcing Prices, 1Q09" (note: This document has been archived; some of its content may not reflect current conditions").
27 To understand the structure, dynamics and decision-making factors for your sourcing strategy, see "Data Center Outsourcing, Hosting or Cloud? Use Gartner's Market Map and Compass to Decide," as well as its three-dimensional version, "Toolkit: Price Dynamics on the Data Center Services Market Map; The 3D View" (note: This document has been archived; some of its content may not reflect current conditions").
Infrastructure as a Service (IaaS)
The capability provided to the consumer is to provision processing, storage, networks and other fundamental computing resources where the consumer is able to deploy and run arbitrary software, which can include OSs and applications. The consumer does not manage or control the underlying cloud infrastructure but has control over OSs, storage, deployed applications, and possibly limited control of select networking components (such as host firewalls).
Platform as a Service (PaaS)
The capability provided to the consumer is to deploy onto the cloud infrastructure consumer-created or acquired applications developed using programming languages and tools supported by the provider. The consumer does not manage or control the underlying cloud infrastructure including network, servers, OSs, or storage, but has control over the deployed applications and possibly application hosting environment configurations.
Power usage effectiveness (PUE) represents a ratio of the power used by a data center to the power used by the servers, storage and networking equipment within that data center. The lower the number, the greater the efficiency.
Ability to Execute
Product/Service: Core goods and services offered by the vendor for the defined market. This includes current product/service capabilities, quality, feature sets, skills and so on, whether offered natively or through OEM agreements/partnerships as defined in the market definition and detailed in the subcriteria.
Overall Viability: Viability includes an assessment of the overall organization's financial health, the financial and practical success of the business unit, and the likelihood that the individual business unit will continue investing in the product, will continue offering the product and will advance the state of the art within the organization's portfolio of products.
Sales Execution/Pricing: The vendor's capabilities in all presales activities and the structure that supports them. This includes deal management, pricing and negotiation, presales support, and the overall effectiveness of the sales channel.
Market Responsiveness/Record: Ability to respond, change direction, be flexible and achieve competitive success as opportunities develop, competitors act, customer needs evolve and market dynamics change. This criterion also considers the vendor's history of responsiveness.
Marketing Execution: The clarity, quality, creativity and efficacy of programs designed to deliver the organization's message to influence the market, promote the brand and business, increase awareness of the products, and establish a positive identification with the product/brand and organization in the minds of buyers. This "mind share" can be driven by a combination of publicity, promotional initiatives, thought leadership, word of mouth and sales activities.
Customer Experience: Relationships, products and services/programs that enable clients to be successful with the products evaluated. Specifically, this includes the ways customers receive technical support or account support. This can also include ancillary tools, customer support programs (and the quality thereof), availability of user groups, service-level agreements and so on.
Operations: The ability of the organization to meet its goals and commitments. Factors include the quality of the organizational structure, including skills, experiences, programs, systems and other vehicles that enable the organization to operate effectively and efficiently on an ongoing basis.
Completeness of Vision
Market Understanding: Ability of the vendor to understand buyers' wants and needs and to translate those into products and services. Vendors that show the highest degree of vision listen to and understand buyers' wants and needs, and can shape or enhance those with their added vision.
Marketing Strategy: A clear, differentiated set of messages consistently communicated throughout the organization and externalized through the website, advertising, customer programs and positioning statements.
Sales Strategy: The strategy for selling products that uses the appropriate network of direct and indirect sales, marketing, service, and communication affiliates that extend the scope and depth of market reach, skills, expertise, technologies, services and the customer base.
Offering (Product) Strategy: The vendor's approach to product development and delivery that emphasizes differentiation, functionality, methodology and feature sets as they map to current and future requirements.
Business Model: The soundness and logic of the vendor's underlying business proposition.
Vertical/Industry Strategy: The vendor's strategy to direct resources, skills and offerings to meet the specific needs of individual market segments, including vertical markets.
Innovation: Direct, related, complementary and synergistic layouts of resources, expertise or capital for investment, consolidation, defensive or pre-emptive purposes.
Geographic Strategy: The vendor's strategy to direct resources, skills and offerings to meet the specific needs of geographies outside the "home" or native geography, either directly or through partners, channels and subsidiaries as appropriate for that geography and market.