Executive Summary: ISG Provider Lens™ Private Hybrid Cloud - Data Center Services - Switzerland 2024
17 Jul 2024
by Ulrich Meister, Wolfgang Heinhaus
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The growing demand for outsourced IT infrastructure solutions continues to drive the expansion of managed services and colocation services
Published on an ongoing basis, ISG Index™ has already indicated in recent issues that the market for infrastructure outsourcing is still growing, but unit costs are continuing to fall. By automating services, suppliers can offset the high labor cost and the increasing cost of living. Although prices for long-term IT service contracts continue to fall, overall expenditure is rising due to increased consumption. In Switzerland, the projected inflation rate for 2024 may prompt suppliers to negotiate contract realignment to find joint solutions to offset rising costs and strengthen future collaboration. Long-term IT service contracts can be further optimized through close cooperation between suppliers and customers to take increased consumption into account and develop efficient solutions despite falling prices. The aim is to react flexibly to changing market conditions and remain competitive in the long term through automation and the realignment of contracts.
ISG also predicts that competition between providers of hybrid IT and colocation services in Switzerland will intensify as companies increasingly seek flexible and secure solutions. The rising demand for cloud services and data center capacities will pressurize providers to develop innovative offerings and continuously improve their service quality.
It is noticeable that providers are increasingly emphasizing the importance of standardizing infrastructures to offer better services at a lower price. Standardization offers various advantages — it enables providers to automate the operation of infrastructures and reduce the need for manual intervention, leading to significant cost savings and improved efficiency.
A standardized infrastructure makes it easier for providers to scale operations quickly and replicate the standardized components at different locations and with various customers. Furthermore, standardization increases the reliability and consistency of the infrastructure, which can increase customer satisfaction and reduce the risk of downtime and service interruptions. By standardizing infrastructure services through infrastructure as code (IaC) and software-defined infrastructure, providers can achieve greater efficiency, scalability and reliability, ultimately benefiting providers and enterprise customers.
Trends in managed services: In many cases, hybrid infrastructure management tools must be compatible with VMware and ServiceNow products to integrate machine learning into automation. Modern service platforms will use incident analytics to look for potential root causes to provide more contextual information to service teams and automate incident resolution, thus reducing mean time to detect (MTTD) and mean time to repair (MTTR). Service providers will continue to automate their processes to improve service quality and save costs. For medium-sized customers, this would mean simplifying infrastructure management and reducing operational risk. Large customers, on the other hand, want to minimize service interruptions to improve service quality. Large service providers use automated systems to increase performance and reduce administrative costs. Data analytics provides customers with insights and knowledge regarding consolidation and rightsizing so that they can make informed decisions. Infrastructure as Code (IaC) allows customers to fully control the deployment of new services and DevOps environments. Modern managed service platforms have IaC and DevOps automation options on premises as well as in colocation and managed hosting environments.
Modernization of IT infrastructure: Many Swiss companies have been using their IT systems for many years or even decades, and these systems have reached the end of their lifespan. These systems can no longer keep up with the demands of modern applications and business processes and are more vulnerable to security threats and other risks. Modernization requires a significant investment of time, money and resources, which many companies see as a major challenge. Service providers offer a thorough analysis of existing infrastructure, identify vulnerabilities and inefficiencies, and create a plan for how these systems can be updated or replaced. Although the benefits may not be immediately apparent, and there may be risks such as business disruption during the migration process, modernization is a crucial step for many companies to remain competitive and meet the demands of the digital age. While it may be challenging, the potential savings are significant, particularly through improved operational efficiency and increased business results.
Hybrid cloud trends: Companies have recognized that legacy applications often do not run smoothly in a public cloud environment. This is why they often choose to operate in colocation data centers or migrate to a managed hosting model. Service providers can now manage colocation, hosting and cloud through a single AIOps platform to provide customers with a unified experience across all infrastructures. On the other hand, local data centers are often not as well connected as colocation and hosting data centers, making a move inevitable.
Evolution from hybrid cloud to polycloud: In 2024, cloud providers such as AWS, Microsoft Azure and Google Cloud will continue to expand their services. Companies will carefully decide where to place their workloads. With the polycloud strategy, applications will have access to the optimal services for their specific use case, be it an industry-specific cloud solution, a specialized database or an AI and ML service. Companies are integrating their on-premises and private cloud infrastructures into their roadmaps as they realize that not all workloads belong in the public cloud, mainly due to cost, performance and regulatory aspects.
Cost optimization in the cloud is paramount: Companies are increasingly focusing on cost reduction and efficiency in 2024 due to the possibility of an impending economic downturn. With the rapid growth in public cloud usage over the last two years, cloud spending has significant cost-saving potential. IT, Finance and FinOps teams are visualizing their TCO across their hybrid cloud footprint (onpremises, private and public clouds) to identify optimization opportunities and monetization potential in cloud migrations. Having achieved fundamental cost savings through simple FinOps in recent years, organizations are now looking to redesign their applications to leverage cost-effective, cloud-native technologies such as serverless to further optimize their cloud spend.
Increasing success for small and medium sized providers: It is noticeable that several large global system integrators are losing customers to these smaller providers. The main reasons for this are manifold. A few of them are listed below:
Costs: Small and medium-sized providers can offer more competitive prices due to lower overheads. They are also more agile and can adapt quickly to changing market conditions.
Innovation: Due to their agility and innovative strength, small and medium-sized providers can react more quickly to new technologies and trends. Some of them even offer more advanced solutions.
Personal service: Small and medium-sized providers attach great importance to personal support, customer orientation and flexibility. This allows them to tailor their services to the individual needs of their customers, in contrast to the standardized offerings of large providers.
Ongoing shortage of skilled workers drives M&A activity: Companies are acquiring capacity and skills to increase their revenues. In 2023, the trend of increasingly smaller companies in the managed services sector being acquired by larger companies continued unabated. ISG predicts further mergers and acquisitions in the coming years.
Strong demand for colocation services: In Switzerland, commercial enterprises, banks and insurance companies, healthcare sectors and public administrations are increasingly relying on the services of colocation providers and moving their infrastructure to their data centers. There are many reasons for this, including improved operational security, adherence to compliance requirements and the rapid provision of secure connectivity worldwide. In addition to housing, some colocation providers offer state-of-the-art IT infrastructure systems that can be easily added and provide a basis for a hybrid cloud. Sustainability is an important issue.
Data centers are required to achieve the goal of climate neutrality by 2030. Green technologies, energy recovery systems, use of green energy, monitoring and optimization will become mandatory — a requirement that many customer-owned data centers will find challenging to meet.
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