Executive Summary: ISG Provider Lens™ Private Hybrid Cloud - Data Center Services - U.S. 2025

The individual quadrant reports are available at:

ISG Provider Lens™ Private Hybrid Cloud - Data Center Services - AI-Ready Infrastructure Consulting - U.S. 2025

ISG Provider Lens™ Private Hybrid Cloud - Data Center Services - Colocation Services - U.S. 2025

ISG Provider Lens™ Private Hybrid Cloud - Data Center Services - Managed Hosting - U.S. 2025

ISG Provider Lens™ Private Hybrid Cloud - Data Center Services - Managed Services - Large Accounts - U.S. 2025

ISG Provider Lens™ Private Hybrid Cloud - Data Center Services - Managed Services - Midmarket - U.S. 2025

AI-powered platforms and tools are significantly reducing manual intervention and operational costs

The rapid adoption of AI technologies, such as large language models (LLMs) and generative AI (GenAI), has led to an unprecedented demand for data processing and storage capabilities. AI is fundamentally transforming the digital landscape, with data centers at the heart of this revolution. Data centers are evolving from simple storage facilities
into complex ecosystems that must support massive computational workloads. This transformation is driven by the need for highperformance processors like GPUs, CPUs and TPUs, which are essential for training and running advanced AI models. As a result, data centers are now critical infrastructure underpinning everything from online transactions to AI-powered services.

However, this growth comes with significant challenges, particularly in terms of power consumption, connectivity and cooling. AI workloads are energy intensive, requiring robust power supplies and advanced cooling systems to prevent overheating. Also, there is a need for high-speed, low-latency connectivity to ensure efficient data transfer between
servers and users. These technical demands push service providers and data center operators to innovate rapidly, but they must also navigate an evolving regulatory landscape. New laws, such as the AI Act and expanded cybersecurity directives, are introducing stricter risk management and operational transparency requirements, compelling data centers to adapt quickly to stay compliant.

At the same time, the global expansion of data centers is facing increasing opposition from local communities and environmental groups. Concerns range from increased energy and water consumption to potential harm to local
ecosystems and higher carbon emissions. Highprofile protests have emerged in locations such as Virginia, the U.S.; London, the U.K.; Uruguay; and the Netherlands, where residents and activists argue that new data center projects
threaten conservation areas, strain local resources and offer limited community benefits. In response, some developers are attempting to mitigate these impacts by repurposing industrial sites, investing in renewable energy
and offering local economic incentives. At the same time, major tech companies have pledged to achieve ambitious sustainability targets.

Service providers are innovating and integrating AI, ML and intelligent automation into their offerings to optimize workflow, enhance monitoring and reduce manual intervention. For example, AI-powered platforms now proactively identify anomalies, automate alerts and support predictive maintenance, while IoT data is used for capacity planning and resource optimization. Cloud and hybrid delivery models are central to these innovations. Providers are helping enterprises migrate workloads to cloud or colocation data centers, implement server virtualization and manage multicloud environments with cloud-agnostic operations. For instance, a few providers have enabled clients to move away from traditional data centers and transition to cloud-based infrastructure, improving scalability, security and cost efficiency. Their managed services emphasize observability, automation and a strong FinOps framework to manage
cloud spend and enhance security through policy-as-code and SecOps practices. Some providers deliver integrated management services using a cloud-first strategy, intelligent automation (through their proprietary platforms) and contextual business knowledge to customize solutions for clients seeking agility and scalability.

While the broader market is witnessing advancements like software-defined data centers (SDDC), edge computing enablement and the adoption of 5G networks, which are expanding the capabilities of managed services, these innovations are enabling real-time data processing, improved disaster recovery, and more agile, self-healing infrastructure management. As enterprises increasingly adopt hybrid and multicloud strategies, managed service providers respond with solutions that unify operations, ensure business continuity and deliver measurable business 
value through automation, observability and continuous optimization.

Some of the trends observed in the past year are discussed in the following sections.

AI-powered automation and AIOps: Service providers are revolutionizing managed operational services for private and hybrid cloud infrastructure by integrating AI and ML technologies into daily operational activities. This trend encompasses proactive monitoring and predictive analytics, where AI and ML algorithms analyze real-time data, logs and metrics to detect anomalies and forecast potential operational disruptions. This early warning system allows for preemptive action, minimizing downtime and ensuring business continuity. Furthermore, AI insights trigger automated remediation and selfhealing mechanisms, enabling systems to resolve common incidents, perform routine maintenance and optimize resource allocation autonomously, significantly reducing manual intervention and enhancing operational efficiency. AI is also leveraged for intelligent workload placement and optimization, ensuring the  applications are dynamically positioned across private and public clouds based on a multitude of factors, including cost, performance requirements, compliance mandates and resource availability, leading to optimal utilization and cost-effectiveness.

Enhanced security and compliance: Security continues to be one of the top priorities in managed operational services for hybrid cloud. Providers are embedding integrated security operations directly into their offerings, ensuring a consistent security posture across all managed environments. This includes continuous security monitoring, advanced threat detection capabilities and swift incident response mechanisms. Furthermore, the automation of compliance and governance processes is a key trend, with providers utilizing specialized tools and frameworks to  automate compliance checks, enforce predefined security policies and maintain comprehensive audit trails across the hybrid infrastructure, thereby facilitating adherence to stringent regulatory requirements and mitigating potential  risks. The implementation and management of zero trust architectures, based on the principle of continuous  verification, further strengthens the security landscape across the hybrid environment.

Cost optimization and FinOps: Optimization of cloud resources has become central to the value proposition of managed services. Service providers deliver comprehensive cost visibility, providing organizations with detailed insights into their cloud spending across various platforms, enabling a clear understanding of expenditure patterns and
identifying areas for potential savings. In addition, AI and ML facilitate AI-driven cost optimization recommendations, identifying opportunities to reduce cloud waste, optimize resource utilization and improve overall cost efficiency. Implementing showback and chargeback models provides granular cost allocation to specific business units or  projects, fostering greater financial accountability and promoting cost-conscious behavior within the organization.

DevOps and containerization support: Service providers heavily invest in DevOps and containerization  technologies, emphasizing skills and expertise in the domain. Integration with DevOps pipelines is a key focus,  enabling consistent application deployment and management across hybrid environments through CI/CD processes. Skills and tools for managing containerized applications and Kubernetes clusters across private and public clouds are also crucial offerings. Adopting infrastructure-as-code (IaC) practices, where infrastructure is managed through code, ensures consistency, repeatability and deployment automation. Service providers also offer valuable consulting and advisory services to guide organizations in formulating effective hybrid cloud strategies and optimizing their operating models, alongside training and upskilling initiatives to enhance clients’ internal capabilities.

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