Service providers will continue to be impacted and influenced by, as well as compete with the large cloud services and IT infrastructure platform service providers to a large degree over the next five years. Until the rise of the cloud infrastructure and platform services (CIPS) provider, the specific architecture and/or platform of the service was often a differentiator. However now, every CIPS-oriented service provider starts with analogous platforms – providing little opportunity for differentiation.
As the COVID-19 pandemic continues to take hold of the world, the global expansion of large and well capitalized CIPS providers has recently got a boost from the growth of digital initiatives to support remote operations via SaaS, IaaS and PaaS. The speed of innovation of hyperscale cloud infrastructure and platform services has accelerated digitization in the space and this has changed the landscape considerably in a short space of time.
In the next five years, smaller technology and service providers (TSPs) must evolve by partnering, aligning, or innovating with these larger providers depending on their situation and expertise in order to survive.
The future of CIPS providers
Even before the coronavirus pandemic, large CIPS providers such as AWS, Alibaba Cloud, Microsoft Azure, IBM Cloud, Google Cloud Platform or Oracle Cloud have enabled new trends and directions across multiple industries with new offerings and regular functionality/service updates. Thanks to their global aspirations and reach, as well as their powerful brand loyalty these vendors innovate and differentiate themselves in a crowded market.
In 2019, the large CIPS providers held more than 90% of the CIPS market. Gartner expects the following assumptions to affect the industry:
- By 2025, 30% of TSPs will sell business outcomes rather than software/services, and 70% of underlying technology will provide built-in value measurement facilities
- By 2025, 90% of all software buying decisions for all enterprises will be made outside the IT organization by nontechnical C-level and business unit managers
- By 2025, 95% of the software application providers that consume cloud platform services as part of their product offerings will also market, sell and provision their offerings through cloud platform marketplaces
- By 2025, the top three cloud providers in the Western and the Eastern ecosystems will account for more than two-third of revenue in their respective hemispheres
- By 2023, more than half of the categories of technology products and services will be served by at least one global megavendor
Important choices to make
With large CIPS providers continuing to extend their standard cloud infrastructure offerings using emerging and advanced technologies, such as AI, blockchain and edge/IoT – other providers are finding it harder to differentiate their solutions solely on technology.
Large CIPS providers are able to dominate mainly due to their ability to innovate. TSPs must consider what strategic directions are most beneficial for keeping their company competitive and successful and take steps to survive or as the industry continues to consolidate, providers that don’t take those steps may face extinction.
Steps to growth
Those providers who are not CIPS-orientated must, to some degree, build, operate and maintain their platforms at additional cost and effort, and often at the expense of versatility and innovation. Therefore, there must be an assessment of whether it is viable to maintain non-CIPS-orientated technology stacks in the long-term or to leverage their services where possible and innovate on the fringes.
Product leaders who develop business plans based on emerging technologies and trends should take the following steps:
- Creating more value by working across CIPS providers, strengthening their specialization and market knowledge and moving up the value chain
- Optimizing their value proposition and go-to-market plans by scenario planning the impact of partner program changes and market moves of the CIPS providers
- Executing a strategy to either explicitly compete or partner with leading CIPS providers by working across the vendors or diving more deeply into market expertise and value
For a business to become more competitive, tailor your messaging to your specific area of focus whilst collating proof points such as case studies and testimonials from customers to support your position.
By mapping your vision to the needs of the market, a TSP can publish thought leadership to support this focus and this will in turn build credibility in the space. Product updates, ecosystem partners and community building can follow, and this model can be replicated in other segments of your business to facilitate wider growth and expansion.
Transitioning your business model to become more competitive and reach a level of market expertise is not a single silver bullet. It must happen in stages and be rolled out through a mixture of business outcome messaging, thought leadership, product features and work in the wider ecosystem and community.
However, the road ahead will not be easy, the large CIPS provider’s strategy is working and the recent pandemic has accelerated the success of their strategies. They are here to stay and will continue to be a dominant force. Monitoring the landscape ahead as it becomes clearer and adjusting accordingly will be key to success, whether that means working with the likes of Microsoft, Amazon and IBM, across them or without them.
- Jeff Chamberlain, Research Director, Gartner's Technology and Services Provider (T&SP) organization.
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