ISG Provider Lens™ Private Hybrid Cloud - Data Center Services - Managed Hosting - Midmarket - Germany 2025

Cost optimization and the use of generative AI have become key aspects of digital transformation

Companies are increasingly recognizing the challenges and limitations associated with exclusive reliance on public cloud services. As a result, they are increasingly turning their attention to private and hybrid cloud infrastructure solutions. This strategic shift is being driven by a number of factors, including data security concerns, regulatory
compliance, performance optimization and the desire for greater control over IT resources. By implementing private and hybrid cloud environments, organizations can leverage the benefits of cloud computing while more effectively addressing specific operational, regulatory and security concerns. As ISG observes, more organizations are turning to
hybrid cloud infrastructures because they offer the flexibility, scalability and agility needed, combined with the necessary control over data residency, security and costs. Over the past four quarters, organizations have actively
sought ways to increase the efficiency and cost-effectiveness of their IT investments in the face of growing economic uncertainty. In this context, CTOs find it increasingly difficult to justify their IT spending. Therefore, strategies are being evaluated to optimize IT costs, rationalize budgets and maximize the return on technology investments. This includes assessing existing IT infrastructures, identifying potential savings and introducing innovative approaches such as hybrid cloud computing, automation and outsourcing to achieve greater operational efficiency and financial resilience.

The following developments were observed last year:

Changing framework conditions for the use of data centers: Companies are currently undergoing a fundamental change in their approach to data center management, which is reflected in a reduction in the physical space of their own facilities. They increasingly turn to alternatives such as public cloud services or colocation providers. This strategic shift is being driven by turning increasingly number of factors, including the desire to minimize costs, increase scalability and optimize operational efficiency. At the same time, colocation providers are increasing their investments to expand their data center resource offerings. This increase in investment reflects the growing demand for colocation services, as reliable, secure and scalable infrastructure solutions are needed to meet changing IT requirements. By leveraging the expertise and infrastructure of colocation providers, companies can achieve greater flexibility, agility and resilience in managing their IT infrastructure while focusing on their key objectives.

Leveraging AI and ML technologies: This year, ISG has identified many solutions that leverage AI-powered cognitive capabilities and/or ML tools and services to deliver highvalue outcomes, accelerate service delivery, increase IT efficiency and create a best-in-class UX. Providers have developed sophisticated tools that use data from multiple sources to predict downtime and take self-healing actions to prevent such incidents. The use of AI for IT operations (AIOps) has also become increasingly important. This technology can monitor various aspects of the entire hybrid environment and provide predictive analytics for incident management to minimize disruptions, bundle triggers, automatically establish correlations and identify the most likely cause using ML technology.

Commodization of specialized hardware: AI and ML use requires considerable computing resources and powerful servers. Historically, solutions with specialized hardware were rare and often associated with high costs. Regardless, progress is gathering pace. Efficient infrastructures based on high-performance computing (HPC) are becoming increasingly important. Companies such as NVIDIA, Intel and AMD are developing extremely effective hardware. These developments enable the widespread implementation of AI-powered cognitive capabilities and ML tools, enabling companies to exploit the potential of these technologies more fully. By leveraging these innovations, organizations can overcome previous limitations and drive innovation in AI and ML, opening up new opportunities for datadriven insights and transformative applications across industries.

Cautious investment in generative AI (GenAI): Numerous companies want to find out how GenAI can fundamentally change their business processes. Analyzing the costs and benefits of GenAI requires careful evaluation to differentiate between unrealistic expectations and tangible results. This growing demand for GenAI requires additional data center capacity. In the long term, GenAI is expected to be used more; however, organizations currently face the challenge of allocating budgets for GenAI initiatives, which are often the responsibility of IT. These investments focus on equipping organizations with actionable insights, predictive analytics and intelligent automation
solutions. From ML models to analytics and AI-powered tools, service providers aim to equip companies with the tools and capabilities needed to achieve significant business outcomes and drive innovation. These efforts are also designed to help develop new revenue models and enable companies to harness the transformative potential of AI technologies. 

The VMware problem: Following the acquisition of VMware by Broadcom in 2023, VMware’s licensing terms and pricing structures have changed significantly, with a greater emphasis on a subscription-based model. These changes have far-reaching consequences for almost all companies and service providers that use VMware solutions. Some providers are considering switching to Red Hat OpenStack technology, as the associated costs are significantly lower than VMware’s license fees. In addition, many are looking to move to Hyper-V solutions to better respond to Microsoft-related offerings or are considering a complete move to hyperconverged infrastructure (HCI) and evaluating solutions
from Nutanix and other HCI vendors.

Hybrid and multicloud strategies: More and more companies are turning to hybrid and multicloud approaches to make their IT infrastructure more efficient. Data center outsourcing providers offer solutions that can be seamlessly connected to public cloud services such as AWS, Azure and Google Cloud. These offerings enable companies to realize
flexibility, scalability and redundancy across different environments.

Growth of edge computing: The rapid growth of IoT devices and the need for low-latency applications have driven the development of edge computing infrastructure in Germanspeaking countries. Data center outsourcing providers are strategically positioning edge data centers close to end users, enabling faster data processing and providing real-time insights for various sectors such as manufacturing, healthcare and smart cities.

Partnerships and alliances: Data center outsourcing providers are forming strategic partnerships and alliances with technology providers, cloud service providers and service integrators to expand their service portfolio and meet customers’ changing needs. Such collaborations enable the smooth integration of services and provide access to state-of-the-art technologies and comprehensive solutions for hybrid IT environments.

Compliance requirements: Compliance is critical when investing in private data centers, especially in highly regulated industries. Compliance with regulations requires increased security and reliability in these data centers.
However, meeting compliance requirements comes with challenges and can require significant investment. It is, therefore, essential to communicate this issue at C-level, as it requires appropriate attention and strategic decision-making.

Legacy challenges: Many organizations rely on legacy systems for financial, operational and cultural reasons. While some may not have the necessary skills to migrate to the cloud or make the most of their resources, others — especially those not under intense pressure to digitally transform — often lack the incentive or a compelling business case to make the necessary system change.

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