Executive Summary: ISG Provider Lens™ Multi Public Cloud Services - Germany 2023

09 Jan 2024
by Ulrich Meister, Wolfgang Heinhaus, Meenakshi Srivastava, Jan Erik Aase

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Cloud systems are undergoing a progressive transformation, largely characterized by growing business added value

Today, the cloud is critical for companies that seek to ensure business continuity and drive key initiatives. IT departments are central to this, providing innovative technologies and solutions that differentiate organizations from the competition. The public cloud services market continues to grow rapidly, driven by the digital transformation of companies seeking to expand their business activities and increase customer satisfaction. Migrating to the cloud and modernizing applications are at the forefront of this transformation. Data and
analytics are also important, with an increasing interest in cloud governance.

According to ISG, the cloud services market in Germany grew by around 41 percent last year. At a global level, however, this market grew by more than 100 percent, indicating that although the German market is important, its growth is only half as high as the global average.

In the Q3 2023 ISG Index™ Call for the EMEA market, the combined market (Managed Services and XaaS) reported a decline of 4 percent YoY, with the ACV reaching $21.7 billion. ISG observed a dip in the demand
for anything as a service (XaaS), with spending down by 10 percent year-to-date, while the demand for SaaS increased by 2 percent. However, the demand for managed services increased by 2 percent, reaching an ACV of $11.9 billion. ISG also found that through the third quarter of 2023, a total of 818 managed services contracts were signed, including 10 megadeals whose total ACV was 55 percent higher than the 11 megadeals signed in the first nine months of 2022. Within Managed Services, the ITO market grew by 2 percent to $9.1 billion, and the BPO market also grew by 2 percent, reaching an ACV of $2.8 billion. In the DACH region, the market for Managed Services declined in the third quarter compared with the previous year. It dipped by 54 percent to $529 million. In the year to date, a decline of 25 percent to $2.2 billion has been recorded.

Implementation of cloud solutions is now crucial in ensuring performance and efficiency. According to the ISG Index™ for the German market, the XaaS market gained significant momentum in the first half of 2023, growing by 35 percent YoY. In addition, the IaaS and SaaS segments within the XaaS market recorded a growth of 37 percent and 18 percent, respectively, in the second quarter of 2023.

Below are some of last year’s trends:

Companies have recognized that they are disadvantaged by the vendor lock-in practices of public cloud providers, as they lead to high costs and offer little room for negotiation. The lack of interoperability between the offerings of several public cloud providers is also an obstacle. Therefore, companies are now working with more than one hyperscaler to negotiate usage prices, making the market more competitive. According to ISG estimates, almost three-quarters of public cloud customers use a multicloud environment, and this trend is expected to continue.

AI and ML are becoming increasingly popular with businesses of all sizes that have realized the abundance of data and other resources available on the cloud. Using AI and ML technologies can give them valuable insights and metrics, help improve efficiency and develop new business models and revenue streams. Notably, they will no longer need to invest much time and money in training AI experts and data scientists. Instead, they can experiment with these technologies in small PoCs and decide on a strategy.

The cloud industry is booming, and digital transformation is compelling companies of all sizes to undergo cloud migrations and transformations, creating a high demand for cloud experts. Competition for the best talent is fierce, and service providers are making significant investments to secure this talent. As a result, costs are rising, which in turn is affecting the providers’ profit margins. They are now passing these costs to their customers to offset this increase. Although service providers have set up training programs in recent years to meet the high demand, the gap between the supply and demand for cloud expertise remains large.

Data security in cloud environments is essential for companies committed to adopting digitalization and hybrid IT solutions and seek to enable their workforce to work more remotely. With the increasing demand for flexible security systems to protect sensitive data, workloads and applications, service providers are offering unique combinations of physical and cybersecurity practices to combat ransomware and distributed denial of service (DDoS) attacks. Companies that consider security an important component will continue to follow this trend. All providers offer security solutions as part of the overall package to protect enterprise customers‘ end-to-end infrastructure and data.

Cloud services are gaining popularity, and the associated costs are also increasing. Therefore, it is imperative that companies optimize the control and management of cloud costs. Due to the extensive and complex cloud environment, it is difficult to keep costs under control. Therefore, the importance of the FinOps concept has grown significantly in recent years and is now one of the hottest topics. Nine out of ten customer meetings at ISG are about optimizing cloud costs. Service providers play an important role here, as they have many years
of experience managing cloud infrastructures and assets and can, therefore, support companies with efficient cost management.

Within the Consulting and Transformation Services for Large Accounts quadrant, ISG has observed that discussions with customers focus on using public cloud environments to increase business value. However, updating an organization’s aging infrastructure and moving to the public cloud requires significant investment and maturity on the part of the customer. Providers must demonstrate the long-term benefits to convince customers of the need for such a move. Enterprises and vendors both prioritize the transformation to a cloud-native architecture. Companies have understood that a hasty move to the cloud may not yield the desired results, and they cannot get the most out of the cloud with the lift-and-shift method. Instead, they should move their workloads to the cloud by restructuring or refactoring. Using microservices architectures and other native cloud technologies will also be beneficial in the long term.

The Leaders are Accenture, Arvato Systems, Capgemini, Eviden, HCLTech, IBM, Infosys, TCS and Wipro. Randstad Digital is a Rising Star.

Some service providers in the Consulting and Transformation Services for Midmarket quadrant have  specialized in small and midsize companies. They have recognized the enormous potential of this market segment and are often the preferred choice of customers that tend not to be addressed by the large global service providers. These providers are extremely customer-centric and strive to meet customer requirements within tight timeframes. They often use the lift-and-shift method to accelerate the migration process. They also take a platform-centric approach and use their own tools and solutions to identify, assess and migrate workloads to the cloud and automate processes. Customers are highly satisfied with these providers’ cost-effective solutions, which not only help with their cloud journey but also contribute to improving the overall CX.

The Leaders are All for One Group, Axians, CANCOM, Claranet, Deutsche Telekom GK, NTT DATA and Reply. The Rising Star is Syntax.

According to the ISG forecast for the Managed Services for Large Accounts quadrant, only a few MSPs will be successful in this highly competitive market. As a result, providers in this space are taking a platform-centric
approach based on their own platforms and industry-specific offerings to offer additional functionalities compared with traditional cloud managed services. These additional services include FinOps services, AI- and MLbased analyses and new, revenue-generating business models. They also enter into strategic partnerships with hyperscalers to jointly develop solutions and pursue a go-to-market strategy to differentiate themselves from other providers.

The Leaders are Accenture, Arvato Systems, Atos, Capgemini, HCLTech, Infosys, Kyndryl, Rackspace  Technology, TCS and Wipro. Skaylink was identified as a Rising Star.

In the Managed Services for Midmarket quadrant, the ecosystem is growing rapidly. Smaller and midsize providers are attracting an increasing number of customers with their public cloud managed services for multicloud environments. In the German market, acquisitions have led to a certain degree of consolidation. Hyperscalers carry out annual audits and are tightening the criteria for MSP certification, making certified MSPs exclusive. Most service providers in this segment use some form of automation tools to manage their
customers’ cloud infrastructure. However, many do not use AI and ML technologies to improve their automated processes.

The Leaders are CANCOM, Claranet, Deutsche Telekom GK, NTT DATA and plusserver. Syntax was identified as a Rising Star.

The market share in the Hyperscale Infrastructure and Platform Services quadrant remained roughly the same as in the previous year. AWS lost 2 percent, while Microsoft and Google each gained 1 percent.  Nevertheless, sales have increased, indicating the frequent use of service offerings. Some client companies
in Germany are now engaging with more than one provider and are setting up hybrid or multicloud environments. Their own data centers often struggle to meet the increasing operational requirements. Flexibility and scalability of the infrastructure, compliance, security and sustainability are just some aspects that are better implemented in public cloud providers’ data centers. Another issue is the shortage of skilled workers. Public cloud providers are developing additional services and functions and improving automation
with AI support to avoid errors and improve availability. In addition, they are developing industry-specific solutions to offer customers further added value.

The Leaders are AWS, Google, IONOS, Microsoft and T-Systems. Rising Stars are OVHcloud and STACKIT.

In the SAP HANA Infrastructure Services quadrant, the willingness to move SAP infrastructure to the private or public cloud is increasing significantly. Companies are also considering switching from their old SAP 
environments to the SAP/4HANA system and are seeking cloud providers. The advantages are obvious; the providers offer a robust SAP-certified, scalable and flexible infrastructure and improve the offering with
extensive services and functions that are impossible with the company’s own data center. In addition, the customer does not need to invest in new hardware. Although SAP pushes transformations to the public clouds of large hyperscalers, not all German customers support this. Some users want to operate SAP/4HANA in their own data center and only move less critical applications to the cloud. According to the German-speaking SAP User Group (DSAG), 41 percent of customers in the German-speaking region (Germany, Switzerland
and Austria) currently use SAP/4HANA in their own data center, 8 percent with a private cloud provider and 3 percent in the public cloud. This means that approximately 50 percent of SAP users have yet to switch to SAP/4HANA. Cloud providers have a great opportunity here to win over these customers. The advantage
of local cloud providers is that the data is stored in Germany and is protected from the U.S. CLOUD Act.

The Leaders are AWS, CANCOM, Google, Microsoft, Syntax and T-Systems. The Rising Star is DATAGROUP.

In the Secure Enterprise Filesharing Services quadrant, a mix is emerging, with employees either working from the employer’s office or outside their home offices or other locations. This means that they do not always have access to stored documents. This scenario must change, and documents must be accessible
from anywhere. Enterprise filesharing is a solution that allows employees to work on a document and access it from any standard end device. Comprehensive security measures such as data encryption in transit and at rest, access restrictions, read and write permissions and storage in a secure location protect the data.

The Leaders are Box, Brainloop, DRACOON, Dropbox, FTAPI and Microsoft. The Rising Star is idgard.

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