The pandemic has changed the enterprise IT market, stimulating growth overall, a faster shift to cloud services and traditional managed services and outsourcing. Having brought to you my analysis of the server, storage system and enterprise network markets in 2021 in the last few weeks, I want to draw a picture of the wider market in 2021.
In 2021 we saw the following movements of the three participating areas (see my Figure above). In particular:
- Cloud (IaaS and PaaS) – this was the strongest area of growth (23% to $199b); however 2021 saw less growth than in 2020 (28%) and 2019 (30%); while the cloud was of significant utility during the periods of lockdown and social distancing, it’s experiencing reductions in growth due to its increasing maturity. Cloud services are typically bought from OpEx, rather than CapEx, budgets – making them attractive to born-in-the-Web companies and others who want to avoid the long-term costs of building new data centers and hiring IT staff.
- On premise IT (including server, storage system and enterprise network and infrastructure software) – this area showed more growth in 2021 (7% to $439b) than in 2020 (3%), driven to a return of growth in hardware sales (5% up to $188b in 2021 following a decline of 3% in 2020). Supply chain challenges limited growth here, making the total less than it could have been. Infrastructure software grew by 8% in both 2020 and 2021, reaching a total of $251b last year (see below for 2021 market shares). Enterprise IT is bought by customers who typically want to build and run their own IT systems, although some hardware vendors allow you to locate your hardware in nominated clouds.
- Outsourcing/managed services – this is the area in which suppliers take over all, or some data center IT functions from there customers (outsourcing v managed services respectively). Unlike cloud and enterprise IT, the cost of running applications is also included in these revenues. Surprisingly for some, there was strong growth of 11% in 2021 (to $596b), following a decline of 1% in 2020. Chossing these services is typical for established large customers who expect little change in their IT needs over time.
Some customers are mixing all three of these areas to create a hybrid IT strategy, allowing them to pick different solutions for their applications – using the cloud for setting up major new applications for customers, keeping their own data centers running for applications that need high security or have a significant proprietary value, choosing to outsource large applications of which they expect little future change, or those of acquired companies with different IT approaches to the parent. Each area has different values in terms of the time to develop and deploy applications, how they are paid for, their Total Cost of Ownership (TCO) and how easy they are to move away from.
The leading vendors differ dramatically in which elements of this market they participate in (I summarise the 2021 revenues for the top ten in my Figure above). So for instance:
- Amazon, which wasn’t an IT vendor at all before 2000, made all of its revenues from its AWS cloud services. It has seen remarkable growth of the years and is the epitome of a cloud service provider. It runs its services on its self-built hyper-converged infrastructure installed in multiple data centers around the world.
- IBM had the most balanced portfolio, making revenue from all three areas, although the offloading of Kyndryl at the end of 2021 will see it leaving the outsourcing/managed services area. Perhaps because it covers the waterfront, IBM has the most advanced concepts of the ‘hybrid multi-cloud’
- Dell‘s success is based mainly on its server and storage system hardware sales, although it also is a major supplier of infrastructure software (in the on premise IT area) through its ownership of EMC. It offloaded Perot systems in 2016 to end its association with outsourcing/managed services.
- Cisco‘s revenues are based on its enterprise network sales – a market it which it has maintained a 50% share for many years.
- Accenture is exclusively an outsourcing/managed services supplier – its mastery of which put it in fifth position in the overall enterprise IT market.
- Microsoft offers no hardware in the enterprise IT market (I classify its Surface PC as a consumer product). Its revenues in enterprise IT are based on its infrastructure software and Azure cloud services.
- Google‘s revenues are based entirely on its Google Cloud business.
- HPE is exclusively a hardware supplier to enterprises; I do not include its Greenlake business as IaaS, since customers have to buy its products to run them from collocation on public cloud data centers.
- NTT‘s revenues come from its cloud and managed services offerings, partially stemming from the Japanese market in which large organizations traditionally rely on home country IT suppliers to manage there IT use.
- Huawei made its revenues mainly from enterprise hardware, although it also offers cloud services. It will grow faster than others when the US government stops barring it, or it can prove there is no substance in the accusations that it works in collusion with the Chinese government.
You need different resources to compete effectively in each three areas – global supply chain expertise, excellent design and contracts with Chinese manufacturing for hardware, excellent designers, software engineers and mastery of the Internet for cloud suppliers and people with practical skills, deep industry sector knowledge and cost management for outsourcers. They all rely on hardware, software and services to make money, but with subtly different emphases.
Most media coverage of the enterprise IT market concentrates on developments the infrastructure software, open source software, container and cloud markets, overlooking many of the others making up the whole. Some market research companies even make up spurious new categories every year to focus their readers’ attention on the suppliers that pay them.