ISG Provider Lens™ Mainframes – Services and Solutions - Mainframe Application Modernization Software - Americas 2024

Mainframe modernization shows momentum, with an increased vendor focus on mergers and acquisitions

With increased attention to cost savings and budget control observed in 2023, more enterprises are considering mainframe modernization to reduce their IT spending. Software maintenance license is a significant cost element that companies can drastically reduce by moving applications to the cloud.

IT organizations facing business pressure to reduce spending tend to prioritize replatforming their mainframes to the cloud, using partner tools such as OpenText (Micro Focus), TmaxSoft (OpenFrame), LzLabs and NTT DATA (UniKix) to rehost legacy applications to run in the cloud rapidly. However,  replatforming does not eliminate programming language obsolescence, requiring companies to retain obsolete software engineering processes to develop and maintain outdated applications. More advanced methods include rewriting applications to Java, .NET or C# to introduce DevOps and Agile development methods. Automated rewriting tools generate maintainable application code integrated with modern  application development workbenches. Reengineering automation takes longer than rewriting as it uses reverse engineering techniques to explain the legacy code, map data and application dependencies and expose business rules for human reviews. Reengineering allows companies to eliminate a dead code and update the business rules before automatically generating a new code. Rewriting and reengineering tools ensure like-for-like behavior and performance validated by intensive automated testing.

The high focus on GenAI in 2023 has positively impacted the global mainframe modernization market. Experimenting with GenAI tools allows clients to understand that automated code writing is possible. However, GenAI can only write pieces of code per a programmer’s prompt and cannot replace rewriting and reengineering tools that consistently generate millions of lines of code (LOC) in minutes. Practical GenAI tools demonstrated by participants in this study include business rules explanations and logic summarization to improve documentation and the creation of test cases. For example, the user can ask what the conditions are to calculate the insurance premium. Per the code, GenAI responds that for case XYZ, the conditions are A, B and C, and for case YYY, the conditions are B, D and E. Humans can find the same in the code, but GenAI does it much faster.

Despite continuous, nimble and new technological innovations, mainframes offer a stable technology and have some appropriate use cases. Several enterprises are not ready to exit mainframes due to their  simplicity, reliable performance and security compliance. Some clients continue to see no value in investing to change something that works well. Mainframe to cloud migration is not a priority for many, and consider other investments that can produce better returns.

The market for Mainframe Operations and MFaaS continues to grow. Mainframe as a service (MFaaS) offers a cloud-like experience from the point of view that clients pay per use, similar to the cloud commercial model but running on a private cloud.

Mainframe operations are more flexible, allowing clients to retain hardware and software ownership. In both cases, service providers operate the infrastructure and offer different levels of managed services. This year, ISG observes that more clients are moving from on-premises to outsourced data centers and MFaaS to decommission their facilities, accelerate sustainability programs and achieve carbon neutrality targets. Most service providers reported growth in 2023, with a few clients changing the incumbent system, and a majority of new deals refer to transferring on-premises installations to outsourcing data centers.

In Mainframe Optimization Services, service providers demonstrated more cases of clients implementing DevOps in their mainframe environment, transforming their software engineering processes to adopt continuous integration and quality assurance. Modernizations in this area include code repositories, such as GitHub, service automation, testing automation, cloud backup, API development and data integration with Model9, Precisely and other tools. More providers are talking about zLinux (Linux on mainframe hardware) and Java virtual machine (JVM) on the mainframe, but the number of cases continues to be small.

Companies that are late in modernizing their legacy applications with DevOps are waiting for the right time to exit the legacy platform. During this study, ISG observed that more companies understand waiting is not an option and that business demands agility and cloud integration. Mainframe optimization is an effective solution to address business demands without exiting the mainframe platform. ISG predicts that many large enterprises will need several years to exit mainframes, and optimizing the environment is an immediate necessity to address business agility and hybrid cloud integration.

In Applications Modernization Services in the U.S., companies are accelerating their modernization  pace, emphasizing cost savings and focusing less on innovation. Clients want to reduce their technical debt, preferring to do so on a modern platform rather than investing in costly mainframes. Companies must also demonstrate their applications’ compliance with the most recent regulations, including data privacy and employee access to databases and clients’ information, confidential or not. Data access controls exist in mainframes, but demonstrating access controls and providing auditing traceability may require application
code modernization, and showing compliance might be impossible without documentation. Clients should note that mainframe hardware and software are highly secure, but applications’ compliance depends on programmers’ discipline, methods and tools.

Modernizations with rewriting and reengineering technologies enable code quality checks and traceability. Clients should pre-assess their environments and clearly define requirements before engaging with service providers to modernize their applications. They must also consider whether the endeavor comprises a few applications or the entire portfolio. Some providers are exceptionally instrumental in handling large and complex application portfolios, which can be overwhelming and expensive to modernize a few applications. A few others are nimble and apply pragmatic approaches to modernize applications one by one at speed.

Application Modernization Services in Brazil are flourishing and expected to grow in 2024. The largest banks have started their application modernization and cloud migrations, inviting attention from hyperscalers such as AWS, Microsoft, Google and Oracle that want to run these banks’ huge number of processing hours — Brazil is the second largest IBM mainframe market after the U.S. The system integrators and software vendors expect that the millions of mainframe applications will require many years to modernize and migrate to the cloud.

Banco Itaú’s modernization program is at center stage, with several cases promoted at AWS re:Invent in 2021, 2022 and 2023. The bank has a tradition of technological innovation and was a pioneer in online banking before the year 2000 and later by offering its mobile app in the Apple Store. It has questioned application reengineering and rewriting methods, requiring technology vendors to include innovation while modernizing applications instead of the conventional converting code for a like-for-like experience. The bank’s questioning is pushing vendors to improve their application modernization technology.

The Application Modernization Software market is expanding rapidly, driving large vendors to invest in acquiring successful niche vendors. In 2023, IBM launched the IBM watsonx Code Assistant for IBM Z, using GenAI to assess legacy applications and rewrite new code. This year, IBM acquired the application  modernization technology from Advanced. In 2023, OpenText acquired Micro Focus, and Amdocs acquired Astadia. Later the same year, Rocket Software acquired the modernization IP from OpenText. Years before, AWS acquired Blu Age, Avanade acquired Asysco, and Ensono acquired ExperSolve. ISG expects this M&A trend to continue in 2024 and 2025.

ISG qualified 25 vendors in this quadrant, and other smaller vendors were assessed but not qualified. ISG expects new solutions to emerge with GenAI maturity, which can happen quickly. IBM’s recent  announcements are particularly important because they show the company understands that mainframe applications will be replaced and wants to be part of modernization. IBM’s change in strategy may motivate more clients to consider exiting the mainframe.

At present, GenAI cannot replace rewriting and reengineering software tools. With repetition being the most important characteristic of these tools, clients can reprocess the legacy code, but the generated code will always have the same output. When changing the source code and submitting it again for rewriting, the tool generates a code to pass quality and performance checks — repetition and consistency are considered crucial aspects of code rewriting. GenAI uses large language models (LLM), a method based on interpretation and creation that changes at every interaction. This detail may cause GenAI to be an additional tool rather than a replacement for application reengineering and rewriting.

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