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Magic Quadrant for Data Center Outsourcing and Infrastructure Utility Services, Europe

Published: 06 June 2017 ID: G00313346

Analyst(s):

Summary

Gartner analyzes the execution and strategic vision of 16 leading providers and their DCO/IUS and cloud service offerings worth $19.5 billion in annual revenue in Europe. Sourcing executives can use this analysis to select a strategic provider from this market.

Market Definition/Description

This document was revised on 8 June 2017. The document you are viewing is the corrected version. For more information, see the Corrections page on gartner.com.

This Magic Quadrant evaluates the abilities of 16 leading service providers to deliver data center managed services across Europe — including data center outsourcing (DCO) and infrastructure utility services (IUS). These are mostly enabled by remote infrastructure management services, increasingly based on managed virtual private cloud services and extend into public cloud with hybrid infrastructure managed capabilities and services. This analysis is supported by thousands of data points and evidence on providers' capabilities, more than 300 references, and customers' evaluations during inquiries performed by Gartner analysts from June 2016 to May 2017. 1

Future growth in data center services will come from new industrialized infrastructure offerings such as IUS and cloud infrastructure as a service (IaaS). At the same time, growth and margins for traditional services will face further pressure (see "How to Leverage Industrialized 'Low-Cost' Market Prices to Optimize Your Data Center Infrastructure Service Cost" ). Therefore, our evaluation includes cloud IaaS and platform as a service (PaaS) virtual private offerings, hybrid IT infrastructure managed services (see Note 1) that are part of IUS offerings, and data center managed services.

As in previous years, this Magic Quadrant excludes simple, dedicated web hosting and colocation services and providers that entirely subcontract their services.

Definitions

Data Center

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. For example:

  • System operations

  • Print operations

  • Second-level data center support

  • Production control

  • Backup and recovery processes (including tape operations)

  • Technical support (operating systems and subsystems)

  • Performance analysis and capacity planning

  • Storage management

  • System security and contingency planning

  • Asset procurement and third-party management

  • Data center facilities management

Data Center Outsourcing

DCO deals are mostly a bundle of standardized managed services and customized transition and transformation services. They may include the management of client premises and colocation, hosting, IUS and managed cloud service components. Information management software and system management tools may be provided and used by the outsourcer or the enterprise client. Services may be provided at the client site or off-site. IT assets may be owned by the client, the external service provider (ESP) or a third party. Contracts may include the transfer of client employees, IT assets and facilities to the ESP.

Infrastructure Utility Services

Gartner defines IUS as the provision of outsourced, industrialized, asset-based IT infrastructure managed services below the business application functional layer. IUS is defined by service outcomes, technical options and interfaces, and is paid for based on resource usage, allocation or number of users served. Increasingly, IUS is based on managed virtual private cloud services.

Remote Infrastructure Management (RIM)-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-owned or third-party-owned data center, and when a single service provider delivers RIM. In this case, the client signs a single service contract with one service provider for the whole set of DCO services. In this type of contract, the main provider is responsible for end-to-end service delivery, including management and control of the hosting subcontractor.

Hybrid Infrastructure Managed Services

Gartner defines "hybrid infrastructure managed services" as the service provider managing the multiple infrastructures used by the organization (legacy and traditional environments, private cloud, and public cloud). Hybrid managed services include the management of traditional data center environments, other infrastructure utility services and private cloud. Additionally, they include Amazon Web Services (AWS), Google, Microsoft Azure and other public cloud functionality by the number of server instances, applications, users or environments on the multiple clouds. Traditional and cloud functionality would be considered seamless to the organization, as the provider maintains the relationship with the multiple cloud vendors and provides end-to-end visibility and management of the hybrid platform.

Geographies

In this Magic Quadrant, Gartner defines the various geographies:

  • Europe — The combination of Eastern Europe and Western Europe

  • Western Europe — Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the U.K.

    • We further divide Western Europe into the following subregions:

      • Western Europe, Northwest — Ireland and the U.K.

      • Western Europe, Northeast — Denmark, Finland, Norway and Sweden

      • Western Europe, Central West — Belgium, France and the Netherlands

      • Western Europe, Central East — Austria, Germany and Switzerland

      • Western Europe, South — Greece, Italy, Portugal and Spain

  • Eastern Europe — Albania, Bosnia and Herzegovina, Bulgaria, the Czech Republic, Croatia, Estonia, Hungary, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Turkey, and Ukraine

Magic Quadrant

Figure 1. Magic Quadrant for Data Center Outsourcing and Infrastructure Utility Services, Europe
Research image courtesy of Gartner, Inc.

Source: Gartner (June 2017)

Vendor Strengths and Cautions

For each provider, Gartner asks for 10 formal vendor-provided references per major region. As some of the providers (CGI, Tech Mahindra and Sopra Steria) declined to provide references and other information and datapoints this year, we obtained a total of 118 reference from European customers that more directly influenced the results of this analysis. Additionally, our analysis was informed by an additional 137 formal references from North America and more than 51 in Asia/Pacific, for a total of more than 300 formal references globally.

In addition, during 2016, Gartner analysts took hundreds of inquiries from European clients who were engaged in outsourcing relationships or who were looking to buy data center and infrastructure outsourcing services. A "formal" reference is one that was provided by the vendor as part of the Magic Quadrant process; an "informal" reference is one that was not provided by the vendor as part of the Magic Quadrant process.

The analysis below provides strengths and cautions for each provider in this Magic Quadrant. In each of the Strengths and Cautions sections, the last bullet provides insight into the client reference feedback received — either through formal client reference responses to our survey or client feedback received during our inquiries (informal references).

In addition, Gartner provides a "sweet spot" range of average revenue per customer derived from the data provided by the vendors, as well as from our estimates. This is intended to be a rough indication of where the vendor excels in its customer portfolio. 2

Accenture

For fiscal year 2016, Accenture's total revenue of $32.9 billion includes outsourcing revenue of roughly $15 billion (up 6%) from its application, business process and infrastructure services. We estimate that Accenture's DCO/IUS business grew from 17% in 2015 IT outsourcing business to 21% in 2016, with revenue of roughly $3.1 billion globally. Gartner estimates that Accenture's DCO/IUS revenue in Europe is just above $1 billion, having grown by approximately 6%. Accenture continues to manage the shift to virtual machines (VMs) with a virtualization level that is 60% (on par with competitors) and more than 125,000 managed servers in Europe (up 21%). Accenture manages 7,000 public cloud servers (AWS, Azure and other partners). The company supports over 45,000 Oracle ERP users (up 20%) and more than 100,000 SAP ERP users (up 2%). Gartner estimates that Accenture's average annual revenue per customer for DCO/IUS services in Europe is around $3 million, while Accenture data center reference clients had an average revenue of $10.3 million annually.

Strengths
  • Accenture is joining up its infrastructure offering into a hybrid infrastructure services suite supported by its managed security capability. The focus is on driving clients' digital transformation and boosting their IT productivity and performance through the adoption of hybrid solutions powered by the Accenture Cloud Platform. Differentiation focuses on a vertical view that leverages application/data understanding during the migration to digital business and hybrid IT.

  • To strengthen its hybrid infrastructure operations, Accenture has restructured and consolidated all relevant resources into one group and extended infrastructure management skills across the full technical stack. This has led to a calculated net productivity gain of around 14%, positioning Accenture in the best-in-class segment for applied automation effects. Accenture also achieved a leading position in the management of public cloud services, with 11% of managed servers and 8.2% of managed storage now hosted in public IaaS environments globally.

  • Some reference clients appreciate Accenture's strong technical capabilities and project management competencies, along with its operational/tools expertise and its focus on account management.

Cautions
  • Accenture's transformation-based business model does not suit traditional outsourcing deals focused only on cost reduction. Cost optimization benefits go to large and midsize client organizations that are ready to add application, process or transformational business to their deals. While Accenture is actively employing mainstream artificial intelligence (AI) technologies such as iSOFT and leveraging its own Artificial Intelligence Engine to deliver outsourcing services, the company is not developing its own products to sell in this critical area. Clients need to understand how much IP is owned by the AI technology providers, how much is added and locked-in by Accenture, and how much is actually owned by the customer.

  • Accenture's push toward automation and standardized offerings promises a significant reduction in the labor associated with infrastructure services. This will further reduce Accenture's appetite for deals involving assets and staff, still fairly common in Europe. Customers may expect increased pressure on cloud migration services for legacy workload and should regularly leverage benchmark clauses to align transition and delivery costs with market price.

  • A few reference clients believe Accenture needs to strengthen its focus on continuous improvement and fine-tune its delivery of industrialized services and its management of resources.

Atos

Gartner estimates Atos' DCO/IUS business surpassed $4.3 billion globally, and $2.5 billion in EMEA, an increase of 7% from the previous year. Atos continues to virtualize workloads, with a 25% increase in VMs to over 91,000 and a 9% increase in physical servers to over 67,000 in Europe. It also continues to expand its ERP offerings, with over 2 million SAP users and 214,000 Oracle users supported. Atos is starting to offer hosting on AWS and Azure, with roughly 600 servers spread between the two environments. Atos' strategy focuses on being a market aggregator seeking consistent and profitable growth from helping clients migrate from traditional services to digital capabilities. In this area, Atos is aiming for an estimated $1.9 billion of revenue from cloud by 2019 and is already generating substantial revenue from IoT. Atos data center reference clients had an average revenue of $10.7 million annually, while average revenue per client is $1.36 million.

Strengths
  • Atos has a strong understanding of the evolving nature of the DCO market in the digital era. Atos invests to increase speed and agility through a full life cycle of cloud services, strong analytics and IoT capabilities from its Codex offering, and a full-stack SAP Hana solution. Atos also invests to optimize its data center footprint and integrate security services in its offerings while leveraging continuous improvements to combine digital delivery with service stability.

  • Atos' recent revenue growth is only partially organic, and mostly achieved by acquisitions such as Bull, Xerox and Anthelio, whose integrations are leading to profit in the Infrastructure and Data Management division that exceeds profits from the rest of Atos. Atos is focused on industrialized delivery of Microsoft Azure and AWS services, supported by its Codex and Cloud Foundry offerings. Atos' automation capability is tightly tied to ServiceNow and other common automation tools, such as those from IPsoft. Use of these tools has already provided an annual gross saving of $330 million. To further reduce costs, Atos continues to focus on both portfolio and DC rationalization across its many European locations.

  • Some reference clients appreciate Atos' responsive and flexible approach, its technical capabilities and its focus on deploying robust and standardized methodologies, along with its effective procedures for handling escalation.

Cautions
  • Atos' vision of hybrid cloud is improving, but the installed base of public cloud servers lags against its competitors. In attempting to create a strong localization strategy, Atos combines global governance and strategy with a more effective localized sales and delivery capability. While this can enable flexibility in dealing with local market conditions, clients should ensure that they will receive consistent delivery across all regions when working with Atos.

  • Atos is still seeing head count increase faster than revenue growth and very little improvement in the number of servers managed per head, suggesting that automation is not able to overcome the increase in staff due to Atos' acquisitions. Atos' automation of mainframe and legacy ERP environments is not as far advanced as its other capabilities. Clients should examine how these automation issues will affect Atos' long-term profitability if the company continues to grow by acquisition.

  • Some reference clients would like Atos to improve its focus on proactive innovation and its ability to share knowledge among internal teams. They also see a need for Atos to fine-tune its problem and change management performance to reduce the number of outages.

Capgemini

Gartner estimates Capgemini's DCO/IUS revenue reached $2.5 billion globally in 2016, down about $100 million from the previous year, with EMEA accounting for about $2 billion, a 6% drop compared to the previous year. Capgemini continues providing RIM, automation, cloud migration, orchestration and hybrid services brokerage capabilities. In 2016, Capgemini reported an EMEA increase of 32% in both virtual and physical servers managed, and a 67% uplift in storage. Private cloud clients declined by 14%, while aggregate server numbers across AWS, Microsoft Azure and other public cloud solutions increased by 22%. In Europe, Capgemini supports 950,000 SAP users, an increase of 58% year over year, and about 16,000 Oracle users, with a decline of 32% due to the balance between the end of large U.K. deals and the positive effect of its Igate acquisition. Capgemini data center reference clients had an average revenue of $23.4 million annually, while average revenue per client is $2.14 million.

Strengths
  • Capgemini's vision is to deliver business value for its clients via cloud-first services, hybrid infrastructure, automation and security services. Using strategic partnerships with AWS, Microsoft and HPE to support its strategy, Capgemini states that it already has 30% of its revenue from digital and cloud business. In addition, it has won a considerable number of new clients with these offerings, particularly in the financial services sector.

  • Capgemini's focus is moving from client cost optimization to enabling clients' journeys to digital and cloud. Its increased focus on public cloud offerings is evident in its support of over 120,000 Office 365 (O365) users and a strong Azure partnership. Capgemini is executing well on optimizing its overall data center footprint, reducing EMEA data centers by 18%, and moving closer to its plan of strategic data center capability in each region, supplemented by investments to support specific client needs. It is creating greater alignment with clients' needs through further investments in its SAP Hana environments and automation via ServiceNow and BMC, with particular strength in incident and event management and automated self-service.

  • Some reference clients appreciate Capgemini's reliable service delivery and its focus on customer intimacy, along with its attention to understanding business priorities.

Cautions
  • Capgemini's cloud and digital growth is not yet offsetting the loss of large, traditional, outsourcing megadeals in the U.K. While it is seeking to save costs by leveraging low-cost geographies, it remains to be seen if this will help mitigate the reduction in deal size it is seeing and keep enough price competitiveness.

  • Capgemini reports levels of labor replacement by automation comparable to those of competitors, but this does not translate into improved measures of unit revenue per server or per resource, which are both below the best in class. Based on 2016 data, Gartner believes that Capgemini's automation provision is weaker than the majority of its competitors. In particular, automation of security, DBA and application operations services are poorly developed. Many of Capgemini's deals also involve modernization of clients' data center environments, which can lead to prices higher than those of its competitors due to the depreciation of transformation costs.

  • Some reference clients expect Capgemini to improve its focus on innovation and continuous improvement, reinforce the depth and breadth of service capabilities, and strengthen its performance around ERP and industrialized services.

CGI

CGI's 2016 worldwide IT services revenue is $10.7 billion, with 46% in IT services, 45% in system integration and consulting, and 9% in business process services. Following some consolidation activity, CGI can now rely on eight data centers in Europe, of which only one (located in Sweden) is proprietary. Overall, CGI maintains a focus on key verticals: government, manufacturing, retail, financial services, telecom and healthcare. We estimate that CGI average revenue per customer in this service line in Europe is below $1 million. CGI didn't provide data about its capabilities evolution, references or automation. Therefore, the positioning is based on public information, Gartner analysts' judgments, information available to Gartner through other sources (vendor briefings, other Magic Quadrants) and inquiries with customers.

Strengths
  • CGI is realigning its strategy to address the bimodal objectives of stable operations and rapid response to digital needs, which both require the delivery of hybrid infrastructure services. It enables this through its Unify360 platform, which delivers hybrid IT management through a combination of automation, analytics and AI, with investment focused on cloud migration, O365 and DevOps.

  • CGI has a positive track record in helping clients with transformational deals and has developed a consistent process for taking clients on each stage of the hybrid IT journey. In addition, CGI shows ongoing efforts to automate routine operational tasks, with a focus on consolidation and intelligent automation to maintain cost competitiveness.

  • Some reference clients we last received feedback from praised CGI for its service reliability, its focus on account management and its service availability.

Cautions
  • CGI's geographically oriented structure enables a focused go-to-market approach, but this regional autonomy increases the risk of inconsistent service definition and delivery. This has also inhibited service standardization, industrialization and operational consolidation, hindering CGI's long-term potential to withstand price pressure and protect its margins and competitiveness. CGI is yet to successfully tap into the public cloud business — it has a smaller public cloud footprint than its competition — and this may impact its future success in migrating workloads to cloud.

  • Most of CGI's coverage in Europe is limited to the U.K., France and the Nordic region, with a minor presence in central Europe and Iberia. This makes the company 40% smaller than the average provider. This is likely to limit CGI's ability to intercept and successfully deliver those Pan-European or global deals that originate from outside its core geographies. It is also likely to limit the potential for business growth, overall.

  • Some reference clients we last received feedback from expect CGI to improve its depth and breadth of capabilities around data center centralization and consolidation capabilities, and increase its proactive focus on driving innovation.

Cognizant

Gartner estimates that Cognizant's worldwide DCO/IUS business grew by around 15% during 2016 to approximately $948 million, while its European DCO/IUS business grew by around 20% to approximately $200 million. From a technology point of view, Cognizant is currently investing in areas such as hybrid cloud, software-defined data center services (infrastructure as code), automation and AI. In terms of offerings, Cognizant is focusing on the creation of its Constantly Ready Infrastructure Framework (CRI) and Digital Platforms. Gartner estimates Cognizant's average revenue per customer for DCO/IUS services in Europe is around $3.2 million per year. The average reference client had a $12.6 million annual contract value. Cognizant has a strong focus in finance, retail, life science and healthcare verticals.

Strengths
  • Cognizant is increasing its efforts to develop and deploy cloud solutions and its investment in data center space. From an architectural perspective — beyond IaaS-based modernization — Cognizant is focusing on the creation of vertical digital platforms (Trizetto, SAP, Corelogic, Guidewire) and on the development of its hybrid infrastructure management platform, Cloud 360, which is augmented by Intelligent Automation Services. Beyond leveraging third-party tools, Cognizant can leverage the new Project Harmony to develop its own IP, which is related to machine learning operations.

  • Cognizant is achieving positive growth in Europe and can rely on a good list of new references. To leverage the drive to digital business, Cognizant has restructured its infrastructure services business around its three digital-based lines of services offerings — Digital Systems & Technology, Digital Operations and Digital Business — each aligned to a specific stage of the digital journey. This has led to an increased focus on efficiency of ongoing operations, with its CRI framework, public cloud on AWS/Azure and hybrid cloud automation.

  • Clients appreciate Cognizant's partnership approach, the depth and breadth of its resources and its promptness in resolving outages, along with its strong service management focus, especially for ERP environments.

Cautions
  • Cognizant's footprint and installed base in Europe in this service area is growing but still small, with revenue in the range of less than 20% of the average provider in this Magic Quadrant. The resulting limited market visibility could hinder its ability to attract large and complex infrastructure modernization opportunities across Europe. In addition, although Cognizant is investing in automation and AI through its Project Harmony, this initiative is newer than those of key competitors, and the level of automation achieved in managing hybrid infrastructure is below the average of competitors.

  • Cognizant's achievements in terms of its installed base and cloud penetration of its IUS offerings remain below average when compared to the other vendors in this Magic Quadrant. In terms of hybrid infrastructure, Cognizant has a solid offering, but it is yet to attract the attention of clients, and its market penetration is behind that of competitors. Thus, clients need to satisfy themselves that the offering is robust and industrialized enough for their needs. Finally, Cognizant's current actual automation focus appears to be skewed toward AWS and Azure only.

  • Some clients expect Cognizant to improve its tools expertise and its focus on managing alliances and third parties, along with its performance in cloud migration and its leverage of the benefits of automation.

CSC (DXC)

The merger of HPE's Enterprise Service Division (HPE ES) and CSC into DXC Technology was finalized on 3 April 2017. Due to the integration activities required by such a large-scale merger, this year's Magic Quadrant refers to the two independent businesses premerger. The positioning of the merged company (DXC) in Gartner's Magic Quadrant will be released in the 2018 version of the report, after the actual organizational merger has been operationally executed.

During 2016, Gartner estimates that CSC's global DCO/IUS revenue decreased by 13% to slightly over $2.2 billion, and Europe decreased by 8% to slightly below $1 billion. CSC-managed servers are flat or declining with an increase of managed MIPS. CSC has over 200 European DCO clients and 5,000 servers in its next-generation DCO/IUS offering, which relies on a cloud-based infrastructure based on AWS and Azure partnerships. CSC supports Oracle ERP environments with roughly 400,000 users (a 5.7% decrease) and SAP with slightly less than 400,000 users (a 6% increase). CSC's IaaS strategy takes a bimodal approach — both legacy and cloud — with integrated and automated delivery to support digital business transformation. CSC's data center references had an average revenue of $32.5 million annually, while we estimate an average of $4 million for the average customer in Europe.

Strengths
  • The combination of CSC and HPE into DXC Technology is a key strategic move that will create the No. 2 global provider in this space by aggregated revenue. CSC provides data center managed service capabilities, coupled with a consultancy-led approach to help clients move to hybrid cloud and develop agile, bimodal capabilities. CSC has been dealing with premerger activity and evaluating how to maximize the effect of the merger and establish an offering, partnerships and a technology roadmap moving forward.

  • CSC's acquisition of Aspediens (a ServiceNow specialist in Europe) shows an investment focus on hybrid management and cloud services. CSC's Agility Platform is the backbone of its hybrid management services and will likely be the basis for DSX's managed service and brokerage offerings. CSC has a heavy emphasis on AWS and Azure partnerships and technology. Security automation, self-service support, asset management and change are strong areas of automation.

  • Some reference clients appreciate CSC's focus on service reliability and compliance, along with a good performance in relationship management.

Cautions
  • CSC lost revenue in this space by more than $300 million globally last year — a quarter of it in Europe. This decline has been driven by the impact of market price decreases on a large installed base, a continued focus on an "as-a-service" model and an unclear cloud strategy. Despite becoming the No. 2 market player postmerger, DXC Technology will find it difficult to reverse the current revenue decline of the two players during its first year of life. One of DXC's major challenges is to reassure its installed base that it can provide value for money, innovation and digital-enabling services.

  • CSC has below-average automation tools coverage with strong reliance on ServiceNow and Senoss. Automation in DB administration and application operations is well below average. CSC will be challenged by DXC merger operations (such as asset transition, organization and workforce adjustments, mixed team, methodology and tools alignment, and offering standardization) across the different European countries for at least all of 2017.

  • Some reference clients expect CSC to improve its proactive drive for innovation and continuous improvement, the quality of its remote delivery methods, and its deployment of effective solutions and capabilities to handle escalations.

Fujitsu

Gartner estimates Fujitsu's global DCO/IUS business had revenue of $1.28 billion in 2016 (7% less than 2015). Its EMEA DCO/IUS revenue dropped 10% to $1.09 billion in 2016, but the company increased its client numbers to nearly 2,000 in EMEA. The company's DCO/IUS offerings range from RIM to cloud IaaS and cloud integration. During 2016, it saw a 2% increase in virtualization to over 35,000 VMs, but a 26% reduction in physical servers. Fujitsu has a number of clients with offerings that rely on cloud-based infrastructure, with over 5,300 servers managed on AWS, Azure and other public cloud partners. Fujitsu also manages 333,000 SAP users, 278,000 Oracle users and more than 750,000 O365 users. Fujitsu data center references had an average revenue of $8.9 million annually, while average revenue per client is $0.56 million.

Strengths
  • Fujitsu has made substantial investments in both its K5 cloud platform and its digital business platform, MetaArc, through which it provides strong support for hybrid cloud migration and for digital initiatives in IoT, analytics, AI and mobile. Fujitsu is also sustaining its focus on portfolio industrialization and rationalization, in line with the market evolution. This has resulted in a Global Portfolio, and a roadmap that is evolving toward a Global Platform and a Global Managed Services Support Model.

  • Fujitsu has developed a strong EMEA pipeline of sales and is having substantial success with larger deals and clients who are seeking transformation-led capabilities. Forty percent of Fujitsu's DCO/IUS deals have a private cloud service component, with SAP having strong representation. Fujitsu claims that by combining existing tools and capabilities, it has created a reduced-effort, fast-start approach to end-user sign-on and security in the cloud. Fujitsu's automation capability is enabled by a set of tools that Fujitsu acquired through the UShareSoft acquisition. These tools primarily address automation of the K5 cloud platform, migration and workflow placement across the hybrid landscape.

  • Some reference clients appreciate Fujitsu's high service delivery performance, strong account management performance, and operational and tools expertise, along with its data center consolidation and centralization and its focus on deploying robust service methodologies.

Cautions
  • Fujitsu's focus on cloud service brokerage, integration and hybrid infrastructure management spanning hyperscale cloud appears to be late. While it has made substantial investments in K5, monetizing these investments in this platform will be key to reversing the revenue decline in EMEA. Despite its globalization effort, Fujitsu's operations remain heavily skewed toward Asia/Pacific and Europe, which provide 85% of the company's revenue. Fujitsu's level of centralization of operational staff to control centers is behind the best-in-class level (75%) globally, while at best-in-class level in Europe, where the number of managed servers per head is still well below average.

  • Fujitsu has seen a revenue decline of around 10% in Europe, and the average size of its deals has decreased, due to large numbers of smaller cloud-based deals as it helps its clients migrate. While Fujitsu is reorganizing, its European business is still in the middle of an evolution from local offerings to global ones that will take a few years to complete due to existing deal lengths. In areas outside K5, Gartner's assessment of automation capabilities places Fujitsu in the bottom third of providers, well below average. The combination of these factors is limiting Fujitsu's ability to raise the value of services delivered in a commoditizing marketplace.

  • Some reference clients have indicated that Fujitsu needs to further drive automation and fine-tune its transition and resource management. They also say it needs a stronger performance for ERP and industrialized data center services.

HCL Technologies

HCL Technologies' 2016 data center outsourcing business grew by 12% in Europe to $807. Similar worldwide growth resulted in total HCL revenue getting close to $2 billion. HCL's current DCO/IUS strategy aims at creating "as a service" offerings and workloads underpinned by standardized technology platforms. HCL maintains a strong European footprint, especially in key markets such as the Nordics, the U.K. and Ireland. HCL's average revenue per customer for DCO/IUS in Europe is around $11.3 million per year, with a focus on key verticals — manufacturing, banking and financial services, telecom, and the public sector. The average annual contract value for reference clients is about $10.4 million.

Strengths
  • HCL's vision is designed to align data center operations to clients' bimodal objectives with the introduction of a layer where a partner's ecosystem contributes to the creation of platform-based solutions with vertically focused applications. HCL has created dedicated centers of excellence for security services and for service desk. In addition, HCL supports an array of automation capabilities and continues to make substantial investment in its DryIce automation tool, as well as work with partners to develop self-healing and preventative automation capabilities.

  • HCL continues to enjoy positive growth in the European DCO/IUS market, thus closing the gap with traditional powerhouses; in fact, two thirds of HCL customers are migrating from legacy multinational outsourcers and represent a very large installed base. In addition, HCL has significantly expanded its mainframe service offerings and is driving the uptake of its recent IUS offerings.

  • Some reference clients appreciate HCL's service performance and reliability, its flexible attitude and its positive approach to potential change.

Cautions
  • HCL appears overly exposed to relatively few clients for large contractual volumes. Its growth is impacted by the combined reaction of traditional outsourcers and other emerging competitors and by HCL's strategy to focus primarily on down-selecting large, legacy opportunities where competition continues to rise. Although its service industrialization and automation strategy continues to unfold, HCL appears to be in catch-up mode in terms of leveraging automation.

  • Amid growing competition, HCL has lost the offshore first-mover advantage and, at a time in which integrated and outcome-based services rise in importance, it's starting to suffer against competition on SAP and Oracle ERP application managed services. In addition, a very high level of "no-bid" contracts indicates that HCL may still need to further rationalize its installed base and related delivery model before it can integrate new business. This will further hinder revenue growth and customer satisfaction moving forward.

  • Some reference clients would like HCL to improve its focus on ownership and speed of implementation and its drive toward innovation, along with its performance in data center centralization and consolidation and industry focus.

HPE ES (DXC)

The merger of HPE's Enterprise Service Division (HPE ES) and CSC into DXC Technology was finalized on 3 April 2017. Due to the integration activities required by such a large scale merger, this year's Magic Quadrant refers to the two independent businesses premerger. The positioning of the merged company (DXC) in Gartner's Magic Quadrant will be released in the 2018 version of the report after the actual organizational merger has been operationally executed.

Based on Gartner's estimate and HPE's financial reports, 2016 results included an estimated $4.94 billion in DCO/IUS revenue globally (down 8% from 2015), with roughly $2.44 billion in Europe (also down 8%). HPE ES continues to manage the global shift to VMs with a 14% increase in virtual to over 275,000 and a 250% decrease in physical to roughly 130,000. HPE ES supports Oracle ERP environments in Europe with over 1.8 million users with double-digit growth, and SAP with roughly 1.2 million users, growing at 5%. HPE ES's data center reference clients had an average revenue of $45.1 million annually, while the average contract value per client is $3.42 million.

Strengths
  • HPE ES has been investing in premerger activity with a strong vision of the business value of hybrid IT. HPE ES has developed an offering across the whole hybrid transformation journey, combining consulting services, application rationalization capability and hybrid operations management, all underpinned by automation. HPE ES continues to develop this proposition further with the launch of consumption-based cloud products such as its SAP On Demand offering (expected to be live in 2017), utilizing hybrid cloud to simplify deployment and upgrade paths for complex SAP solutions.

  • HPE ES offers a truly global delivery capability, leveraging a network of owned data centers and a wide distribution of global operations centers. HPE continues to evolve its offerings with the announcement that it will offer public cloud services from partners AWS and Azure. This will allow HPE to provide support for digital capabilities for global clients. HPE is bringing a new set of 10 utility-on-demand offerings to the market.

  • Some reference clients appreciate HPE's technical expertise, its ability to deliver reliable and stable services, and its willingness to remain engaged with the client.

Cautions
  • While HPE's ES vision is strong, the merger with CSC leaves clients unsure of how much of this vision will remain in place following the consolidation of the two businesses. Clients need to drill into this area of uncertainty and get contractual commitments from HPE ES on required service roadmap developments. One of the major DXC challenges will actually be reassuring its installed base that the new player can provide value for money and forward-looking services.

  • HPE ES has experienced revenue erosion by more than $400 million globally — half of it in Europe — driven in part by the impact of cloud, but largely by clients' uncertainty over the impact of the merger with CSC. Client satisfaction with HPE ES's service automation is below-average, as are its automation achievements in provisioning and configuration and incident and event management. Clients should test the viability of the HPE ES beta or newly released service offerings (public cloud and SAP/Oracle on demand) before subscribing. HPE ES will be challenged by merger operations for at least all of 2017.

  • Some reference clients expect HPE ES to proactively drive innovation, including automation, and reinforce its focus on industrialized services and its performance in mainframe or managed ERP services.

IBM

Gartner estimates IBM's 2016 DCO/IUS revenue grew 3.3% to roughly $9.7 billion worldwide, with European DCO/IUS revenue growing to $3.6 billion, due to a significant volume increase for mainframe and open systems. IBM has the largest volume of data centers managed in Europe (more than 120) and an installed base of mainframe MIPS that is 1.6 times the sum of all competitors. IBM's plans to increase revenue from strategic imperatives to more than $40 billion in 2018 appear to be on target, with $32.8 billion achieved in 2016. IBM offers two cloud platforms — the IBM Cloud Managed Services (previously known as SmartCloud Enterprise) and SoftLayer (now part of Bluemix), as well as brokerage access to major cloud providers, including Google, VMware, AWS and Azure. IBM supports more than 230,000 servers in Europe and does not disclose the number of managed SAP and Oracle ERP users. Average revenue per European customer is $2.45 million, while IBM's data center reference clients had an average revenue of $17.3 million annually.

Strengths
  • In IBM's vision of IT as a service, system integration is replaced by "services integration" of predefined building blocks onto unique service solutions for clients. Hybrid infrastructure management and cloud capabilities, together with cognitive and vertical solutions, ought to shorten time to value and transition time. Clients' bimodal requirements are driving IBM Technology Service toward design thinking and more agile engagements to enhance vertical and innovation capabilities, previously rated low by customers.

  • IBM has begun to leverage Watson cognitive tools within IT operations, shifting from "practitioner-run, technology-assisted" to "technology-run, practitioner-assisted" IT. Watson technology will manage operations, improve automation performance and drive quality and efficiency of operations. IBM currently has Watson APIs installed with 600 customers and new projects with 1,500 customers. This provides an estimated Watson-based automation penetration of around 13% of IBM's customer base.

  • Some reference clients praise IBM's strong technical expertise, its service quality and reliability, and its ability in data center centralization and consolidation. They also appreciate its strong account management and process adherence.

Cautions
  • Despite supporting other public cloud, IBM still prefers to employ its own private and public (Bluemix) cloud. Overall public cloud penetration is still well below competitors' average (2.1% in Europe) and its AWS and Azure penetration is very small (<0.1%) since offerings have been recently announced in this area. Clients moving toward hybrid infrastructures must understand the potential and the limitations of the SoftLayer environment (now Bluemix) and carefully evaluate IBM's ability to transition workloads on Azure, AWS and other public cloud services.

  • The largest IT outsourcing provider in the world focuses again on the largest deals in the market and confirms megadeal and medium replicable deals as a growth engine. Clients should be cautious about ensuring they receive the right level of service and integration from any deal they enter into, and should select very standardized IUS offerings from the IBM portfolio. Despite Watson penetration and due to its complex installed base, IBM's performance in advanced automation is still below competitors' averages in some key areas, and AI-based services have not been rated by European references.

  • Some reference clients would like IBM to be more agile in responding to new requests and fine-tune the coordination of resources, along with further driving the benefits of automation.

Infosys

Infosys' 2016 revenue for DCO/IUS services in EMEA grew by 33% to a Gartner estimate of around $350 million. Infosys continues to drive server virtualization, with a 13% increase in VMs to over 68,000, but offset by a 15% gain in physical servers to over 23,000. Infosys has seen growth in its SAP users to over 615,000 and its Oracle users to over 190,000. Infosys has over 800 servers in its DCO/IUS offering that rely on cloud-based infrastructure through AWS and Azure. Infosys data center references had an average revenue of $11.6 million annually, while average revenue per client is $4.49 million.

Strengths
  • Infosys is aligned to clients' bimodal needs with a twin focus on operations and transformation, and offers hybrid cloud management services, analytics offerings and its flagship Infosys Nia (formerly Mana) automation tool. Infosys has combined these offerings to create cloud migration acceleration tools, cloud monitoring and automation suites, and offerings allowing integration of data and operations across multiple public cloud-based environments. Investments in startups and new centers of excellence are expected to further improve Infosys' bimodal strategy.

  • Infosys showed impressive growth during 2016, albeit from a small installed base. Part of this growth comes from Infosys using its core software capabilities to generate solutions-led initiatives, which then drive infrastructure and data-center-based deals. In addition, Infosys is strong on providing low-cost solutions to clients seeking resolution of their current infrastructure issues, and then enabling further ongoing cost reductions via the use of Nia. With large engagements, Gartner estimates that this can reduce costs by 10% to 20% at renewal. Infosys's focus on creating Zero Distance to clients is strong and delivers localization of services in its core European countries.

  • Some reference clients praise Infosys for its customer focus and its technical expertise, as well as its focus on continuous improvement and its skill in transition management.

Cautions
  • Infosys' new operational strategy relies in part on delivering standardization and automation to achieve productivity, which is a pragmatic, but not differentiating, value proposition. For transformation, Infosys' approach is focused more toward virtual automation and IT operations efficiency than toward DevOps and developer empowerment, meaning that its vision for addressing Mode 2 digital innovation is still emerging. Coverage and penetration of the European marketplace is still quite low, with managed capacity only in Germany, Sweden, Switzerland and the U.K.

  • Despite growth in Infosys' EMEA revenue, Gartner estimates that its revenue per head has fallen by 13%, due to taking on additional staff. Hybrid offerings are also behind competitors, with one of the lowest proportions of public cloud assets under management in the market. IUS offerings are limited, with only a few dozen clients for each offering. While automation is a core part of Infosys' go-to-market offerings, the company struggles to drive automation-led efficiency into its core offerings.

  • Some reference clients would like Infosys to improve its resource management and its escalation management and outage resolution, along with focusing more on deploying standardized processes.

Sopra Steria

Gartner estimates that Sopra Steria's DCO revenue remained almost flat in Europe — below $600 million during 2016. The Infrastructure Service unit delivered 14% of Group revenue in 2016. Sopra Steria is active in 20 countries across Europe and Asia/Pacific, but it has DCO business only in Europe. 2016 has been a year of consolidation and rationalization, and the group delivered 4% revenue growth to roughly $4 billion and an increased operating margin (8% versus 6.8% in 2015). Sopra Steria positions itself as an aggregator of services mostly focused on consulting and integration (59% of revenue), while extending into public cloud and leveraging software solutions in areas such as banking, HR and real estate. Sopra Steria declined to provide an update of its DCO business for this study. We estimate that it continues to manage 22 data centers across Europe with more than 300 customers. Sopra Steria's average revenue per customer for DCO/IUS in Europe is estimated around $1.7 million, with a key focus on financial services, transportation and the public sector.

Strengths
  • Sopra Steria's strategy supports the digital transformation and bimodal challenges facing its clients and delivers digital innovation Mode 2 engagements by leveraging its DigiLab. Sopra Steria is also increasing its reliance on partnerships with companies like Objective Corporation and Sybenetix to increase penetration in key verticals (like public sector and banking) and regional markets (like the U.K. and Ireland).

  • Sopra Steria derives 85% of its business from the European market. It's an attractive option for midsize to large organizations that have operations in its key regions and a need to renovate data center strategy while deploying a "cloud journey" and vertically aligned application portfolio management. Sopra Steria has a good level of cloud-first advancement, and we estimate that more than 4% of its managed server estate is already in the public cloud.

  • Some reference clients we last received feedback from praised Sopra Steria's focus on relationship management and the commitment shown by its account management team.

Cautions
  • According to our estimates, Sopra Steria still has revenue per server that is in the higher part of the provider spectrum. Driving this revenue up and costs down to increase competitiveness and aligning to market prices will require infrastructure investments that may not be supported by a price-sensitive market and the need to further improve margins.

  • Sopra Steria is increasing its focus on infrastructure utility services and other "as a service" models; however, it still lacks a significant track record in this area, and has only a small installed base. Sopra Steria has yet to accelerate the consolidation of its end-to-end offerings and derive synergies from the strengths of the merged businesses.

  • Some reference clients we last received feedback from expect Sopra Steria to become more proactive in driving innovation, in particular in data center industrialized services and cloud strategies. Recent clients report issues with Sopra Steria's partnerships in meeting client requirements for tooling, automation and innovation. Service performance and customer service have also been issues for some clients.

Tata Consultancy Services

In 2016, Tata Consultancy Services' (TCS's) DCO/IUS business achieved another year of strong growth in Europe, with revenue of $569 million (up 28%), while its worldwide revenue grew to pass the $2 billion mark. TCS remains committed to a roadmap where hybrid managed services and industrialized IT maintain center stage. The provider also appears focused on enhancing its delivery capabilities in many European locations and on investing in support of training for digital focus and competencies. TCS's sweet-spot customer size is around $30 million, with a focus on several verticals — banking, fast-moving consumer goods (FMCG), retail and transportation. Average revenue per client is $4.8 million, and average reference client revenue is $11.8 million.

Strengths
  • TCS has a solid vision of how its future DCO/IUS operations need to progress, based on the need to support hybrid workloads, align to business/vertical requirements and industrialize its IT delivery. TCS has a service value proposition spanning all aspects of moving to, and operating in, a hybrid digital era. It is set to increasingly support clients in these areas by making significant investments to broaden its automation and analytics tools portfolio and by implementing bimodal capabilities.

  • Beyond overall growth in its 2016 fiscal year, TCS also strengthened its hybrid IT credentials by increasing the number of public cloud servers under management, while also building up its hosted ERP client base. In addition, continued investment in key data center locations in northern Europe, coupled with building an automated DevOps toolchain capability, shows a focus on roadmap fulfilment and a balanced approach to this business (growth, price, investments and margin).

  • Some reference clients appreciate TCS's flexible engagement model, customer focus and strong account management, as well as its data center centralization and consolidation ability and strong service performance.

Cautions
  • Even if TCS continues to invest in automation and is showing the initial impact of this in its business model, there is still a lot of room for improvement in terms of leveraging automation. Ignio's penetration of the client base remains limited, and there is minimal automation support for mainframe. As such, clients should set a specific roadmap to make sure that automation will deliver tangible benefits to their contracts.

  • TCS has relatively few IUS offerings compared to its direct competitors. In addition, TCS's vision remains underpinned by a value proposition that revolves around technology, rather than the business benefits technology can bring. While TCS is making progress in this area, as shown by some leading client cases, this is not scaling up fast enough. Clients should ensure that alignment on business objectives between both parties is a key feature of their engagement.

  • Some reference clients expect TCS to be more proactive in terms of driving innovation, fine-tuning resource management and becoming more agile.

Tech Mahindra

During 2016, Tech Mahindra revenue grew 10% to almost $4 billion, while estimated growth for FY17 (ending March 2018) is 12%. Although Tech Mahindra declined to provide updated information during this study, Gartner estimates that its 2016 DCO revenue was less than $450 million globally, making it a relatively small player in this space. Tech Mahindra continues to make investments in tools, platforms and facilities to deliver on its digital business innovation and hybrid cloud service vision. As part of its growth strategy, Tech Mahindra continues to look for acquisitions like Target group, Pininfarina and CJS Solutions, which recently contributed to the company's vertically based digital business growth. Gartner estimates that Tech Mahindra's average revenue per customer in Europe for DCO/IUS is around $2.8 million, with a key focus on banking, financial services, insurance, retail and telecom. Since Tech Mahindra didn't provide a detailed update on its business, its positioning is based on public information, Gartner analysts' judgments and information available to Gartner through other sources (vendor briefings, other Magic Quadrants and inquiries with customer).

Strengths
  • Tech Mahindra continues with its internal transformation journey to improve its portfolio of services and tools, and is running multiple programs to train its employees for automation. Tech Mahindra is betting big on the FixStream Meridian cloud analytics platform and is investing heavily to support increasing growth in the hybrid cloud market. It is developing its Managed Platform for Adaptive Computing (mPAC) hybrid cloud management platform to provide a single point to manage all cloud and legacy data center infrastructure for the customer.

  • Tech Mahindra has reported improvement in its working capital, which provides financial stability, mitigates risk and enables the company to meet its short-term obligations so it can make new acquisitions and invest in programs like its Dublin-based Centre of Excellence. For fiscal year 2016, the company has reported a year-over-year increase in its working capital of more than 42%.

  • Some of the most recently available references gave Tech Mahindra high marks for responsiveness, and many praised its desire to make the service better and its willingness to adopt clients' standards. During recent Gartner interactions, customers often expressed appreciation for Tech Mahindra's ability to drive flexibility and lower costs in its deals.

Cautions
  • Tech Mahindra is currently in the process of revising its Data Center Services offerings. It still needs to work on messaging and market recognition, especially in Europe, where it makes 29.1% of its overall revenue but remains marginal in the DCO space. Customers and prospects should evaluate these new offerings to determine how well they fit their objectives and perform against relevant competitors.

  • Tech Mahindra needs to strengthen its cloud portfolio to drive more digital revenue. We estimate that digital revenue accounts for less than 10% of the company's overall revenue. Cloud penetration across its server-managed estate is lower than 1%; meanwhile, many of its competitors have achieved a much higher level of cloud penetration. Tech Mahindra's investment in the automation framework AQT is expected to enable smart data center operations, but has yet to prove the sort of quantifiable returns reported by its competitors.

  • Some of the most recently available reference clients report a need for more innovation and new initiatives, while others report that Tech Mahindra's resources lack skills depth related to cross-functional domains. A few references also suggested that Tech Mahindra could improve speed of communication, availability of resources and cost competitiveness. Some recent client interactions indicated that governance and account management structure more often drives toward transactional engagement rather than value-based engagement.

T-Systems

Gartner estimates that T-Systems' outsourcing business has grown about 5% since 2015 to a total of about $2.5 billion globally, of which close to $2 billion is in Europe. The company has expanded its managed SAP user base to over 6 million, but it is not a significant player in managed services for Oracle ERP. With the launch of its own public cloud offering in partnership with Huawei, T-Systems has been decreasing its 2016 customer base usage of storage on competing public cloud storage providers by about 30%. The company helps organizations manage their portfolios across three pillars: (1) existing classic IT systems; (2) company-specific private cloud-based solutions; and (3) public cloud-based standard products. Its offerings aim to support the bimodal ambitions and challenges of its customers, both on the business solution level and on the technical infrastructure level. Average revenue per DCO European customer is estimated by Gartner to be around $1.3 million, while T-Systems' references reported an average revenue of roughly $20 million annually.

Strengths
  • T-Systems has a strong multicloud vision and does incorporate the important application layer — addressed largely through partner SaaS solutions — into this vision. Also, it has deep partnerships with Microsoft (as data trustee for Azure, O365 and soon Dynamics) and with Huawei for its aggressively priced Open Telekom Cloud offering. The company is transforming its sales process from a single-product approach to a multiproduct approach, with special focus on IT/DC transformation to renovate the core, drive new business models and focus on automation.

  • T-Systems' technical skills and expertise around SAP remain particularly strong. T-Systems is managing some of the largest SAP and SharePoint installations globally and maintains a very large number of productive SAP users under management. It is now expanding its classic IUS offerings with public cloud-based solutions, and is in the process of expanding to a more customer-focused portfolio. T-Systems has focused on operational excellence as a core part of its delivery capability, and this is showing benefits in terms of quality in the form of reduced service windows and outages.

  • Some reference clients appreciate T-Systems' technical expertise and zero-outage initiative, along with its flexible approach and its expertise in data center centralization and consolidation.

Cautions
  • T-Systems has a multicloud strategy, but has a strong bias toward Microsoft and largely excludes market leader AWS from its offerings. While the portfolio separation in three categories (legacy IT, private and public cloud) appears pragmatic, T-Systems appears still too focused on its traditional strength in classic IT offerings and catalog-based sales. Its integration across hybrid environments is executed by use of a limited set of tools, predominantly HP-based.

  • The cloud partnerships that T-Systems launched last year with Microsoft and Huawei and the rollout of offerings based on these partnerships are taking too long in a market that is demanding the roll-out speed that they see from hyperscale providers. Automation is a significant focus for T-Systems, but outside of the cloud provisioning area and access management, the percentage of processes automated still lags behind that of the average competitor.

  • Some reference clients expect T-Systems to improve its focus on innovation and its ability to manage new projects/services, as well as fine-tune its resource management.

Wipro

Wipro's DCO/IUS business reached $1.579 billion in 2016, growing 14% worldwide and 16% in Europe, where the DCO/IUS business is $441 million. Wipro has been building on its automation and hybrid technical capabilities. During the past year, it has also expanded its data center outsourcing portfolio, which has services such as mainframe-as-a-service, cloud migration or its new Enterprise Marketplace, where customers can purchase and run microservices on demand. Gartner estimates Wipro's average contract value per client for DCO/IUS in Europe is around $4.2 million, while reference client annual contract value is $17.06 million with a focus on verticals such as finance, manufacturing, healthcare and retail.

Strengths
  • Wipro's vision of bundling its data center outsourcing portfolio in the BoundaryLess Data Center (BLDC) to accelerate its clients' journey to become digital enterprises is aligned to the transformation objectives of many European organizations. Wipro's software-defined strategy to implement the "Uberization of IT" and manage the integration of digital business services across a partner ecosystem and customers is bold.

  • Having achieved some large-scale transformational deals, Wipro is helping complex organizations move to a "no data center" position and a cloud-based strategy based on AWS and Azure cloud. In parallel, Wipro continues to invest in reinforcing its expertise in cloud migration and hybrid IT management. As such, Wipro is one of the first providers to show a standard migration catalog with volume, quality and price information. In terms of intelligent automation, Wipro maintains an ongoing focus and investment in Wipro Holmes, while also leveraging a portfolio of other automation vendors/tools. This allows the provider to offer broad coverage across the spectrum of automation practice areas.

  • Some reference clients appreciate Wipro's technical know-how, the stability of the services delivered and the company's responsiveness, along with its focus on delivering industrialized services.

Cautions
  • Despite positive growth in IUS and some new cloud/transformation deals, Wipro's vision has not yet been widely leveraged for accelerated penetration of IUS and cloud services. This, coupled with a growth performance that, while positive, is lower than many of its direct competitors, may drive Wipro to focus on winning more traditional deals. Such an approach could hinder the provider's ability to be seen as a player that can systematically compete for deals that involve complex hybrid environments and the related transformation.

  • Although Wipro is successfully pursuing the execution of standardization and automation, its IUS-enabled offerings remain low in number. Wipro's leverage of Holmes — despite a positive start — maintains ample room for expansion, while mainframe automation is below average in this evaluation. Similarly, while Wipro has a strong focus on hybrid IT, its growth in this area has not been as marked as some of its competitors.

  • Some reference clients expect Wipro to increase its focus on innovation, communication and capacity/service management and build its mainframe expertise.

Vendors Added and Dropped

We review and adjust our inclusion criteria for Magic Quadrants as markets change. As a result of these adjustments, the mix of vendors in any Magic Quadrant may change over time. A vendor's appearance in a Magic Quadrant 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.

Added

No new vendors were added in this report.

Dropped

Unisys was part of Gartner's 2016 Magic Quadrant, but dropped out in 2017 because its European revenue in the DCO/IUS segment has slipped just below the minimum inclusion criteria of $50 million a year.

Inclusion and Exclusion Criteria

This Magic Quadrant focuses on management services for mainframe and centralized server environments. It evaluates each service provider's capabilities across Europe to deliver data center managed services and IUS. Included in this evaluation are hybrid infrastructure managed services, where cloud IaaS, PaaS and storage as a service (for example, workload instances in AWS, Azure, Google and others) are combined with legacy, traditional and IU-managed services. Pure cloud service brokerage is not included. As in previous years, this Magic Quadrant excludes simple, dedicated web hosting and colocation services.

Included are service providers that:

  • Demonstrate that they provide DCO services as a sole-source direct provider (although direct ownership of a data center is not required for inclusion). This excludes data center services delivered entirely by partners or subcontractors.

  • Show that they manage nonmarginal data center delivery capabilities in at least three European regions.

  • Generate no more than 70% of their total European DCO and utility services revenue in any one country in Europe, because this Magic Quadrant evaluates Pan-European capabilities.

  • Generate a minimum of 10% of their European DCO and utility services revenue in at least three European countries (not all part of the same subregion).

  • Generate at least $50 million in annual DCO and IUS revenue in Europe. Note that this is an indicative limit and should not include pure or unmanaged cloud revenue. The actual limit for 2017 in the formal participation package was set to allow no more than 24 providers to be positioned in the Magic Quadrant, as per Gartner methodology.

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, and also those 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.

Evaluation Criteria

Ability to Execute

Gartner evaluates the 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 Western European footholds in terms of resources, coverage, seamless delivery within different countries and ability to meet clients' requirements.

Ability to Execute is judged by seven main criteria. Each criterion is described below, and their respective weightings are shown in Table 1.

Product or Service

For this category, we evaluate each provider's service delivery capabilities and the services offered. We give special consideration to practice area profile and service capabilities in Europe, 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 European 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 number of servers supported

    • Percentage of revenue earned from public cloud services against AWS, Azure and others

  • 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

  • SLA provided on public cloud environments:

    • 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 and methodologies specific to public cloud transition and workload migration across hybrid clouds

  • 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

  • Analysis of the architecture, tools and processes that have been put in place for hybrid infrastructure management and the level of automation of manual activities that has been achieved in each process area and for each layer of the hybrid infrastructure.

Overall Viability

This category 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 outsourcing data center 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

  • Replacement of own resources with public cloud resources, additional revenue from migration and hybrid infrastructure management services

Sales Execution/Pricing

For this category, we assess 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 ESP in the areas of negotiation and pricing.

Market Responsiveness/Record

For this category, we assess 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 have a particular focus on cloud-first strategy implementation, rapid migration capabilities/methodologies, hybrid infrastructure management services architecture, tools, processes and resources.

We also ask clients for feedback on their service provider's flexibility, continuous improvement and innovation.

Marketing Execution

For this category, we assess 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 the company and its services and brands.

Customer Experience

For this category, we evaluate reference customers' overall satisfaction with the service and the relationship, taking into account other Gartner-client interactions. We obtain access to reference customers by asking each provider for five to 10 European references for DCO services. We require that these references meet 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 previous 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.

Operations

For this category, we assess 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 service 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 for specific data centers or clients.

We will also access, at a high level, processes, procedures and resources for hybrid infrastructure management services — how integration of ITIL and self-service is managed from a role-and-responsibility-matrix perspective, SLAs, exclusion clauses and tooling, for example.

We speak to the ESPs about their main procedures (operational, transitional and relating to program management, relationship management and change management), and ask 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.

Table 1.   Ability to Execute Evaluation Criteria

Evaluation Criteria

Weighting

Product or Service

High

Overall Viability

High

Sales Execution/Pricing

Medium

Market Responsiveness/Record

Medium

Marketing Execution

Low

Customer Experience

High

Operations

Medium

Source: Gartner (June 2017)

Completeness of Vision

Gartner evaluates service providers on their ability to articulate logical statements convincingly 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 judged using eight main criteria. Each criterion is described below, and their respective weightings are shown in Table 2.

Market Understanding

For this category, we assess each provider's corporate view of the data center services and outsourcing market in Europe. We evaluate how each provider is trying to address the main requirements of European 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 midterm.

In particular, we consider each provider's:

  • Vision for DCO and utility services, including IaaS- and PaaS-enabled offerings

  • Plans to differentiate itself from its major competitors

  • System for segmenting and analyzing the target market to drive marketing and sales

  • Plans to position these services within a broader offering

Marketing Strategy

For this criterion, we assess each provider's main marketing messages relating to DCO services in Europe.

In particular, we consider:

  • Current and future value propositions for DCO, IUS and cloud infrastructure services in Europe

  • 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 those of its competitors

Sales Strategy

For this category, we require each provider to illustrate its overall sales strategy for DCO (for example, direct selling versus 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 Europe

  • 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

  • Direct sales versus partners sales versus self-service (public cloud) commercial approaches

  • Client retention rate (driven by the ease of doing business with the provider and its focus on relationship management)

Offering (Product) Strategy

For this criterion, we require each provider to specify the most important aspects of the service offering that differentiate it in the market and deliver value to its clients.

In particular, we consider each provider's:

  • Ability to integrate client assets, including data centers in Europe

  • Ability to transfer data center staff from client to provider in each European country

  • Approach to combining standard service elements into customized service delivery to provide flexibility, low cost and cloud-enabled service offerings

  • Ability to provide end-to-end business process management of hybrid infrastructure and application

  • Approach to intelligent automation, architecture, tools and process automation achievements

Business Model

For this criterion, we asked each provider for a high-level description of its business model for DCO services, and how this fits within its overall business model. In particular, we consider each provider's ability to address and satisfy two competing requirements: client-specific requirements (which drive client satisfaction) and industrialized, centralized delivery of DCO services (which drives low costs and protects margins).

To evaluate how well each provider's business model addresses account management, we asked for information about:

  • The structure of the management teams used to support and manage customers

  • The structure of the teams managing the relationship with public cloud providers

  • 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 both internally and toward public cloud providers

To evaluate how well the providers' business models address delivery, we asked each to describe its strategy for centralized delivery of standardized data center services. We focused on how much of the service is based on virtualized and automated platforms and how much uses cloud IaaS and PaaS platforms. We also asked for information about the provider's approach to global delivery of DCO services, as well as established and planned RIM premises.

We asked each provider's reference customers for their judgment about their provider's business model, including account management and service delivery, and we factored their answers into our evaluation.

Vertical/Industry Strategy

For this criterion, we assess 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

  • Penetration of public cloud (especially IaaS) that may drive different public cloud platforms in different regions/verticals

  • Ability to demonstrate expertise in the vertical markets and business processes underpinned by DCO services

Innovation

For this criterion, we evaluate each provider's position in the market as a thought leader and an innovator. We also evaluate each provider's leadership and investment activities to achieve its vision and develop innovative strategies in the DCO market.

In particular, we asked 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 during the past 12 months?

  • What global alliances do you have with other leading suppliers, and what investments support these alliances?

We also asked for details about each service provider's utility-based offerings, including:

  • Highly standardized services, processes and SLAs

  • Virtualized and automated computing platforms

  • Hybrid infrastructure management services

  • Utility pricing units

  • Reduced baselines, increased flexibility, cloud enablement and application/workload/data portability

We asked reference customers for their judgment of their provider's ability to innovate (including the technical aspects of innovation), ability to lower costs and improve service by delivering innovative utility-based services, and degree of proactiveness, adaptability and service flexibility.

Geographic Strategy

For this criterion, we examine each vendor's regional capabilities, global consolidation processes, local alliances and partnerships, including:

  • Highly standardized services, processes and SLAs

  • Virtualized and automated computing platforms

  • Hybrid infrastructure management services

  • Utility pricing units

  • Reduced baselines, and increased flexibility, cloud enablement and application/workload/data portability

We also asked reference customers for their feedback about local capabilities and the current or potential effects of consolidation and global delivery processes.

Additionally, we asked each service provider to reveal its vision of the market. We asked each to provide details of the following:

  • DCO strategy, service-line financials, investments and other main indexes

  • Global delivery, RIM and low-cost locations

  • IUS offerings, clients, servers, examples of SLAs and pricing (including those for 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 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.

Table 2.   Completeness of Vision Evaluation Criteria

Evaluation Criteria

Weighting

Market Understanding

Medium

Marketing Strategy

Low

Sales Strategy

Medium

Offering (Product) Strategy

High

Business Model

High

Vertical/Industry Strategy

Low

Innovation

High

Geographic Strategy

Medium

Source: Gartner (June 2017)

Quadrant Descriptions

Leaders

Leaders perform skillfully. They have a clear vision of the market's direction and develop competencies to maintain their leadership. They shape the market, rather than follow it. This year, the Leaders quadrant includes Accenture, Atos, Fujitsu, HCL Technologies, HPE, IBM and T-Systems.

Challengers

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. This year, the Challengers quadrant includes Capgemini.

Visionaries

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 European market. This year, the Visionaries quadrant includes CSC, Tata Consultancy Services and Wipro.

Niche Players

Niche Players focus successfully on a particular service, a limited number of European markets or both. This narrow focus may affect their ability to outperform or innovate. This year, the Niche Players quadrant includes CGI, Cognizant, Infosys, Sopra Steria and Tech Mahindra.

Context

According to the 2017 Gartner CIO Survey (see "2017 CIO Agenda: Global Perspectives on Seizing the Digital Ecosystem Opportunity" ), the requirements for digital business are driving smarter choices for customers and accelerated transformation toward the digital ecosystem (see " Leverage Decreasing Unit Prices to Enable Digital Business Success "). Cloud services/solutions and infrastructure and data center spending continues to be very high on the list (No. 2 and No. 3, respectively, of technology investment priority), confirming the large amount of expenditure they continue to represent. We also notice that enterprise approaches to digital are more varied and unique than approaches to traditional IT. 3

The 2017 Gartner CIO Survey further reveals that IT leaders are now scaling up bimodal approaches and concentrating more on security, legacy modernization and digitalization/digital marketing initiatives. They are also focusing on a long list of disruptive innovation initiatives involving competences and services in new areas like advanced analytics, Internet of Things, cybersecurity, business algorithms and machine learning. This corroborates with the fact that many service providers are earning a substantial amount of revenue from data center modernization initiatives, which was well-represented during our vendor briefings and seen as an important part of the portfolio of services as organizations move from legacy data centers into hybrid digital business platforms. 4

Cloud is an important enabler for digital business initiatives. As per the 2016 Gartner CIO Survey, 16% of revenue was digital (22% as per Gartner's CEO Survey), which is expected to grow to 37% in the next few years. This will mean increased dependence on cloud and hybrid infrastructure management initiatives. For this reason, we have extended the scope of our traditional DCO/IUS Magic Quadrant to hybrid infrastructure services management capabilities. This Magic Quadrant coverage will be further expanded in upcoming years to cover edge computing, IoT support, intelligent services and relevant critical capabilities.

In addition to this, the data center service market, when cloud-enabled, can offer price points as much as 50% lower than clients' internal or traditionally outsourced costs. It is reducing the unit price of outsourced and cloud data center infrastructure services by more than 10% per year. 5 Infrastructure costs make up about 55% of the average IT budget, 6 with most of this coming from data center services (24% of the whole IT budget). Therefore, Gartner's Magic Quadrant analysis offers must-have support for informed decisions on how to spend a large portion of the IT budget and transform from legacy data centers into the required hybrid IT infrastructure.

This Magic Quadrant assesses the Ability to Execute and Completeness of Vision of 16 DCO, IUS and managed virtual private and public cloud providers. This information and analysis can help sourcing and vendor management managers involved in procuring infrastructure services, CIOs, and infrastructure and operations managers, select a provider for mid- and long-term DCO and IUS contracts that support critical functions and business objectives with a Pan-European set of capabilities.

Sourcing and vendor management executives and CIOs looking for truly worldwide service provision can leverage Gartner's three regional Magic Quadrants, which together cover almost the entire globe. These documents are produced with a single methodology by joined-up research teams. Therefore, for a true global view, refer also to the most recent versions of our "Magic Quadrant for Data Center Outsourcing and Infrastructure Utility Services, North America" and "Magic Quadrant for Data Center Outsourcing and Infrastructure Utility Services, Asia/Pacific."

Evaluate Gartner's Vendor Positioning to Find Candidates That Meet Your Specific Requirements

Gartner's positioning of the vendors does not imply that clients should simply select service providers in the Leaders quadrant. Selection requirements are enterprise-specific, and vendors in the Challengers, Visionaries or Niche Players quadrants may prove more appropriate for a particular engagement. Each provider will have a different sweet spot that reflects the types of deals in which it excels, its culture and industry coverage, and the maturity of its service provision. In addition, the online features of this Magic Quadrant enable users to tailor evaluation weights for further analysis based on the aspects that are most important to their organization.

Clients should not disqualify a provider simply because it is not in this Magic Quadrant. Gartner's inclusion criteria results in our analyzing the most established providers in the infrastructure services market, but other IT service 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 sweet-spot analysis of candidates.

Market Overview

During 2016, the collective estimated revenue of the providers in this Magic Quadrant reported an increase of almost $800 million compared to 2015. This average revenue growth of 4.3% brought the revenue covered by this Magic Quadrant to $19.480 billion. This revenue is 62% of the Gartner forecast of $31.195 billion for data center outsourcing and infrastructure utility services for Europe (see "Forecast: IT Services, Worldwide, 2015-2021, 1Q17 Update" ). It is 40% of the whole data center services market, plus the cloud infrastructure-as-a-service market, in Europe (that is $48.322 billion in 2016).

Our analysis shows a healthy double-digit growth rate among half of the providers in Europe and single-digit growth for another third. Only five providers lost their revenue share in the market, and most of them are traditional and large providers. Providers have, therefore, shown a visible improvement in managing their revenue growth with respect to the previous year. The number of loss-making providers came down, and we see, despite strong cannibalization due to industrialized services and automation, an overall improvement in revenue and a small improvement in margin. 7

The worldwide market for data center services — including DCO, IUS, hosting colocation and cloud IaaS — remains the largest segment of the ITO market. 8 The European market is dominated by DCO/IUS at 65%, and, as the economy remains flat, more businesses are migrating to IUS and cloud services to increase their international competitiveness and lower their IT costs. As per our analysis on the data supplied by providers, more than two-thirds of the providers (81%) reported a decline in revenue per server during 2016. This is caused by the increased level of automation, price cannibalization and market-focused pricing due to increased competition from fast-growing players like the offshore outsourcers and cloud-based providers. We are also seeing a gradual decline in traditional DCO services, and the share of industrialized services continues to increase. As per our latest IT services forecast data, data center outsourcing and infrastructure utility cover 49% of the global data center services market, while hosting, colocation and cloud IaaS cover 61%. Nevertheless, the split between DCO/IUS and hosting/colocation/IaaS is unevenly distributed: DCO/IUS represents 65% of the European market, 32% of the North American market and 61% in the rest of world. While the shift is gradually increasing, many CIOs are reconsidering data center build-out and expansion projects in favor of cloud computing and hybrid infrastructures. Some are looking to become "data center free" (or as close as is reasonably possible) by the end of the decade, while some hyperscale players redefine the data center services market, and clients are massively moving into cloud-first sourcing strategies. 9

The global data center services market (including DCO, hosting, colocation, IaaS and IUS) was $155.3 billion in 2016, including $25.2 billion from cloud IaaS services. Of that total, Europe contributed around $48.3 billion, of which $5.2 billion was for cloud IaaS. In 2016, the DCO/IUS market came to $76.3 billion worldwide and $31.2 billion in Europe. (It is important to note that rapid fluctuations of the exchange rate between the U.S. dollar and the euro may alter market forecasts more than industry trends.)

Collectively, the providers represented in this Magic Quadrant generated European revenue estimated at around $19.3 billion, which is approximately 40% of the entire European data center services and cloud IaaS market and 62% of the European DCO/IUS market (see "Forecast: IT Services, Worldwide, 2015-2021, 1Q17 Update" for more detail about the geographical distribution of the data center managed services market and a detailed country-by-country and service category analysis).

Gartner predicts that the key business indicators of data center service providers will further improve during the next five years, making them a more competitive outsourcing choice. Growth in data center services has shifted from traditional to new models. This reflects a shift in competitive delivery models and the rapid increase in automation to replace labor for the more repetitive tasks, which in some cases, is managing more than 60% of issues in a totally automated fashion. Automation is enabling providers to be more competitive and to commit to improved operational efficiency parameters. Providers are taking advantage of this by creating and delivering low-cost, industrialized IUS and by producing higher numbers of new offerings such as cloud IaaS and PaaS. Additionally, they are managing the hybrid platform from an end-to-end perspective, thanks to investment in tools, processes and automation.

Increasingly Gartner analysts are providing critical information about providers' performance to enable faster and more precise selection of providers for global infrastructure management, like the information provided about cloud migration and skills capabilities in "Hybrid IT Infrastructure Management and Cloud Migrations: Top Providers' Strengths and Weaknesses." Another example is the complete visibility of providers' performances across nine major critical capabilities in "Leverage the Results of 300 Gartner Reference Checks to Fine-Tune Your Selection of Hybrid Infrastructure Service Providers." In the course of 2018, Gartner will also be publishing a critical capability analysis for data center outsourcing and infrastructure utility services.

Growing Demand and Supply-Side Pressures Are Shaping the ITO Market

In response to a still-challenging economic and political environment in Europe 10 and increasing service industrialization and automation, clients are looking for ways to optimize their IT run costs so they can do more with less. During this year's Magic Quadrant, the client reference survey revealed that IUS and virtual private cloud are the most preferred among clients that are evolving from traditional in-house data centers and hosting solutions. At the same time, public cloud is still below the 10% mark. 11

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. They are increasingly required to also reduce the cost of application operations and, in some cases, application maintenance. 12

During this year's Magic Quadrant, we saw an increased desire from providers to articulate outcome and value from their services and an ability to make outcome-based commitments.

These pressures are challenging providers' ability to scale and grow. 13 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 depend on their ability to:

  • Create and deliver high-volume, lower-priced industrialized services such as IUS and industrialized low-cost services. 14

  • Become highly specialized in delivering low-volume, high-margin infrastructure services, which may become the de facto standard for specific sectors over time.

  • Embed infrastructure services into specialized intellectual-property-based industry solutions that look beyond pure IT value and IT performance (such as SaaS and business process as a service).

  • Bundle all of these services into the hybrid cloud brokerage and aggregation and the multisourcing service integration and management (SIAM) value propositions that are pursued by nearly all providers in the market.

These value-added services could reduce pressure on pricing and margins by driving a higher potential price premium. 15 Buyers should expect providers to articulate the value and demonstrate how the providers will pass the same back to customers. We are seeing increasing eagerness from providers to articulate the outcome and benefits in dollar terms and bake them into contracts. However, this is still evolving, and providers are at different levels of maturity in terms of their ability to articulate this value.

The forces affecting the market also affect organizations' data center requirements and the way ESPs design, offer and deliver data center solutions and services. Increased storage capacity requirements and the prevalence of high-density computing technologies, plus the pressure to cope with rising energy costs, respond to environmental concerns, and consolidate for greater efficiency and security, reveal the limitations of previous generations' physical data centers.

At the same time, many organizations must improve their internal IT management to meet heightened service requirements. As a result, Europe's data center infrastructure outsourcing market in 2016 is characterized by increasing consolidation, global delivery, the continued rise of industrialization and the need to act as "IT as a broker." An example of consolidation is the 4 May 2017 announcement of IBM's purchase of Verizon's cloud and managed hosting service business. This shows how the larger-scale providers (typically positioned in this Magic Quadrant) can potentially absorb the smaller hosting and cloud providers. These factors will lead to further acceleration of change in this market and improved capabilities of the winning service providers. 16

Gartner forecasts that the whole DCO/IUS market will show limited growth on a global basis (+1.7% between 2016 and 2021). We anticipate ongoing pressure on DCO (down 5.3% from 2016 to 2021) and IUS growth (up 14% from 2016 to 2021) as demand grows for external management of clients' dedicated, on-premises private cloud environment. External asset-light delivery of highly automated managed services will also impact these numbers. Managed units are increasing rapidly (growth in the number of managed servers was around 25% compared with the previous year), while strong price pressure is reducing the revenue per managed server. This is mostly due to the transition of client workloads to IaaS and IUS delivery models, increased automation and public cloud competitive effect.

How the European DCO/IUS Market Is Different

Hosting represents approximately 45% of the data center services market in North America, but only about 25% of the same market in Europe. 17 The different countries and languages across Europe have so far inhibited the growth of hosting companies and internet providers, resulting in a DCO-dominated market. Europe's country-based nature and the limited public cloud computing successes of Pan-European customers are limiting the uptake of public cloud services.

Europeans still mostly use cloud solutions from North American providers that largely follow a U.S.-centric strategy. When these providers are setting up or expanding local cloud facilities in Europe, they tend to focus on locations such as Amsterdam (the Netherlands), Frankfurt (Germany), London (the U.K.) and Dublin (Ireland). The potential rise of modern, cloud-based service offerings in local markets in Europe is likely to challenge them. Some of these hosting companies are increasing their focus on managed services, IUS and DCO and are approaching the inclusion criteria for this Magic Quadrant.

Faced with new offerings and sourcing options, 18 European clients are starting to show increased willingness to accept the provision of consolidated European data centers, which are not necessarily located in a specific country. While movement away from globalization (Brexit, for example) may change requirements again going forward, we have based the selection criteria for this Magic Quadrant on a country-by-country analysis that is structured around regions and subregions in Western and Eastern Europe.

The rise of Indian providers in this market signals another delivery model for data center managed services. This model is more asset-light and based on remote managed services. To factor in this model, we have clarified our inclusion criteria (see the Market Definition/Description section that discusses RIM-based services) to include providers that engage in bundled DCO relationships while managing third-party-owned and client-owned data centers. We have, therefore, removed the requirement for ownership of a data center estate.

The 16 providers represented in this Magic Quadrant have a combined revenue of roughly $19.5 billion from DCO services and manage more than 700 data centers across Europe. Roughly 30% of data centers are at the providers' own sites, and the rest are at client sites or are leased from third parties. Together, these providers manage more than 2 million mainframe MIPS and more than 2.5 million servers, of which roughly 75% are virtual servers.

The "average service provider" in this Magic Quadrant generates more than $1.1 billion from this line of business, manages more than 150,000 servers and manages nearly 42 data centers in Europe. 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, and 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 autonomics, software-defined data centers, asset-light service models (such as RIM from Indian offshore providers), asset-intensive IUS and cloud IaaS services has further complicated the data center services market during the past few years. We see that hybrid infrastructure services will dominate the market for the foreseeable future. This market now includes several types of providers, including traditional vendors, outsourcers, system integrators, offshore players, telecom companies, hosting players and cloud specialists. Legacy modernization and managed security services will continue to gain traction from both the demand side and the supply side. Workload transition from traditional to cloud-based environments will continue to drive the bulk of the requirements.

We recommend that customers evaluate their requirements for their data center services strategy and their application modernization and digital innovation needs, and factor this into a bimodal adaptive sourcing strategy (see "Business Outcomes, Differentiation and Performance Drive Bimodal Adaptive Sourcing Decisions" ). Leverage our "Toolkit: Decision-Making Model for Data Center Service Sourcing Strategy" to determine the best scenario for your data center services. Finally, use "Toolkit: How to Document Your IT Services Sourcing Strategy for Success, Consensus and Compliance" to document your sourcing decisions. To expand your decision analysis into the complex realm of cloud-first strategies, we also recommend you leverage next-generation tools (dynamic workbooks and checklists) as discussed in Applying a 'Cloud-First' Checklist to Ensure Successful Sourcing and Business-IT Alignment and "Leverage Checklists to Beat Outsourcing Challenges With Vendor Ecosystems."

In a very large, complex and fast-moving data center services marketplace, best practice is actually to evaluate more scenarios than providers, avoid "big bang" deals, and adopt a test-and-pilot approach on a shortlist of providers able to support bimodal requirements. 19

Contact Gartner analysts to get additional information and help to identify the shortlist of providers that can provide the required fit for your data center requirements.

Evidence

1 Gartner analysts collect a relevant amount of quantitative information about each provider for this Magic Quadrant. They do this directly (more than 1,000 data points per provider), through providers' references (more than 300 references globally, with more than 700 data points for each reference), and via Gartner client inquiries. Providers are asked factual information about managed data centers, assets, revenue, and other business and technical measures. When a provider will not disclose information or references, Gartner analysts rely on public, customer and Gartner's own research information to make appropriate estimates. During this study, a total of 118 European references were interviewed or surveyed for more than 700 data points per average provider. Gartner analysts also regularly interact with these providers' customers during inquiries, in conversations that most often focused on problems that need to be solved.

2 See the concept of using a deal "sweet spot" analysis and the related Market Guide for Asia that uses this framework to summarize the positioning of providers' capabilities and offerings (see "Deal 'Sweet Spot' Analysis Accelerates Service Provider Evaluation and Selection" and "Market Guide for Regional IT Infrastructure Service Providers, Asia/Pacific" ).

3 See Figure 9: Technology Investments in "2017 CIO Agenda: Global Perspectives on Seizing the Digital Ecosystem Opportunity."

4 See Figure 10: Most Disruptive Technologies in "2017 CIO Agenda: Global Perspectives on Seizing the Digital Ecosystem Opportunity."

5 "How to Leverage Industrialized 'Low-Cost' Market Prices to Optimize Your Data Center Infrastructure Service Cost."

6 "IT Key Metrics Data 2017: Executive Summary."

7 "Market Opportunity Map: IT Services, Worldwide."

8 The worldwide IT services market is forecast to grow at a 4.4% compound annual growth rate (CAGR) in U.S. dollars through 2021, or 4.9% in constant currency. This ranges from a 29.2% CAGR for public cloud compute services to a 4.5% decline for data center outsourcing, in constant currency (see "Forecast: IT Services, Worldwide, 2015-2021, 1Q17 Update" ).

9 A multicloud strategy will become the common strategy for 70% of enterprises by 2019, up from less than 10% today (see "The Future of the Data Center in the Cloud Era" ).

10 "How Buyers of IT Services Can Plan for Brexit Uncertainty."

11 The Magic Quadrant client reference survey's 118 references noted their preferred means of delivery as follows: IUS and virtual private cloud (32.89%), in-house (32.31%), hosting and colocation (26.15%), and public cloud (IaaS/PaaS; 8.66%).

12 "CIOs Can Save by Using Sourcing and Market Trends to Optimize Application Costs."

13 "Market Trends: Data Center Management Services Value Proposition Requires Reinvention."

14 The rise of low-cost, cloud-computing-based services presents significant opportunities and risks for clients and providers (see "Leverage Decreasing Unit Prices to Enable Digital Business Success" ).

15 "Performance Roadmap: Best Practices for Shaping Service Provider Business Strategy for IaaS."

16 "How Key Trends in the Data Center Infrastructure Outsourcing Market Will Affect Your Business."

17 "Forecast: IT Services, Worldwide, 2013-2021, 1Q16 Update."

18 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."

19 "Technology Service Providers Must Implement a Bimodal Roadmap or Risk Irrelevance and Decline."

Note 1
Hybrid IT Services

Hybrid IT services are professional services that provide cloud service brokerage (CSB), multisourcing, and service integration and management capabilities to customers building and managing an integrated hybrid IT operational model.

Hybrid IT is the operational model for an IT organization that is a trusted broker for a broad range of IT services (including services from external cloud providers and from their own enterprise), using both cloud computing styles (private, public and hybrid) and traditional styles of computing.

Evaluation Criteria Definitions

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.