As AWS dominates, Rackspace grows, and IBM, Microsoft and Cisco arrive by year end, does Australia need a sixth global IaaS provider

AWS currently is the dominant provider of IaaS in Australia from a revenue, perception and capability perspective. Its connection with the market has been nothing short of extraordinary. In a recent capioIT client meeting, we saw a client looking as if the weight of the world had been lifted from his shoulders. The simple reason, his board had finally approved use of AWS. Not the cloud, not IaaS, but AWS.

He is not alone. Virtually every major private sector organisation in Australia, and an increasing number of public sector authorities and agencies that we meet with are at the minimum considering AWS and IaaS for many and varied workloads. Of course Rackspace has been in Australia for longer than AWS, and has had success, albeit constrained at times as it pursues a different service model to AWS.

Not surprisingly, the public and hybrid cloud provider market has long noted the geographic, compliance, security and business benefits of locating data centres in Australia. The investment in Australia by global IaaS providers is accelerating at a rapid rate.

By the end of 2014, IBM IaaS subsidiary SoftLayer would have opened two locations in Sydney and Melbourne, Microsoft Azure will be up and running and the Cisco Intercloud run data centre that Telstra is building will be also operational.

As a result by Christmas, Australia will have five global cloud and IaaS providers. This is not even considering the smaller Australian providers, (who typical to Australian enterprise and government IT) is playing a secondary competitive role, as well as traditional IT Services providers such as Dell, HP and Fujitsu who have missed the market significantly. Dell has talked about building a data centre in Australia for approximately 3 years without an announcement let alone turning over a shovel of dirt.

Public and private sector organisations in Australia will adopt a hybrid cloud model, private clouds and even traditional outsourcing models are not disappearing. What this committed investment does mean is that the opportunity for latecomers to the market is increasingly limited.

The question becomes one to understand if there is an opportunity for Google to offer compute services with a local data centre, or to rely upon Taiwan and Singapore or the US as locations. Similarly VMware have announced a Japanese location to complement the UK and US, but are considering Australia without committing publically to a timeframe.

The bottom line is that the market is increasingly crowded. capioIT believes that long term there is only room for 4 global IaaS providers. AWS will be one, Microsoft Azure most likely another and the rest will have to fight it out or consolidate. Australia may be an early location for the fever pitch battle for the future of IaaS. We will watch with some excitement from the sideline.

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IBM and Apple – Enabling the Individual Enterprise

Much has been written about the announcement by IBM and Apple around their announcement of a partnership to increase enterprise mobility outcomes for organisations of varied size, industry and geography. Clearly it is seen as a positive move for both organisations and if executed upon will transform enterprise mobility.

Three points that have been missed by many commentators are critical.

The first is execution. All partnerships only show value when the parties are able to execute for real clients and this is no exception. If the partnership is simply a signed photo-op between Armonk and Cupertino then it is simply a hollow announcement. What will matter is how Apple and IBM execute the relationship on the ground in all the territories that it operates from Sydney to Santiago, Singapore and Shanghai. Local subsidiary politics and culture will need to be pushed to the side to allow clients to benefit from an integrated localised execution.
The second point relates to the apparent shock that IBM and Apple are working together on the basis of a Super Bowl advertisement that ran in 1984. Corporate antagonism may linger, but deals and pragmatism rule organisations such as IBM and Apple. A two second web search will inform that the two firms have actually worked in a client/provider basis for several years. Until recently selling off its Call Centre BPO business, IBM provided call centre support for Apple customers in the Asia Pacific region.
Third is the vision.

Clearly Apple brings the device and usability. IBM brings the enterprise and analytics. The ability to put the full power of organisational information in the hands of a democratised level of employees and users is where the two firms hope that the “Individual Enterprise” will be created. Faster and more accurate business decisions, collaboration, and organisational “hustle” is the potential outcome.

If this can be executed at the client and market level then the real value can be created for organisations. If it is built, structured and contracted by head office then it will be another case of potentially revolutionary technology partnerships dying as a result the typical technology dysfunction. The answer lies with Apple and IBM

 

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Tata Consultancy Services market cap exceeds a combined Xerox, CGI, Unisys, Capgemini, Fujitsu and CSC with $10 Billion left over

Whilst capioIT has written recently that the Indian vendors are as much legacy IT services providers as IBM, Accenture, CGI or Capgemini, their market capitalisation does not reflect this. If one believes the market is rational (or at least consistently irrational), the future is being bet on the Tata Consultancy Services model ahead of the traditional legacy firm.

This market hype and arguable value inflation of Indian vendors is no longer at the level of the “as a service” or cloud vendors (see – A tale of two companies – Workday and Unisys show the gulf between as a service vendors and the legacy providers) but it is still incredibly significant. Nothing highlights this better than a comparison of TCS with Xerox, CGI, Unisys, Capgemini, Fujitsu and CSC.

Between them these legacy vendors have revenue of approximately $80 billion dollars. TCS has a revenue of just over $10 billion dollars. It would be reasonable to expect that these organisations combined market capitalisation would dwarf that of TCS. 

If so, the following chart may surprise somewhat.

Legacy Vendor Market Cap vs TCSIf you have not interpreted this correctly,  TCS market capitalisation (as at June, 2014) monsters the other vendors in the analysis to the extent that TCS overwhelms them all with $10 billion left. If nothing else this reinforces the ability of TCS to explore new markets but equally highlights the inability of the legacy vendors to reform their business in any meaningful way. The most poorly valued vendor is Fujitsu which does not surprise at all.

Bottom Line

Clearly TCS needs to transform the customer engagement model and focus more significantly on asset based services and breaking the revenue to headcount trap it is in. The market clearly thinks that this challenge is much smaller than the one that faces the legacy and pure-play services vendors. It reinforces how vulnerable the likes of Capgemini and CSC will be to acquisition as the market inevitably consolidates. 

 

 

 

 

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A tale of two companies – Workday and Unisys show the gulf between as a service vendors and the legacy providers

We all know that the IT vendor community is undergoing an unprecedented transformation. Right now, “as a Service” based vendors are the clear long-term winners in the disruption caused primarily by cloud, but also by the rest of the SMAC’D gang (Social, Mobility, Analytics, Cloud bound by digital transformation), and the inability of traditional IT vendors and buyers to maximise the value of technology.

This is clear in their ability to draw crowds to their customer forums, (Dreamforce, AWS re-invent are just two examples) interest from media, analysts and the way in which “as a service” providers have been embraced by the non IT technology buyer.

The fear that they instill in the legacy vendors when the legacies try to compete on function and the “cool” factor could not be more clear. What is clear is that the share market has placed a premium on these vendors just as it did on the Internet vendors leading up to 2000. Clearly the question is: Are we in an unsustainable bubble? The jury is still out on the sustainability aspect. Many of the early innovators of the SaaS and IaaS market will maintain and enhance leadership (salesforce.com, AWS as the prime cases), but others will rise and deflate quickly as the market realises that for many individual firms there is less substance and more hype.

When one looks at equity market valuations it is clear that the legacy vendor is being treated as the poorer cousin in the tech stock market environment.

Perhaps no two firms shows this more starkly than Workday and Unisys. 

Unisys can date establishment  in 1886. Over it’s history it has merged and acquired, risen and fallen, transformed markets and lagged behind. In 1986 when it was formed with the merger of Sperry and Burroughs it had over US$10B in revenue and 120,000 employees. Clearly those glory days are behind it, but it does still maintain a profitable business and loyal customers and employees.

Workday was formed in 2005. Whilst it has only had a history less than 10 years, it has also acquired, risen and transformed markets. It has not had the time to fall or lag ….

What is stunning is to compare the way in which the share market has valued these two firms. Nothing shows it better than the following simple comparison.

Unisys has revenue seven times that of Workday, makes a profit, albeit on a narrow margin, yet is valued at approximately 7.6% of Workday. 

One can reasonably argue that the share market is irrational, perhaps it is, but nothing more clearly highlights the unshakeable belief that the legacy vendors will rapidly struggle to survive and the rise of the “as a service” provider. Another way to consider the shift is to take the perspective of the start-up and emerging organisation of today. Does a start-up look to the likes of Unisys, Fujitsu and HP for advice and technology capability or does it look to Workday, salesforce.com or Bluewolf. The answer is increasingly clear. Do you go to your parents for fashion advice?

Bottom Line

If you are a legacy vendor you need to change. Look around, the majority of your legacy vendor peers will fall off the radar in the next 5 years unless they can transform radically. The “as a service” vendors may benefit from an irrational market, but they are the model of the future. 

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capioIT June Newsletter – Read about Thong wearing Tech, EMC, CIO, cloud, cisco and more

Attached is some of the content from the capioIT newsletter for June. To sign up for the full and free newsletter please check in here – http://www.capioit.com/#!mailing-list-sign-up/cawx

What’s News

June has rapidly come around. For many there is only a month to decide if the first half of 2014 has been good business wise, or if it has provided an overly challenging environment. I hope that your company will have a good first half to 2014 that accelerates through the year.

Having long promoted ASEAN as one of the hottest global markets, the recent coup in Thailand was a disappointing setback. capioIT believes that it will have a disruptive influence on the Thai market for at least the next two years. We have scaled back expectations and forecasts accordingly. At this point in time there will be limited ASEAN impacts.

Michael Harte has now left his role as CIO of the Commonwealth Bank of Australia. He helped redefine technology at the CBA and made it a differentiated leader in the overall Australian market, and the Asia Pacific Financial Services space from a technology point of view. The challenge and opportunity for the CBA is to come up with a new generation CIO focused on accelerating a digital, analytics and governance play, not one focused on delivery of more of the same.

In May I attended the global customer events of two of the largest legacy vendors, EMC and Cisco. What was clear to me is that legacy vendors typically are not setting the agenda for the future of technology, rather they have to react to a macro agenda set by others.

Furthermore they are struggling to identify how to best align with non-traditional technology buyers. At these events, it is still more common to see people wearing flip-flops (or thongs for Australians. I don’t want to frighten readers with images of the average Storage System Admin in a thong) and Star Wars t-shirts than a suit and tie. Creating and maintaining relevancy to the two audiences will take a significant amount of time and investment. Not all the legacy vendors will succeed. In terms of the strategies of EMC and Cisco, both are achievable but rely on execution internally, by partners and by customers.

Thanks for taking the time to continue to read the newsletter. We have linked to some of our key content for the month. As always, please let us know if there is any way we can support you and your business requirements, and please provide us with feedback on the newsletter to Phil Hassey.

 

Capture Snapshots….

 

Short insights from May

  • Advanced analytics providers are too slow in their investments in Asia. We hope that emerging vendors accelerate investment or even better, local alternatives are created.
  • Several Queensland based public and private sector based organisations are increasingly frustrated by the near absolute focus on data centres in Sydney and Melbourne. Parochialism is alive and well. Australia is not unique in this regard.
  • The DSSD acquisition by EMC highlights the pace of innovation required by legacy IT just to keep up. DSSD has no product but can provide it quicker than EMC can.
  • EMC showcased the Vatican Library at EMCWorld. That is a perfect combination of big and old data.
  • Intercloud was a key Cisco announcement at the global Cisco Live event. It was excellent to see a strong APAC and emerging market focus in the initial partner roll out.
  • Between Intercloud and the Internet of Things, APAC is key for Cisco’s future.
  • Legacy vendors are really struggling with the transition. Whilst the pressures of Wall Street are unrelenting, the strategy of cutting costs to make money is unsustainable and will lead to increased failure. Growth needs investment not cutbacks
  • Cloud and subscription pricing are related but not interchangeable. Both buyers and vendors regularly confuse this.
  • It appears Indian based services orgs have badly missed cloud services opportunity. For now they are merely one of the legacy providers
  • It is clear that the shift to cloud is like a season of Game of Thrones. Key Characters at the start won’t make the end, the end players won’t be recognizable
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Indian Services Providers Fall from Disrupter to Legacy – Next Step Consolidation

Individually and collectively, Tata Consultancy Services, Infosys, Wipro, HCL, Cognizant and others unmistakably revolutionalised the IT services marketplace. Most visibly this was through leveraging India and other offshore locations. Equally importantly was their focus on, and strength in, process and customer service improvements. This forced legacy vendors such as IBM, Capgemini, Accenture et al, to change rapidly to slow their revenue and reputational erosion.

Unfortunately for the Indian based providers, their competitive edge has been eroded by factors including, the replicability of scaling in India, the cost and HR limitations of the model and a can’t beat them, join them, mentality by legacy vendors.

capioIT believes that Indian providers have failed to continue to drive market disruption. In an “as a service” world, growth for IT and business services providers is not through leveraging geographic cost differentials, rather through the automation of services, in the form of the development of services assets and IP based solutions.

As capioIT has noted, the shift by services providers away from the drug of offshore labour arbitrage to IP based solutions has proved difficult to execute on for all services providers. Indian based organisations have not avoided this under-performance. Highlighting this is Infosys who stated a grand ambition in 2012 for asset based services. Unfortunately, noting the proportionate decline in revenues from asset and IP based services, earlier this month it decided to spin off its asset based business into “Edgeverve Systems”. If Infosys was able to execute effectively on market changes, the legacy people based business should have been spun off, not the assets.

One of the real indicators of how much of a legacy the likes of Infosys, Wipro have become is their inability to differentiate in customers eyes in terms of cloud, both from an IaaS and SaaS services perspective.  For example, none of the Indian providers have excessively compelling capabilities in salesforce.com service provision and integration. Now they share this challenge with fellow legacy vendors such as CSC, HP et al.

Bottom Line

Whilst in general  current revenue growth is solid, fundamentally the Indian providers have lost their unique differentiation both individually and collectively. Where do they go from here? Unfortunately for many of them, they are going to have to consider the same outcomes as the legacy services  vendors, as they fail to reinvent themselves very quickly they will have to consider mergers as a realistic survival option.

I do not believe that by the end of 2015 all the big five Indian firms will be in their current ownership structure. Whilst it is difficult, and not always helpful to speculate, one can gain pointers from the partnership between CSC and HCL. The complementary nature of this and executive interlock gives to the reasonable conclusion that it is a flagging of a potential merger between the two organisations in the not too distant future.

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capioIT May Newsletter

Attached is some of the content from the capioIT newsletter for May. To sign up for the full and free newsletter please check in here – http://www.capioit.com/#!mailing-list-sign-up/cawx

 

The year appears to be accelerating rapidly. It is hard to believe that we have now started May. Firstly, a big thank you for the feedback from the March and April newsletters. The direct input and feedback is greatly and genuinely appreciated.

 

It was exciting to see positive news coming out from Papua New Guinea in the last month. It is one of the most economically and socially marginalized markets globally. The bright news was two-fold.

  • ExxonMobil commenced operations on its gas fields in the Southern Highlands significantly boosting the economy
  • As far as capioIT is aware, the largest domestic IT deal in the country’s history was signed.

Whilst the market will never be a China, it is important to see some growth and investment in PNG to drive economic prosperity and stability.

 

As mentioned in the last note, April was noteworthy for the elections in India and Indonesia. The Indonesian elections were completed and results will be announced later this month. It seems that the party of former president Megawati Sukarnoputri will be the lead player in the inevitable coalition.

As befits the world’s largest democracy, the Indian elections are still ongoing ….

 

This month I spoke with 3 different analytics and data power users within a leading Asia Pacific Telco. Sadly, it was not surprising that they were all using unique data sets and analytical tools whilst claiming they were to “drive business efficiency”. This reinforces that requirements for organisational standards and integration has not been resolved. The result of adding big data expectations is only going to reinforce the shortcomings of existing investments. The real future role of IT is to integrate and provide common links across platforms to ensure data quality, governance and usability requirements are met.

Legacy vendors are in long term trouble and only few have an executable long term vision to realize it. Five years ago IBM, HP et al could not have foreseen that the humble bookseller from Seattle would be their greatest threat to their position as mega vendors and the benchmark for IT. In mature cloud markets such as Australia, the US, UK etc, a majority of shortlisting projects will seek to include IaaS providers such as AWS. Not all will include vendors such as CSC, Fujitsu, IBM etc. The same is for CRM now, and an emerging range of solutions. What makes this incredible is that the revenue of AWS is approximately 4% of that of IBM.

 

Thanks for taking the time to continue to read the newsletter. We have linked to some of our key content for the month. As always, please let us know if there is any way we can support you and your business requirements, and please provide us with feedback on the newsletter.

 

 

  • A key challenge for organisations – Data is increasing exponentially, investment in data governance, compliance and quality is lagging badly. This will lead to significant negative outcomes
  • Change management is the issue that unites organisational challenges with all forms of cloud deployment, but particularly IaaS and SaaS. The change management investment and focus must increase.
  • GE is the only Dow Jones Industrial Average firm that has been a member of this elite group since inception in 1896. It proves innovation and culture outlives individual contributions
  • Leveraging Watson, IBM Is increasing the focus on analytics at the endpoint. The ambition is to connect an agnostic device with real business outcomes.
  • It is difficult to think of a company that has disrupted as many Fortune 500 firms than Amazon. From Walmart and IBM down it has left its mark.
  • Highlighting the new world of technology services providers, Cloudsherpas had more salesforce.com solutions roles open than IBM, Accenture and Infosys combined in April

 

 

 

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