ISG Provider Lens™ Private/Hybrid Cloud - Data Center Services - Managed Services - Netherlands 2023

AI, ML, and FinOps are crucial for local enterprise as they struggle to optimize their cloud cost

As a part of its ISG Provider Lens™ Next-Gen Private/Hybrid Cloud - Data Center Services and Solutions 2023 study, ISG examined more than 60 providers of hybrid IT and colocation services in the Netherlands and identified the most important service providers and trends affecting the managed services and colocation markets in the region.

Post Brexit, The Netherlands has experienced higher growth compared to other EU member states. While fewer regulations and a competitive wage structure have contributed to this growth, the maturity of its network infrastructure has also been an important driver. Given the mature IT ecosystem of the region, enterprises from a diverse range of industries have sophisticated cloud requirements. Most of these enterprises are already at some stage of their cloud migration journey and now seek solutions to optimize their migration to public, multicloud and hybrid cloud environments that can assure greater agility and more scalability. The impending release of the Sovereign Cloud, cloud infrastructure designed to store sensitive data, will further accelerate the migration to hybrid and public clouds.

In November 2022, the Dutch government announced a spending package of €7.5 billion to improve its transportation infrastructure. Due to favorable investments and credits in the area of technology, the Netherlands is consistently ranked among the top five European countries for innovation. The high scores on the innovation scale make, the country a kind of testing ground; service providers operating here have to consistently improve upon their managed service capabilities for their local customers. Success in this region will make it easier to address the needs of customers in other EU countries.

The Russia-Ukraine war has had a significant impact on the Dutch data center outsourcing market, particularly on colocation services. In the first half of 2022, electricity prices for non-households in the Netherlands increased to €0.15 and €0.20 per kWh, according to Eurostat. This, in turn, had significant repercussions on the market as it grappled with high energy costs and often passed them to customers. The surge in energy costs in the Netherlands impacted inflation and the wages of the average Dutch employee. 

To mitigate their substantial increase in operating expenditures, service providers are utilizing some of their offshore and nearshore locations to address the requirements of local customers. Given the high costs involved in procuring managed services for their data-centers, enterprises are increasingly opting for services from niche players rather than using elaborate end-to-end transformation services from larger providers. Even the well-established service providers are now facing the challenge of retaining their market shares, while niche, more regional companies could see their shares grow. In this scenario, large, multinational service providers are focusing on enhancing their service offerings; they are acquiring local companies with niche expertise.

Recent editions of the ISG Index™ have indicated that the infrastructure outsourcing market is still growing, but the cost per unit continues to fall. By automating services, suppliers can offset the high cost of labor. Although prices of long-term IT service contracts continue to fall, overall spending is increasing due to increased consumption. In the Netherlands, the projected inflation rate for 2023 could prompt suppliers to renegotiate their contracts.

Trends in Managed Services: Tools for managing a hybrid infrastructure must, in many cases, be compatible with VMware and ServiceNow products to integrate ML with automation. Modern service platforms look for possible causes through incident analysis to provide service teams with contextual information and automate incident resolution, resulting in a reduction in mean time to detection (MTTD) and mean time to repair (MTTR). Managed service providers will continue to automate their operations to improve service quality and save costs. For midmarket customers, this means simplifying infrastructure management and reducing operational risks. Large customers, on the other hand, want to minimize service interruptions to improve the quality of services. Large service providers use automated systems to improve performance and reduce administration efforts. With data analytics, customers are provided insights into consolidation and rightsizing to enable them to make informed decisions. Infrastructure as code (IaC) gives customers the ability to fully control the setup of new services and DevOps environments. Modern managed service platforms have IaC and DevOps automation options in both on-premises and colocation environments.

Hybrid cloud trends: As companies have come to realize that it is difficult to integrate legacy applications with a public cloud environment, they are increasingly opting for operations in colocation data centers or migration to a managed hosting model. Service providers can manage colocation, hosting and cloud from a single AIOps platform that gives customers a similar experience across all infrastructures. However, on-premises data centers do not have the same connectivity as colocation and hosting data centers, making relocation inevitable.

Colocation, edge computing and softwaredefined networks: Amsterdam is an important colocation hub in Europe and a preferred destination for companies seeking access to global markets. The Netherlands’ robust transportation infrastructure contributes to its resilient supply chain connecting the Dutch economy to diverse global markets. Colocation providers are increasingly showcasing the benefits of their network tools to their customers through marketing initiatives. Using software-defined networking tools, customers can deploy a private data center across disparate colocation data centers, enabling disaster recovery (DR) opportunities, offering high-availability services, enabling edge computing and operating offshore data centers. Some vendors are positioning edge computing  appliances and bare metal servers to complement their colocation facilities; the edge devices are integrated into a software-defined networking platform and are part of a colocation service offering.

Expansion of data center capacities: In 2022, investments in infrastructure indicated that hosting and colocation would replace on-premises data centers with a cloud-like experience in a hybrid infrastructure. ISG expects several large facilities to be built to meet the corresponding demand and for M&A to continue to drive data center services expansion. To improve energy efficiency and sustainability, ISG has observed growth of data centers in tier-2 and tier-3 cities, closer to enterprises.

Network connectivity: The Netherlands has fast, reliable and secure network connections compared with the other major European data center locations. It also has direct connections between the data centers of U.S.-based companies and their subsidiaries. This allows customers to easily avail managed edge computing services or managed hosting solutions. The data centers can be operated independently of the network, giving customers more options and flexibility.

Focus on FinOps to continue: In comparison with other markets, the data center outsourcing market in the Netherlands is highly developed. Many of the clients have already adopted some form of the hybrid, multicloud environment and are trying to optimize their migration. This gained further traction during the pandemic when enterprises required agile environments but without significantly increasing their expenditure. The Russia-Ukraine war and the rise in inflation associated with it will sustain enterprise interest in adopting FinOps expertise from managed service providers.

Sustained ESG commitments: Service providers are increasingly prioritizing environmental, social and governance (ESG) concerns – including by monitoring, measuring and publishing assessment standards for specific areas, particularly data centers. Access to inexpensive green electricity makes the Netherlands an attractive location for data centers and the provision of managed cloud-based services. The vendor ecosystem is expected to undergo consolidation; companies planning to enter the Dutch market should consider acquiring or collaborating with an existing supplier. In the immediate future, service providers in the Netherlands would need to adopt renewable energy sources to decouple the rise in energy prices from operating expenditures. Besides the ongoing war, going forward, there will continue to be concerted efforts among service providers to build upon their gains in their ESG commitments. This will partly be driven by customer requirements to cut carbon emissions, which must be taken into account by suppliers. At the same time, the ESG commitments of the MSPs would be sustained by regional compliance guidelines aimed at helping the Netherlands achieve its 2030 and 2050 climate objectives.

Implementing automation across an entire value chain: Automation and AI are here to stay, given the multi-vendor and multicloud ecosystems that most enterprises have migrated to. RPA and AIOps will continue to experience demand among enterprises here. The need to automate operations across the cloud environment should increase, given automation’s ability to reduce energy consumption and thereby reduce operating expenditure brought about by the current energy crisis. Often, winning a deal depends on how well a service provider can automate the operations of a customer, keeping in mind its unique requirements. Partnerships are often formed to meet customer needs, given the complexity of engineering customized, automated solutions. The power of automation levels the playing field between small, regional providers of niche services and large, wellestablished service providers.

Growth of edge data centers: The Netherlands is experiencing growth in the adoption of IoT applications such as smart cities and connected cars, and in 5G services. Because these systems will support mission-critical applications, the services will require higher bandwidths with low latency. ISG, therefore, foresees a significant increase in edge computing installations. Leading service providers in the Netherlands are revamping their portfolios to include programmable edge computing and storage solutions.

Although the impact of the COVID-19 pandemic and the global unrest caused by the Russia-Ukraine war are causing economic difficulties, the IT market in the Netherlands continues to show brisk growth, which is also attracting investors from Europe and the U.S., that are helping to strengthen the country’s infrastructure.

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