Executive Summary: ISG Provider Lens™ Private Hybrid Cloud - Data Center Services - Germany 2024
23 Jul 2024
by Ulrich Meister, Wolfgang Heinhaus
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The increasing demand for outsourcing solutions for IT infrastructure continues to drive the expansion of Managed Services and Colocation Services
Over the last four quarters, the adoption level for cloud technologies and associated business models has not increased as much; companies have been more concerned with innovation and adding value for their end users. They are benefiting from cloud computing environments and the use of cutting-edge technologies such as AI, analytics and RPA to accelerate technological improvements. The hybrid cloud has become the norm in recent years, with the private cloud taking the lion’s share. With the growing demand for hybrid cloud solutions, IT infrastructures‘ complexity has increased, and they have become more difficult to manage. Organizations are now more open to outsourcing these operations to service providers who have extensive expertise in managing hybrid cloud infrastructures for companies in various industries. Some key variables that influence outsourcing decisions are data center integration and consolidation, server performance, virtualization, containerization, governance and compliance, downtime and data loss. ISG has found that due to inflation and various economic and political downturns, organizations have been spending less or postponing their infrastructure transformation initiatives until next year. They are taking a more cautious and strategic approach to their outsourcing decisions to effectively manage their costs in this volatile economic scenario. This is confirmed by ISG index figures.
As ISG has also observed, providers are increasingly trying to educate customers on the need for infrastructure standardization, as this allows them to offer better services at a lower price. Standardization can yield several advantages:
• It enables providers to automate infrastructure operations and reduce the need for manual intervention, which can lead to significant cost savings and improved efficiency.
• A standardized infrastructure also allows providers to scale operations more easily and quickly; they can simply replicate the standardized components across different locations and customers. Standardization also improves 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, which can ultimately benefit both providers and enterprise customers.
ISG’s Star of Excellence™ program has been very well received over the last four quarters and has gained significant traction. Providers are evaluated on six parameters: Service Delivery, Governance and Compliance, Collaboration and Transparency, Innovation and Thought Leadership, Matching People and Culture, and Business Continuity. The rating/data comes from a Star of Excellence study that measures the CX of providers based on direct customer feedback.
The trends observed over the past year include the following:
Infrastructure modernization has become unavoidable: Many companies in Germany have been using their IT infrastructure for years or even decades, and these infrastructures have reached the end of their lifespan; they can no longer keep up with the demands of modern applications and business processes and are more susceptible to security threats and other risks. Modernizing IT infrastructure requires a significant investment in time, money and resources. Service providers thoroughly assess existing infrastructure, identify gaps and inefficiencies and develop a roadmap for how these systems can be updated or replaced. However, the benefits are not immediately apparent, and risks such as disruption to business operations during the migration process must be expected. Overall, infrastructure modernization is a critical step for many companies to remain competitive and meet the changing demands of the digital age. While the stakes may be high, the potential savings are significant, especially in terms of improved operational efficiency and increased business results.
Evolution from hybrid cloud to polycloud: Cloud providers, in particular AWS, Microsoft (Azure) and Google (Cloud), will further differentiate their offerings in 2024; companies, in turn, will make very conscious decisions about where to place their workloads. While a multicloud traditionally refers to the simultaneous use of several clouds, a polycloud ecosystem focuses on specific services. In a polycloud, for example, data storage comes from one provider, while security is used as a service from another provider. With this polycloud strategy, applications can have access to the best available services for the respective use case, be it an industry-specific cloud solution, a specialized database or an AI and ML service. Companies will critically
consider their on-premises and private cloud footprints in their roadmaps as they realize that not all workloads belong in the public cloud, mainly due to cost, performance and regulatory factors.
Cost optimization in cloud is top priority: Companies have changed their goals for 2024 to focus on cost reduction and efficiency due to the economic downturn. As a result of the rapid expansion of public cloud usage over the last two years, cloud spend is one of the biggest areas for cost reduction. To uncover opportunities to optimize and monetize cloud transitions, IT, Finance and FinOps teams are visualizing their TCO across their entire hybrid cloud footprint (on-premises and private and public clouds). Having achieved fundamental cost reductions through simple FinOps in recent years, organizations are now aiming to redesign their applications to leverage more cost-efficient, cloud-native technologies such as serverless to further optimize their cloud spend.
Midsize providers win more orders: As ISG has observed, large global systems integrators are losing customers to midmarket providers for reasons including:
Costs and innovation: Midsize providers can offer more competitive prices as they have lower overheads and are more agile in adapting to changing market conditions. In addition, they have learned to create innovative technological solutions for specific customer problems more quickly.
Personalized services: Midsize providers devote more attention and focus to their customers and have more flexibility to adapt their services to the individual needs of their customers, in contrast to large providers‘ standardized service offerings.
Changing hosting landscape: Within the managed hosting space, companies continue to prioritize OpEx models for hybrid cloud deployments. However, there are key issues impacting sourcing choices, such as difficulty in hardware replacement and poor profit margins. Widespread VMware technology usage by service providers in hosting environments reduces technology differentiation at a deeper technology IT stack level. Organizations across industries are investing in improving security protocols and automated managed backup and recovery services that leverage cutting-edge compute and AI technologies. As a result, organizations are turning away from on-premises infrastructures for applications that require low latency, opting instead for
those services that best fit the workload.
Strong demand for colocation services: Commercial enterprises, the healthcare sector, financial service providers, the administration and even companies with highly sensitive data classified by the Federal Ministry for Economic Affairs and Energy, such as classified information for official use only (VSNfD), are increasingly relying on colocation services and moving their infrastructure to the data centers of third-party providers. There are many reasons for this, including improved operational security, adherence to compliance requirements underpinned by multiple certifications and the rapid provision of secure, low-latency and stable network connections across the world. In addition to housing services, many colocation providers offer state-of-the-art IT infrastructure systems that can be easily added as required and provide a basis for a hybrid cloud culture. Sustainability is an important topic.
The Energy Efficiency Act 2023 (EnEfG) specifically targets data centers. Climate neutrality is to be achieved as early as 2030. Green technologies, energy recovery systems, green energy usage and monitoring, optimization and logging will become mandatory, a requirement that many customer owned data centers will find difficult to meet.
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