Executive Summary: ISG Provider Lens™ Multi Public Cloud Services - U.S. 2023

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ISG Provider Lens™ Multi Public Cloud Services - Consulting and Transformation Services for Large Accounts - U.S. 2023

ISG Provider Lens™ Multi Public Cloud Services - Consulting and Transformation Services for Midmarket - U.S. 2023

ISG Provider Lens™ Multi Public Cloud Services - FinOps Services and Cloud Optimization - U.S. 2023

ISG Provider Lens™ Multi Public Cloud Services - Hyperscale Infrastructure and Platform Services - U.S. 2023

ISG Provider Lens™ Multi Public Cloud Services - Managed Services for Large Accounts - U.S. 2023

ISG Provider Lens™ Multi Public Cloud Services - Managed Services for Midmarket - U.S. 2023

ISG Provider Lens™ Multi Public Cloud Services - SAP HANA Infrastructure Services - U.S. 2023

Multicloud strategy and FinOps are foundational elements for migrating to public cloud environments

The widespread adoption of cloud technology in the U.S. is fueling innovation and improving CX. It has pushed enterprises to make significant investments in migrating to public cloud infrastructure. In the last four quarters, ISG has observed a steady demand for cloud computing in the region, mainly due to the increasing digitalization of business operations and the growing need for high-performance computing solutions for business-critical workloads. This demand is primarily driven by the rapid expansion and evolution of various 
technological segments, with application modernization and AI and ML technologies leading the charge. Enterprises in the U.S. are also looking to reengineer their legacy software applications to align them with
current business needs and next-generation cloud infrastructure.

This process often necessitates substantial expertise in transformation capabilities and computational power due to the complexity of these applications. The AI and ML technologies, which form the backbone of many modern digital services and solutions, are known for their intensive consumption of compute resources. The resource-intensive nature of these technologies is a testament to their complexity and sophistication as they involve complex algorithms and processes requiring substantial computational power to function effectively. ML models, for instance, often need to process vast amounts of data in real-time, which requires robust and efficient computing resources. The high demand for these compute resource-intensive technologies  underscores the critical role of cloud computing in today’s digital landscape. By providing scalable and
efficient computing resources on demand, multicloud computing platforms enable businesses and developers to leverage advanced technologies without substantial upfront investment in IT infrastructure.

ISG’s choice of Multi Public Cloud Services for the name of this study results from the prominence of multicloud environments in the IT industry. It also corroborates our research, where it was observed that around one-third of all enterprises use at least one public cloud, with the remaining using two public clouds and three cloud providers, respectively, and a small percentage using four or more public clouds. This multicloud environment has created an additional layer of complexity in managing the cloud infrastructure,
leading the enterprise community to opt for an external service provider instead of managing complex environments by themselves. However, the skill shortages have made procuring the right resources for these requirements challenging. An individual with exposure and qualifications across multiple clouds is considered more valuable as they can enable effective hybrid cloud implementations and operations across most organizations. Multiple certifications also help ensure alignment and requirement fulfillment for future engagements with multiple clouds. Therefore, organizations are encouraged to leverage service providers to get the necessary skills and technologies to grow their business and get the most value from the latest
advanced technologies to drive innovation and competitive advantage.

Based on ISG’s estimates, we have observed that the overall cloud services market has grown by  approximately 50 percent in the U.S. since last year. However, when we looked at the global geography, the growth was more than 100 percent during the period. This shows that although the U.S. is one of the major markets in the world, its growth rate is half when compared to the global cloud services growth rate. In the
ISG Index™ call for the Americas market, we reported that the combined market (managed services and XaaS) witnessed a seven percent decline in the first nine months of 2023, with the annual contract value (ACV) reaching $35.4 billion. ISG observed slowing demand for XaaS, with year-to-date spending declining at 16 percent. However, managed services gained traction and grew by six percent, with ACV reaching $15.7 billion. ISG also observed that a total of 1,090 managed services contracts were signed in the first nine months of 2023. Within Managed Services, the ITO market grew by 21 percent to $11.6 billion, while the BPO market slid by 20.5 percent to reach an ACV of $4.2 billion.

Recently, ISG rolled out the Star of Excellence™ program, which is based on the voice of the customer concept. Here, providers are rated on six parameters, namely Service Delivery, Governance and Compliance, Collaboration and Transparency, Innovation and Thought Leadership, People and Culture Fit, and Business Continuity. The scores and data come from the Star of Excellence™ study that measures CX with providers based on direct client feedback. ISG found that the average provider CX score for the public cloud domain in North America was 79.9 in 2022. Cognizant, Computacenter, DXC Technology, HCLTech, HPE and Infosys are the top six providers with above-average CX scores. Infosys won the overall global public cloud Star of Excellence™ award for 2022.

ISG also conducted an individual research study on Cloud Buyer behavior in 2022. The findings helped  several enterprises make better purchasing decisions around choosing cloud providers and managed services partners. Below is a snapshot of what traits enterprises look for in an MSP to support cloud adoption.

Per the findings, preferred MSP traits varied greatly between organizations that have rapidly adopted the cloud versus those that are more conservative. Organizations that are slowest in migration are more likely to prefer flexibility, scalability and market leaders that can demonstrate financial justification, compared to mature organizations and cloud pioneers who focus on performance, technology expertise and quality.

Some of the trends observed over the last year are as follows:

● Cloud-native focused approach: For many enterprises in the U.S., migrating their workloads to public cloud environments by leveraging cloud-native technologies has become a priority. While lift-and-shift can be a quick way to move applications to the cloud, it does not fully leverage the capabilities of cloud-native technologies and can lead to inefficiencies and limitations in the long run. Cloud-native technologies are designed to take full advantage of the cloud environment, and this involves breaking down monolithic  applications into smaller, independent microservices that can be developed, deployed and scaled independently. Packaging these microservices into containers provides a consistent and isolated runtime environment across different cloud platforms. The process includes containerization, microservices, serverless computing and orchestration tools like Kubernetes that enable highly scalable, resilient and agile applications, which are key attributes in today’s fast-paced digital economy. Service providers are expanding their cloud-native practices to support this transformation. They are helping U.S.-based organizations develop strategies for adopting containerization and microservices, guiding best practices and offering tools and services to facilitate the transition. By doing so, the providers are playing a crucial role in helping enterprises unlock the full potential of the cloud.

● Mature AIOps offerings: With the increase in enterprise demand for automated migration and operations, there is a rise in the improvement of intelligent automation capabilities by leveraging AI and ML technologies. As these technologies mature, AIOps solutions will become more powerful and sophisticated. The solutions will be able to identify real problems and provide meaningful insights from large volumes of structured and unstructured data, false positives and false negatives. MSPs are increasing the use of AIOps capabilities and are offering a 30 to 50 percent reduction in their operational activities, depending on their toolset and AI maturity. These AIOps solutions analyze large volumes of data, identify meaningful patterns and provide insights that support proactive responses. Over the years, AIOps solutions have matured to become prescriptive and self-heal some issues in an automated manner. 

● FinOps has become table stakes: Enterprises have been experiencing a surge in cloud consumption, making managing and optimizing cloud expenses a top priority for many businesses. FinOps has helped several clients eliminate cloud waste and bring financial accountability to the variable spend model of the cloud, enabling teams to make business trade-offs between speed, cost and quality. As a result of these benefits, FinOps has grown increasingly popular. This growth is driven by the increasing need for businesses to gain better visibility into their cloud costs and usage and align their cloud investments with business outcomes. ISG has observed that no single FinOps tool offers all functionalities; therefore, clients can choose service providers that integrate FinOps tools to provide comprehensive cost management dashboards.

The Consulting and Transformation Services for Large Accounts quadrant for the U.S. geography continued the growth momentum in the last four quarters. Some key reasons include enterprises  understanding the true business value of moving to the public cloud, which has led to increased adoption of cloud technology. It has also made the enterprise community realize that leveraging multiple cloud  technologies will enable them to use the best technologies, leading to improved CX and increased revenues. However, enterprises have been cautious about what workloads to move to the public cloud, pausing some future migration projects and focusing on optimizing the workloads on existing cloud environments. There is an increased focus on integrating AI and ML technologies to automate processes, resulting in cost savings and process improvements. Large global U.S.-based enterprises are looking at  service providers with industry-specific solutions, cloud-native transformation capabilities, automation-focused migrations and expertise in hybrid cloud integrations. In that vein, service providers in the U.S. are focusing on a business-value-driven strategy to aid enterprises in efficiently assessing workload migration to ideal landing zones, including multiple public cloud infrastructures (which could be a part of a hybrid cloud strategy). The providers are also growing their cloud-native practice and helping clients with their container and microservices strategy. As enterprise of migrating to the cloud will not benefit them in the long term, workloads must be rearchitected by leveraging cloud-native technologies.

In offering Consulting and Transformation Services for Midmarket on public cloud infrastructure, providers continue to focus on targeting their sweet spot, SMEs, as the large global service providers fail to give attention to these enterprise segments. The midmarket providers have been nimble and accommodating to go above and beyond to satisfy clients’ requirements. This attribute has enabled the providers to bring out innovative solutions, with automation being a key element in the engagements. Several midmarket providers also leverage proprietary and third-party automation platforms to automate most of the manual tasks in any transformation engagements, such as application discovery, migration  readiness assessment, roadmap creation, application severity mapping, migrating to the decided landing zones and much more. 

With U.S.-based SMEs at a nascent stage of cloud technology adoption compared to mature global  enterprises, most migration engagements continue using the lift-and-shift methodology to accelerate the migration process. The SMEs also have comparatively less experience moving to the cloud, with their apprehensions toward securing their data on the cloud covered by the service providers’ secure  transformation expertise and capabilities. ISG has observed that enterprises are engaging at an increased capacity with the midmarket providers as they offer far better flexibility and agility toward any requirements than large service providers. Enterprises are happy with the outcomes and awarding more contracts to these midmarket providers. 

In the U.S., the public cloud Managed Services for Large Accounts market has been growing steadily and has the highest share compared to other markets. Per last year’s individual research conducted by ISG, we observed that most large global organizations have already started to use two or more hyperscalers (2.4 clouds on average) for different applications, and we believe this trend will scale up considerably. This multicloud ecosystem has created an additional layer of complexity. ISG also saw providers investing  significantly in developing next-generation AI- and ML-led automation solutions by leveraging large learning models (LLMs) to predict and identify bottlenecks, improve the accuracy of budgeting and forecasts and enhance the overall operational efficiency. GenAI has been one of the hot topics, and providers have  developed several solutions and use cases around this to help clients improve their CX. Based on this research, ISG additionally noted that almost all providers offered FinOps services, which have become table stakes and are increasingly challenging for the service providers to find new ways of optimizing cloud resources and reducing cloud bills.

Apart from the traditional managed services, providers have been developing comprehensive offerings that include automated provisioning and orchestration, service scheduling, cost controls, container management, workflow automation, cloud resource optimization, and more to differentiate the managed public cloud service offerings. Service providers have also started curating industry-specific solutions using their vast experience catering to clients in those industries. This expertise enables them to create customized managed services aligned to particular industry vertical regulations and compliance requirements.

In the U.S., the public cloud Managed Services for Midmarket has been growing rapidly. Due to relatively less exposure and experience with cloud technology, SMEs often need service providers to support them in decisions around cloud configuration, security, data lakes and analytics, DevOps automation and cost optimization. Midmarket clients show increasing interest in cloud-native application development frameworks as well. Enterprise clients who find cloud platforms challenging to understand and those who do not have the time to undergo extensive training and certification will most likely find the midmarket service providers as ideal partners to accelerate their agile development toward a cloud-native app development organization. Enterprises continue to demand service providers’ support for DevOps automation to enable CI/CD pipeline automation, which prompts the need to support container utilization. Cost management and cloud resource consumption control have also been prominent in several deals.

The cloud financial management practice has rapidly grown in the last four quarters, and FinOps Services and Cloud Optimization are becoming increasingly important for businesses of all sizes. Enterprises often require service providers’ assistance to assess options to reduce rising cloud bills. With FinOps services and tools in their managed service offering, midmarket service providers can enable clients to check their multicloud spending, optimize consumption and cloud resources, and reduce cloud waste and bills. As the complexity of managing cloud costs increases, many organizations choose to outsource their FinOps functions to MSPs, with almost all their conversations with clients around FinOps and improving efficiencies. Enterprises also realize the importance of incorporating FinOps practices early in their cloud migration  projects for better management and cost optimization. With businesses becoming more accountable for their cloud costs using FinOps, using cloud resources is more efficient, resulting in better financial outcomes. As a result, the FinOps domain continues to grow with an increasing demand for FinOps practitioners with solid technical skills. This leads to a greater emphasis on training and upskilling within the industry. Based on the recent survey by the FinOps Foundation, the average FinOps team size has grown by 75 percent in the last 12 months, and it is expected to grow by another 50 percent in the coming year. Enterprises are also starting to link their sustainability goals with their FinOps practices, as companies can reduce their environmental impact by optimizing their cloud usage. These trends indicate that FinOps is critical to a successful cloud management strategy. With more businesses migrating to the cloud, the demand for FinOps Managed Services is expected to continue growing.

The Hyperscale Infrastructure and Platform Services market continues to be very competitive. Providers such as Amazon Web Services (AWS), Microsoft Azure and Google Cloud dominate the U.S. market,  leveraging their extensive infrastructure, advanced technology offerings and wide range of services to maintain their leading positions. These major players have continued to invest heavily in expanding their global data center footprint and enhancing their service offerings to meet the growing demand for cloud-based solutions. There has also been a continued focus on improving energy efficiency and sustainability in-data center operations. This is primarily driven by increasing awareness of the environmental impact of data centers and the need to comply with stricter regulations on energy use and carbon emissions. One of the  market’s major trends in 2023 is increasing investments into GenAI capabilities, where hyperscalers have developed several services and showcased use cases around GenAI so that users start preferring their cloud infrastructure over others. With cloud providers continuing to distinguish their offerings in 2023,  enterprises will have the opportunity to make informed decisions about placing their workloads in the future. With a multicloud strategy, applications can access the best-of-breed services available for their use case, whether an industry-specific cloud solution, a specialized database or an AI and ML service. Despite these ongoing trends, the IaaS and PaaS market landscape has not seen significant shifts or disruptions over the past year ¬— the same key players continue to lead the market, and the demand for hyperscale services remains strong across various industry sectors. However, with the rapid pace of technological advancement and the everevolving needs of businesses, ISG predicts that the market will continue to evolve and grow.

With the recent increase in demand for migrating mission-critical workloads to cloud environments, more enterprises are experimenting with various combinations of cloud and taking significant risks to become more agile. ISG observes enterprises wanting to rapidly move their SAP applications and workloads to the public cloud. Enterprises must also check partner credentials and migration automation tools while choosing their  cloud platform to achieve the desired results.

The SAP HANA Infrastructure Services provides numerous advancements, especially pertaining to  hyperscalers. The top hyperscalers in this space offer automated tools to accelerate RISE with SAP  migrations, providing a safe path for hesitating customers and anything that can help seamlessly migrate SAP workloads to their environments. SAP continues to push the RISE with SAP initiative, accelerating cloud migrations. However, typical SAP clients have more than SAP S/4HANA. They simultaneously use legacy ERPs, analytics tools, data warehouses, sales and service automation, CRM, e-commerce, HCM and other SAP or competitors’ products. The U.S. market in this domain remains a battle between AWS and Microsoft Azure. Google Cloud took a price-competitive approach but had limited success. The overall SAP HANA Infrastructure Services will almost certainly continue to grow even further in the coming years, where enterprises will slowly move all their large instances and workloads with complex environments to the public cloud environments.

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