Prepare for an Explosion in IT Services Spend

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2024 and 2025 are looking good for IT services providers – particularly in Asia Pacific. All types of providers – from IT consultants to managed services VARs and systems integrators – will benefit from a few converging events.

However, amidst increasing demand, service providers are also challenged with cost control measures imposed in organisations – and this is heightened by the challenge of finding and retaining their best people as competition for skills intensifies. Providers that service mid-market clients might find it hard to compete and grow without significant process automation to compensate for the higher employee costs.

Why Organisations are Opting for IT Service

Choosing the Right Cost Model for IT Services

Buyers of IT services must implement strict cost-control measures and consider various approaches to align costs with business and customer outcomes, including different cost models:

Fixed-Price Contracts. These contracts set a firm price for the entire project or specific deliverables. Ideal when project scope is clear, they offer budget certainty upfront but demand detailed specifications, potentially leading to higher initial quotes due to the provider assuming more risk.

Time and Materials (T&M) Contracts with Caps. Payment is based on actual time and materials used, with negotiated caps to prevent budget overruns. Combining flexibility with cost predictability, this model offers some control over total expenses.

Performance-Based Pricing. Fees are tied to service provider performance, incentivising achievement of specific KPIs or milestones. This aligns provider interests with client goals, potentially resulting in cost savings and improved service quality.

Retainer Agreements with Scope Limits. Recurring fees are paid for ongoing services, with defined limits on work scope or hours within a given period. This arrangement ensures resource availability while containing expenses, particularly suitable for ongoing support services.

Other Strategies for Cost Efficiency and Effective Management

Technology leaders should also consider implementing some of the following strategies:

Phased Payments. Structuring payments in phases, tied to the completion of project milestones, helps manage cash flow and provides a financial incentive for the service provider to meet deadlines and deliverables. It also allows for regular financial reviews and adjustments if the project scope changes.

Cost Transparency and Itemisation. Detailed billing that itemises the costs of labour, materials, and other expenses provides transparency to verify charges, track spending against the budget, and identify areas for potential savings.

Volume Discounts and Negotiated Rates. Negotiating volume discounts or preferential rates for long-term or large-scale engagements, makes providers to offer reduced rates for a commitment to a certain volume of work or an extended contract duration.

Utilisation of Shared Services or Cloud Solutions. Opting for shared or cloud-based solutions where feasible, offers economies of scale and reduces the need for expensive, dedicated infrastructure and resources.

Regular Review and Adjustment. Conducting regular reviews of the services and expenses with the provider to ensure alignment with the budget and objectives, prepares organisations to adjust the scope, renegotiate terms, or implement cost-saving measures as needed.

Exit Strategy. Planning an exit strategy that include provisions for contract termination, transition services, protects an organisation in case the partnership needs to be dissolved.

Conclusion

Many businesses swing between insourcing and outsourcing technology capabilities – with the recent trend moving towards insourcing development and outsourcing infrastructure to the public cloud. But 2024 will see demand for all types of IT services across nearly every geography and industry. Tech services providers can bring significant value to your business – but improved management, monitoring, and governance will ensure that this value is delivered at a fair cost.

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Ecosystm VendorSphere: Red Hat’s Strategic Positioning

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At the end of last year, I had the privilege of attending a session organised by Red Hat where they shared their Asia Pacific roadmap with the tech analyst community. The company’s approach of providing a hybrid cloud application platform centred around OpenShift has worked well with clients who favour a hybrid cloud approach. Going forward, Red Hat is looking to build and expand their business around three product innovation focus areas. At the core is their platform engineering, flanked by focus areas on AI/ML and the Edge.

The Opportunities

Besides the product innovation focus, Red Hat is also looking into several emerging areas, where they’ve seen initial client success in 2023. While use cases such as operational resilience or edge lifecycle management are long-existing trends, carbon-aware workload scheduling may just have appeared over the horizon. But two others stood out for me with a potentially huge demand in 2024. 

GPU-as-a-Service. GPUaaS addresses a massive demand driven by the meteoric rise of Generative AI over the past 12 months. Any innovation that would allow customers a more flexible use of scarce and expensive resources such as GPUs can create an immediate opportunity and Red Hat might have a first mover and established base advantage. Particularly GPUaaS is an opportunity in fast growing markets, where cost and availability are strong inhibitors. 

Digital Sovereignty. Digital sovereignty has been a strong driver in some markets – for example in Indonesia, which has led to most cloud hyperscalers opening their data centres onshore over the past years. Yet not the least due to the geography of Indonesia, hybrid cloud remains an important consideration, where digital sovereignty needs to be managed across a diverse infrastructure. Other fast-growing markets have similar challenges and a strong drive for digital sovereignty. Crucially, Red Hat may well have an advantage where onshore hyperscalers are not yet available (for example in Malaysia). 

Strategic Focus Areas for Red Hat

Red Hat’s product innovation strategy is robust at its core, particularly in platform engineering, but needs more clarity at the periphery. They have already been addressing Edge use cases as an extension of their core platform, especially in the Automotive sector, establishing a solid foundation in this area. Their focus on AI/ML may be a bit more aspirational, as they are looking to not only AI-enable their core platform but also expand it into a platform to run AI workloads. AI may drive interest in hybrid cloud, but it will be in very specific use cases.  

For Red Hat to be successful in the AI space, it must steer away from competing straight out with the cloud-native AI platforms. They must identify the use cases where AI on hybrid cloud has a true advantage. Such use cases will mainly exist in industries with a strong Edge component, potentially also with a still heavy reliance on on-site data centres. Manufacturing is the prime example.  

Red Hat’s success in AI/ML use cases is tightly connected to their (continuing) success in Edge use cases, all build on the solid platform engineering foundation. 

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Transformative Integration: HPE’s Acquisition of Juniper Networks

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Hewlett Packard Enterprise (HPE) has entered into a definitive agreement to acquire Juniper Networks for USD 40 per share, totaling an equity value of about USD 14 Billion. This strategic move is aimed to enhance HPE’s portfolio by focusing on higher-growth solutions and reinforcing their high-margin networking business. HPE expects to double their networking business, positioning the combined entity as a leader in networking solutions. With the growing demand for secure, unified technology driven by AI and hybrid cloud trends, HPE aims to offer comprehensive, disruptive solutions that connect, protect, and analyse data from edge to cloud.

This would also be the organisation’s largest deal since becoming an independent company in 2015. The acquisition is expected to be completed by late 2024 or early 2025.

Ecosystm analysts Darian Bird and Richard Wilkins provide their insights on the HPE acquisition and its implications for the tech market.

Converging Networking and Security

One of the big drawcards for HPE is Juniper’s Mist AI. The networking vendors have been racing to catch up – both in capabilities and in marketing. The acquisition though will give HPE a leadership position in network visibility and manageability. With GreenLake and soon Mist AI, HPE will have a solid AIOps story across the entire infrastructure.

HPE has been working steadily towards becoming a player in the converged networking-security space. They integrated Silver Peak well to make a name for themselves in SD-WAN and last year acquiring Axis Security gave them the Zero Trust Network Access (ZTNA), Secure Web Gateway (SWG), and Cloud Access Security Broker (CASB) modules in the Secure Service Edge (SSE) stack. Bringing all of this to the market with Juniper’s networking prowess positions HPE as a formidable player, especially as the Secure Access Service Edge (SASE) market gains momentum.

As the market shifts towards converged SASE, there will only be more interest in the SD-WAN and SSE vendors. In just over one year, Cato Networks and Netskope have raised funds, Check Point acquired Perimeter 81, and Versa Networks has made noises about an IPO. The networking and security players are all figuring out how they can deliver a single-vendor SASE.

Although HPE’s strategic initiatives signal a robust market position, potential challenges arise from the overlap between Aruba and Juniper. However, the distinct focus on the edge and data center, respectively, may help alleviate these concerns. The acquisition also marks HPE’s foray into the telecom space, leveraging its earlier acquisition of Athonet and establishing a significant presence among service providers. This expansion enhances HPE’s overall market influence, posing a challenge to the long-standing dominance of Cisco.

The strategic acquisition of Juniper Networks by HPE can make a transformative leap in AIOps and Software-Defined Networking (SDN). There is a potential for this to establish a new benchmark in IT management.

AI in IT Operations Transformation

The integration of Mist’s AI-driven wireless solutions and HPE’s SDN is a paradigm shift in IT operations management and will help organisations transition from a reactive to a predictive and proactive model. Mist’s predictive analytics, coupled with HPE’s SDN capabilities, empower networks to dynamically adjust to user demands and environmental changes, ensuring optimal performance and user experience. Marvis, Mist’s Virtual Network Assistant (VNA), adds conversational troubleshooting capabilities, enhancing HPE’s network solutions. The integration envisions an IT ecosystem where Juniper’s AI augments HPE’s InfoSight, providing deeper insights into network behaviour, preemptive security measures, and more autonomous IT operations.

Transforming Cloud and Edge Computing

The incorporation of Juniper’s AI into HPE’s cloud and edge computing solutions promises a significant improvement in data processing and management. AI-driven load balancing and resource allocation mechanisms will significantly enhance multi-cloud environment efficiency, ensuring robust and seamless cloud services, particularly vital in IoT applications where real-time data processing is critical. This integration not only optimises cloud operations but also has the potential to align with HPE’s commitment to sustainability, showcasing how AI advancements can contribute to energy conservation.

In summary, HPE’s acquisition of Juniper Networks, and specifically the integration of the Mist AI platform, is a pivotal step towards an AI-driven, efficient, and predictive IT infrastructure. This can redefine the standards in AIOps and SDN, creating a future where IT systems are not only reactive but also intuitively adaptive to the evolving demands of the digital landscape.

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The Top 5 Cloud Trends for 2023 & Beyond

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Organisations in Asia Pacific are no longer only focused on employing a cloud-first strategy – they want to host the infrastructure and workloads where it makes the most sense; and expect a seamless integration across multiple cloud environments.

While cloud can provide the agile infrastructure that underpins application modernisation, innovative leaders recognise that it is only the first step on the path towards developing AI-powered organisations. The true value of cloud is in the data layer, unifying data around the network, making it securely available wherever it is needed, and infusing AI throughout the organisation.

Cloud provides a dynamic and powerful platform on which organisations can build AI. Pre-trained foundational models, pay-as-you-go graphics superclusters, and automated ML tools for citizen data scientists are now all accessible from the cloud even to start-ups.

Organisations should assess the data and AI capabilities of their cloud providers rather than just considering it an infrastructure replacement. Cloud providers should use native services or integrations to manage the data lifecycle from labelling to model development, and deployment.

In this Ecosystm Byte, sponsored by Oracle, Ecosystm Principal Advisor, Darian Bird presents the top 5 trends for Cloud in 2023 and beyond. Read on to find out more.

Download ‘The Top 5 Cloud Trends for 2023 & Beyond’ as a PDF

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Cloud Hyperscaler Growth Will Continue into the Foreseeable Future

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All growth must end eventually. But it is a brave person who will predict the end of growth for the public cloud hyperscalers. The hyperscaler cloud revenues have been growing at between 25-60% the past few years (off very different bases – and often including and counting different revenue streams). Even the current softening of economic spend we are seeing across many economies is only causing a slight slowdown. 

Cloud Revenue Patterns of Major Hyperscalers

Looking forward, we expect growth in public cloud infrastructure and platform spend to continue to decline in 2024, but to accelerate in 2025 and 2026 as businesses take advantage of new cloud services and capabilities. However, the sheer size of the market means that we will see slower growth going forward – but we forecast 2026 to see the highest revenue growth of any year since public cloud services were founded. 

The factors driving this growth include: 

  • Acceleration of digital intensity. As countries come out of their economic slowdowns and economic activity increases, so too will digital activity. And greater volumes of digital activity will require an increase in the capacity of cloud environments on which the applications and processes are hosted. 
  • Increased use of AI services. Businesses and AI service providers will need access to GPUs – and eventually, specialised AI chipsets – which will see cloud bills increase significantly. The extra data storage to drive the algorithms – and the increase in CPU required to deliver customised or personalised experiences that these algorithms will direct will also drive increased cloud usage. 
  • Further movement of applications from on-premises to cloud. Many organisations – particularly those in the Asia Pacific region – still have the majority of their applications and tech systems sitting in data centre environments. Over the next few years, more of these applications will move to hyperscalers.  
  • Edge applications moving to the cloud. As the public cloud giants improve their edge computing capabilities – in partnership with hardware providers, telcos, and a broader expansion of their own networks – there will be greater opportunity to move edge applications to public cloud environments. 
  • Increasing number of ISVs hosting on these platforms. The move from on-premise to cloud will drive some growth in hyperscaler revenues and activities – but the ISVs born in the cloud will also drive significant growth. SaaS and PaaS are typically seeing growth above the rates of IaaS – but are also drivers of the growth of cloud infrastructure services. 
  • Improving cloud marketplaces. Continuing on the topic of ISV partners, as the cloud hyperscalers make it easier and faster to find, buy, and integrate new services from their cloud marketplace, the adoption of cloud infrastructure services will continue to grow.  
  • New cloud services. No one has a crystal ball, and few people know what is being developed by Microsoft, AWS, Google, and the other cloud providers. New services will exist in the next few years that aren’t even being considered today. Perhaps Quantum Computing will start to see real business adoption? But these new services will help to drive growth – even if “legacy” cloud service adoption slows down or services are retired. 
Growth in Public Cloud Infrastructure and Platform Revenue

Hybrid Cloud Will Play an Important Role for Many Businesses 

Growth in hyperscalers doesn’t mean that the hybrid cloud will disappear. Many organisations will hit a natural “ceiling” for their public cloud services. Regulations, proximity, cost, volumes of data, and “gravity” will see some applications remain in data centres. However, businesses will want to manage, secure, transform, and modernise these applications at the same rate and use the same tools as their public cloud environments. Therefore, hybrid and private cloud will remain important elements of the overall cloud market. Their success will be the ability to integrate with and support public cloud environments.  

The future of cloud is big – but like all infrastructure and platforms, they are not a goal in themselves. It is what cloud is and will further enable businesses and customers which is exciting. As the rates of digitisation and digital intensity increase, the opportunities for the cloud infrastructure and platform providers will blossom. Sometimes they will be the driver of the growth, and other times they will just be supporting actors. But either way, in 2026 – 20 years after the birth of AWS – the growth in cloud services will be bigger than ever. 

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5 Actions to Achieve Your AI Ambitions​

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Ecosystm VendorSphere: Oracle CloudWorld Tour Singapore

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In November 2021 Ecosystm had said: “With their global expansion plans and targeted offerings to help enterprises achieve their transformation goals, Oracle is positioned well to claim a larger share of the cloud market. Their strength lies in the enterprise market, and their cloud  offerings should see them firmly entrenched in that segment.”

At the recently held Oracle CloudWorld Tour in Singapore, Oracle showcased their momentum in the enterprise segment first-hand. There are a number of reasons for this, and the customer and partner testimonials made it clear that Oracle’s vision is firmly aligned to what their customers require in the Asia Pacific region.  

Read on to find out what Ecosystm Advisors Darian Bird, Sash Mukherjee, Tim Sheedy and Ullrich Loeffler say about the announcements and messaging during the session.

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The Future of Business: 5 Ways IT Teams Can Help Unlock the Value of Data

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In the rush towards digital transformation, individual lines of business in organisations, have built up collections of unconnected systems, each generating a diversity of data. While these systems are suitable for rapidly launching services and are aimed at solving individual challenges, digital enterprises will need to take a platform approach to unlock the full value of the data they generate.

Data-driven enterprises can increase revenue and shift to higher margin offerings through personalisation tools, such as recommendation engines and dynamic pricing. Cost cutting can be achieved with predictive maintenance that relies on streaming sensor data integrated with external data sources. Increasingly, advanced organisations will monetise their integrated data by providing insights as a service.

Digital enterprises face new challenges – growing complexity, data explosion, and skills gap.

Here are 5 ways in which IT teams can mitigate these challenges.

  1. Data & AI projects must focus on data access. When the organisation can unify data and transmit it securely wherever it needs to, it will be ready to begin developing applications that utilise machine learning, deep learning, and AI.
  2. Transformation requires a hybrid cloud platform. Hybrid cloud provides the ability to place each workload in an environment that makes the most sense for the business, while still reaping the benefits of a unified platform.
  3. Application modernisation unlocks future value. The importance of delivering better experiences to internal and external stakeholders has not gone down; new experiences need modern applications.
  4. Data management needs to be unified and automated. Digital transformation initiatives result in ever-expanding technology estates and growing volumes of data that cannot be managed with manual processes.
  5. Cyber strategy should be Zero Trust – backed by the right technologies. Organisations have to build Digital Trust with privacy, protection, and compliance at the core. The Zero Trust strategy should be backed by automated identity governance, robust access and management policies, and least privilege.

Read below to find out more.

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The Future of the Digital Enterprise – India

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Organisations have had to transform and innovate to survive over the last two years. However, now when they look at their competitors, they see that everyone has innovated at about the same pace. The 7-year innovation cycle is history in today’s world – organisations need the right strategy and technologies to bring the time to market for innovations down to 1-2 years.

As they continue to innovate to stay ahead of the competition, here are 5 things organisations in India should keep in mind:

  • The drivers of innovation will shift rapidly and industry trends need to be monitored continually to adapt to these shifts.
  • Their biggest challenge in deploying Data & AI solutions will be identification of the right data for the right purpose – this will require a robust data architecture.
  • While customer experience gives them immediate and tangible benefits, employee experience is almost equally – if not more – important.
  • Cloud investments have helped build distributed enterprises – but streamlining investments needs a lot of focus now.
  • There is a misalignment between organisations’ overall awareness of growing cyber threats and risks and their responses to them. A new cyber approach is urgently needed.

More insights into the India tech market are below.

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