ISG Provider Lens™ Mainframes - Services and Solutions - Mainframe Application Modernization Software - Europe 2022

Enterprises are seeking a balance between mainframe advantages, costs, and future requirements

Since the introduction of IBM S/360 in 1964, the mainframe computer architecture has been highly relevant. Many companies, to date, cannot exist without its services. This is primarily due to its reliability, availability, and security features, and to the fact that software and data cannot be easily migrated to other systems. We are talking billions of lines of (often undocumented) code, and huge databases that need to be migrated to new, very different technologies, while a company relies on its daily availability.

With a very high price tag for ownership and maintenance, and with experts in mainframe technology and programming languages becoming increasingly sparse – and thus expensive – enterprises are under pressure to optimize their mainframe usage patterns. Data access, business agility, and cost reduction are the main reasons for them to re-evaluate and modernize mainframes. Services that help enterprises give up their on-premises mainframe hardware and/or operation, move software and data from the mainframe to the cloud, and migrate to new technologies have been highly sought after for years. Several service providers are addressing this increasing demand to set free business data that resides in mainframe systems, with considerably different approaches to the problem.

The limitations of mainframes became evident in 2020 and 2021 for government agencies that were unable to scale and respond to citizens’ demand. The increase in mainframe utilization and the public sector’s frequent inability to quickly react to changing environments have caused small system disruptions in some European countries. These events are also contributing to an increasing interest in the public sector and adjacent industries to migrate mainframe applications to the cloud.

A different market: Usually, the European market is fragmented, with many small local IT service providers successfully competing with the large multinationals within their respective country borders, often purely on the advantage of a local language and cultural identity – the better the local presence, the better the business. We found that the mainframe market is rather different – in this market, the language that matters is COBOL. Only few small competitors exist because the task is complex and requires skills that are rare and expensive. Projects take a long time, both in preparation and in execution, and the expensive staff must not run idle. Small companies offer their services to clients beyond their locality or offer niche specializations in dedicated parts of the mainframe modernization process. They maintain robust partnerships with large service providers, adding competitive advantages to their services, and using their strong client presence to expand their own position.

Leading modernization providers have many partners: The top providers for migrating mainframes to the cloud have partnerships with many tool vendors on a local, European country level, and can deliver complete, scalable, and tailored toolsets for consulting, planning, project management, execution, and success measurement that meet a client’s specific needs. Most of the service providers participating in our study integrate their mainframe modernization offering with proprietary automation tools, AI, and machine learning capabilities. They have integrated their application development platforms and workbenches into the processes. They also have strong partnerships with public cloud providers.

Cloud providers show increasing interest in mainframes: The large cloud providers have identified mainframe modernization as a lucrative business opportunity for themselves. Consequently, they have been aggressively moving into the market, initially by partnering with service providers. In the past few years, however, they have been taking the initiative to enter the market on their own: AWS acquired Blu Age in 2021, and Google acquired Cornerstone Technology in 2020. Blu Age and Cornerstone are both vendors that offer automated mainframe application modernization to re-engineer and rewrite COBOL and other legacy languages to Java, .NET, or C#. The new ownership gives both companies the opportunity to establish a stronger foothold in the European market by tapping into the resources of their new mother companies that, with the acquisitions, can have a stronger control over the migration process. Microsoft has been taking a different path, offering mainframe migration to Azure, by founding joint companies, for instance, with Accenture.

Mainframe cost pressure: A variety of factors contribute to the continuous increase in mainframe costs. The limited availability of skills locally, in the respective European countries, is one of the factors. Independent software vendors are using clients’ dependency on mainframe to their advantage, creating a demand for expensive expert services for Mainframe license optimization. Also, IBM has been pushing clients to upgrade their mainframes to IBM Z15 systems, but without much success. It reports that clients seem reluctant and look for other options. We are receiving signals that clients are delaying their investments in new hardware and are increasingly preferring modernization alternatives.

Slow pace of mainframe migration: There are factors that are providing momentum to mainframe migration efforts. In this study, we identified 26 companies offering mainframe migration to the cloud, and 17 vendors of mainframe migration tools. These services saw an average increase of more than 20 percent in revenue. Germany, the U.K., France, and Benelux are the largest mainframe markets in Europe, with the highest numbers of installations, but each mainframe client is looking at modernization as a way of improving TCO and accruing overall benefits for their IT.

Projects take longer than expected: The large migration providers reported an average 15 to 30 projects per year in Europe, with an average project duration of more than 18 months. Large transformation projects can take up to five years. Also, a large proportion of projects fail to reach completion. These failures are typically not reported. A major amount of time is spent on analyzing the systems and developing a long-term migration strategy. The demand is high, but the market is slow in project execution, and small when it comes to total number of projects. At the current pace, mainframe to cloud migrations will continue to see a high demand for another 10 years.

Slow adoption of new mainframe tools: Clients are skeptical about the supposed benefits of investing to modernize COBOL. Often, these modernization steps are the first rungs of bringing the whole software environment to one equal level, to ease eventual migration efforts away from the mainframe. From a small survey sample representing nine providers and approximately 1,000 enterprise clients, only 7 percent use Java on Z/OS, 12 percent have adopted mainframe DevOps, and 15 percent are using COBOL application programming interfaces (APIs).

Skill availability is the true issue: Most enterprises are concerned about access to the right IT talent to maintain and manage their legacy systems. Many clients are planning a modernization, mainly because it will help reduce the legacy skills gap. COBOL is not a language upon which young software engineers typically build careers. The COBOL programming language is more than 60 years old and remains the most prominent (but not the only) language in the mainframe environment. Given the already pressing overall skills shortages in the IT sector, enterprises are increasingly concerned about finding, keeping, and maintaining an expert level of skills for such antiquated languages and database architectures.

A similar effect can be seen with the service providers, many of which offer dedicated mainframe skill building programs, and attractive long-term career options in the field, to attract young developers. Some of the large providers offer large, centralized offshore capabilities to support their clients.

In conclusion, the European market for mainframe modernization is gaining momentum, but obstacles such as skill shortages and a slow pace of migration due to long project cycles continue to prevail. Interestingly, country-specific aspects such as services in the local language and a good local presence – the usual strong success factors for European countries – do not play a central role when it comes to mainframe modernization. This allows smaller providers to rapidly build a global business and leverage an expensive workforce.

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