ISG Provider Lens™ Next-Gen Private/Hybrid Cloud - Data Center Services & Solutions - U.S. 2020 - Colocation Services

Enterprises opting for a hybrid cloud solution has become the new norm. Most of them have active hybrid cloud initiatives or have already deployed the model in their digital journey. However, the question is if it really addresses their requirements. If not, then the hybrid cloud just becomes an off-premise solution with a significant dollar value attached to it. The hybrid cloud option has been a strong model for several businesses of all sizes and across verticals. The architecture can store sensitive and valuable data in a private environment, while non-critical applications can be moved to the public cloud. Its adoption has grown considerably, as anticipated in ISG’s 2019 report. The overall managed data center services market was valued at over $200 billion last year. It is expected to grow to around $250 billion, reaching $500 billion by 2025. North America accounts for the largest market size, especially the U.S. According to the latest 1Q20 ISG Index™, the cloud market in the Americas has grown 9 percent in combined market annual contract value (ACV) since 4Q19, while the as-a-service ACV was up by 11 percent at $4.2 billion. Also, the IaaS market grew 17 percent to $2.9 billion and SaaS went up by 1 percent to $1.3 billion.

However, IT spend is expected to decline for at least the next two quarters due to the current global situation. There are multiple factors affecting the quarterly and full-year forecast. Each industry faces a different level of impact from COVID-19. Travel and transport, as well as retail, are facing the brunt of the wide shutdown. ISG has assessed the need for each industry to request discounts and extended payment terms, including short-term cuts in digital transformation. We expect 60 percent of our clients to delay technology spends for more than 90 days. The managed services industry is predicted to be down 17 percent in the second quarter and fall 7 percent for the full year. On a positive note, we forecast a 5 percent rise in as-a-service ACV in the second quarter and a 12 percent increase by the end of the year. The impact of the pandemic has mostly been positive on enterprises that have implemented the hybrid cloud model, as it gave them the required flexibility to address several challenges such as business continuity, employee safety and running of critical operations in secure environments. They now want to equip their mobile workforce with a highly secure work-from-home environment. In addition, the implementation of lockdown measures across regions has caused a dearth of on-site IT personnel support. Enterprises have thus moved on to leveraging cloud capabilities to check, maintain and monitor their server and storage installations in data centers.

Managed services providers play a key role: With the cloud infrastructure getting commoditized, enterprises have been increasingly adopting cloud technology into their digital journey, thus driving growth in the cloud sector. However, in the current situation, CTOs and CIOs are seeking rapid cloud adoption and are focused on moving severe to critical workloads to a hybrid cloud environment as quickly as possible. Once the crisis is brought under control and businesses stabilize, they need to think of ways to scale down in order to avoid high capital expenditures and billing from cloud providers. Enterprises should turn towards mature service providers as some hand-holding will be required for such tasks; they need to adopt strategies that will change the way employees work in large, complex siloed enterprises. CIOs and CTOs are concerned about the high costs incurred from downtime as well as the shrinking IT budget, which is forcing enterprises to leverage managed services providers. These providers play a key role here as they have extensive experience in infrastructure management and are well equipped to support enterprises in their digital journey. They understand the requirement of the enterprise and define a problem statement so that the outputs can be quantified and measured. The deployments are efficient and quick due to the providers’ vast experience accumulated over the years, capabilities in leveraging new technologies, and their large workforce.

Challenge of managing large amounts of data is real: Over the past couple of years, there has been an explosive growth of data generation. Data lakes are becoming data oceans. These large volumes of data have to be stored and managed in a secure environment, which posed a major challenge for enterprises. Also, data transfer in petabytes is expensive and should be fast. Providers have been addressing these challenges by developing expertise in managing large amounts of data efficiently, which has spurred growth in managed data center services space. As data sets grow bigger, providers are leveraging various methods to overcome issues involving concentration and distribution of data. Some of these include data thinning, use of new technologies around networking for faster data transfer, and bringing data sources closer to applications instead of centralizing them and then sorting and moving into the destination system.

Managed hosting revitalized: Contrary to the previous year’s prediction, the managed hosting market has reversed the trend of losing relevance. This year, ISG observed a growing interest among hosting providers to invest in improving their managed services and updating their data center facilities. The market has seen several changes due to the exit of some players by selling off their assets or by merging with another hosting provider to combine resources and offer better hosting solutions. Providers have been strictly following compliance and regulations, such as ISO, PCI DSS, HIPAA and GDPR, and are continuously updated as per the new checklists. The requirement of auditing data location, migrating software licenses to the public cloud, hyperconverged systems capacity and affordability, and improved management tools are small yet key aspects that drive the shift of some particular applications to managed hosting as part of a hybrid environment. Also, high density servers that run heavy virtualized workloads involve considerable energy consumption and heat generation. However, it still more efficient to host several clients on this server than on low density units and the cost savings achieved can be transferred to clients. An emerging trend is the use of colocation facilities, rather than in-house data centers, to host the service provider’s hardware and software for managed hosting services.

Increased usage of AI and ML technology: This year, ISG has observed more solutions leveraging artificial intelligence (AI)-based cognitive capabilities and/or machine learning (ML) tools and services to provide high-quality outcomes, speed up service delivery, increase IT efficiency and deliver a superior user experience. Providers have developed tools that take data from various sources to predict downtime and implement selfhealing measures to prevent such situations. AI for IT operations (AIOps) can monitor various elements of the entire hybrid environment and provide predictive analytics for incident management to aggregate events, reduce noise, auto-correlate and identify the probable root cause using ML technology. Also, running AI/ML-based applications requires significant processing capabilities and powerful servers, which were in limited quantity or considerably expensive until now. Currently, efficient infrastructures with specialized high computing equipment are being used to run AI-based cognitive capabilities and/or ML tools.

Lack of talent in data center industry: The data center industry is facing a major shortage of talent. Employees with more than 20 years of experience are either moving toward retirement or management positions, while a small percentage of the workforce has less than five years of experience. It has been difficult to find qualified candidates in this domain. In addition, few women opt to join the data center business as they comprise a fraction of the entire workforce in the industry. The industry should focus on hiring and train new candidates to replace the highly experienced personnel who are moving out.

Edge data centers: Edge computing has been around for a while, but edge data centers are predicted to be the next big thing. In a way, edge solutions are designed to complement data center and cloud services. By bringing data collection closer to the network edge for processing, it can drastically reduce the latency and processing time and increase responsiveness. With the technological advances in the internet of things (IoT), processing power has increased and devices are able to handle the additional load to a point where edge computing in data centers has become more viable. This will enable data center providers to extend their network reach, improve speed, and provide more powerful processing resources to manage tasks that are too big for IoT devices. If enterprises want to design their own edge system, they need to keep an eye on efficiency, resiliency, and how the architecture can improve the business. As edge computing and edge data centers are still in the nascent stage, it remains unclear whether this framework will be profitable or not. This concern will be a major deciding factor for enterprises to invest in edge strategies.

New-age colocation services: The colocation industry has been undergoing a significant transformation by upgrading its IT assets and physical infrastructure for enhancing power and cooling capabilities apart from providing more floor space. The hybrid cloud continues to be a major factor when it comes to designing a data center and integrating it with cloud environments. Colocation providers have been using AI technology to dynamically monitor and regulate the environment of a data center. Tweaks and adjustments in cooling systems translate to significant energy and cost savings plus an improvement in the overall efficiency of the data center. Some U.S.-based colocation providers have been designing zero carbon footprint or green data centers and play a larger role in supporting environmental goals. Some California-based providers have adopted renewable energy for their power requirements, primarily due to environmental concerns and high power costs. Few have also opted for on-site power generation, which gives them full control over power generation and consumption.

Rise in demand for securing data centers: Due to the increased adoption of virtualization and cloud-based services, the need for enhanced security has become imminent and is being implemented in data centers worldwide. Enterprises can deploy these on-demand tools and services quickly and efficiently to secure their IT infrastructure assets. Replication and duplication of data are one of most sought-after features and are used to withstand malware attacks. Also, the increase in data traffic from multiple sources has elevated the need for secure connectivity for critical and confidential information.
The risks have also escalated significantly with all kinds of cyber and malware attacks, information breaches from third-party vendors and information theft. Revenue loss and the high costs incurred from downtime have raised concerns among CIOs and CTOs. Therefore, implementing a robust and strong data security solution has become pertinent for all the data center assets of an enterprise. Data center security is a highly competitive market. Vendors have been developing intellectual properties (IPs) by investing in R&D, establishing security centers of excellence where engineers work on prototypes with cutting-edge technologies, and gathering as many patents as possible to get a competitive edge.

Converged hyperconverged solutions: The hyperconverged infrastructure (HCI) industry is in a major transition wherein hardware and software vendors are working together to develop better HCI solutions. Hardware vendors are focused on improving their offerings to be more compliant with the standards of software-defined data centers (SDDCs), while virtualization vendors are working with their hardware counterparts to improve their software products and make them a best fit for their hardware. An HCI solution was initially used for multiple purposes and was deployed to respond to a dynamic change in infrastructure requirements. Nowadays, vendors position HCI as a dedicated, single purpose solution. In this report, ISG refers HCI to appliances (either box or software). HCI solutions are first offered for a dedicated virtual desktop infrastructure (VDI) use case, as a single cluster can handle thousands of virtual desktops. IT managers are keen on the idea of having a single appliance that can manage this scale, streamline management, and deliver predictive and reliable performance. HCI solutions are also endorsed for SAP HANA as a dedicated appliance as clustering enables high availability and performance for a core business application. It is also recommended for high-performance compute requirements where clusters are dedicated to AI appliances. Clients can deploy highperforming TensorFlow appliances to run ML applications. Other use cases are for big data analytics and storage. However, due to the availability of other cost-effective solutions in the market, they are not exclusively used for analytics and storage purposes.