2018 Trends in Hosting & Cloud Managed Services

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1 PREVIEW 2018 Trends in Hosting & Cloud Managed Services DEC 2017 Rory Duncan, Research Director, Managed Services & Hosting Penny Jones, Principal Analyst - MTDC & Managed Services Aaron Sherrill, Senior Analyst Diversity and rapid growth will continue to define the development of the managed services and hosting markets in Emerging opportunities in security, service management and cloud hosting will be available for technology vendors, service providers and distribution partners as part of a broader ecosystem Research, LLC

2 ABOUT 451 RESEARCH 451 Research is a preeminent information technology research and advisory company. With a core focus on technology innovation and market disruption, we provide essential insight for leaders of the digital economy. More than 100 analysts and consultants deliver that insight via syndicated research, advisory services and live events to more than 1,000 client organizations in North America, Europe and around the world. Founded in 2000 and headquartered in New York, 451 Research is a division of The 451 Group Research, LLC and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication, in whole or in part, in any form without prior written permission is forbidden. The terms of use regarding distribution, both internally and externally, shall be governed by the terms laid out in your Service Agreement with 451 Research and/or its Affiliates. The information contained herein has been obtained from sources believed to be reliable. 451 Research disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although 451 Research may discuss legal issues related to the information technology business, 451 Research does not provide legal advice or services and their research should not be construed or used as such. 451 Research shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice. NEW YORK SAN FRANCISCO LONDON BOSTON 1411 Broadway Suite 3200 New York, NY P F Geary Street 9th Floor San Francisco, CA P F Paxton House Ground floor 30 Artillery Lane London, E1 7LS, UK P +44 (0) F +44 (0) Federal Street 5th Floor Boston, MA P F ABOUT THE AUTHOR RORY DUNCAN RESEARCH DIRECTOR, MANAGED SERVICES & HOSTING Rory Duncan is the Research Director for 451 Research s Managed Services & Hosting channel. His research focuses on the global managed services and hosting market, where he tracks IT managed service providers, web and applications hosting firms and content delivery network providers. His coverage includes services, the IT distribution channel, market sizing, M&A activity, and factors that affect the business strategies of these companies. II

3 Key Findings The global market opportunity for managed services and hosting will rise significantly to more than $179bn by 2021, driven by strong growth across all infrastructure, application and managed services sectors. Cloud has become a key delivery mechanism and consumption model for almost all services, but on-premises, operational management will still be an important part of all hosted offerings for the forseeable future. The IT distribution channel is making a comeback as it adapts to changing service management requirements, and stands to gain from its transactional experience and ecosystem relationships in a multi-cloud world. III

4 Executive Summary INTRODUCTION The managed services and hosting sectors cover a broad range of infrastructure, application and managed service types. While many of these services are delivered using the cloud, a large proportion are not in the cloud and still rely on operational management using traditional means. At the same time, it is clear that much of the physical infrastructure on which services are built is becoming increasingly invisible. Technology convergence, hardware virtualization and the rise of everything as a service (XaaS) have made awareness of compute, storage and networking functionality much less of a necessity for the consumers of these services. This is not to say that the infrastructure for delivery is less important than it has been until now just that the managed delivery of these services has become more important to the customer than ever before. The figure below shows the growing significance of the managed services market, and where it s likely to go over the next few years. Managed Services Is Growing Faster Than Other Markets Source: 451 Research s Hosting, Cloud & Managed Services Market Monitor, November 2017 US$ Millions Infrastructure $32,527 $38,571 $44,713 $51,137 $57,860 $64,535 Applications $29,498 $33,046 $36,559 $40,139 $49,933 $47,652 Managed Services $28,889 $34,715 $41,397 $49,006 $57,395 $66, CAGR 14.7% 10.1% 18.2% The technology vendors, service providers and distribution channel partners that make up the supply side of the managed services and hosting sectors will continue to face disruption as demand changes. New services will provide new opportunities, but also new competitors, including those moving in from adjacent markets. For those offering connectivity, the key aspects of service delivery high availability, low latency and edge delivery will become differentiating factors. Optimizing these components will provide competitive advantage and will open the door to new service capabilities. Operational management including monitoring and support has been the bread and butter of a range of service providers for many years, but the cloud has provided new opportunities for companies to offer managed services in additional areas. Traditional and cloud-based security is a leading demand generator, particularly as digital transformation affects industries that carry a high component of risk management, as well as those exposed to the more hazardous aspects of cyber-crime. Elsewhere, telecom carriers continue to leverage network ownership to provide packaged offerings, while a growing dependence on web-based applications is highlighting the need to ensure application performance and availability. New types of vendors e.g., those in the DNS infrastructure services space are coming into play, and more established markets, such as CDN, are developing outward to address API-based infrastructure platforms. At the same time, many mature sectors such as the web and application hosting market are starting to integrate new kinds of cloud services into the portfolios of leading players, taking into account the desire for functional expansion. This in turn opens up service development and integration opportunities for vendors and providers in related industries such as content management, social media marketing, complex application hosting and others. IV

5 2018 TRENDS IN HOSTING & CLOUD MANAGED SERVICES 451 Research s 2018 Managed Services & Hosting Trends Source: 451 Research, 2017 XaaS Will Extend Operational Management Opportunities for Providers Multi-Cloud Security Management Will Emerge as a Critical Enterprise Task Managed Connectivity Will Boost Interconnect Service Capabilities Cloud Service Integration Will Herald the Rise of the Mega- Hoster Sell With Will Become the New Sell Through for Service Distribution WINNERS Providers that can enable service automation; vendors that can offer service bundles Providers that can deliver cross-cloud identity and access management; companies with extensive API expertise; those with an extensive partner network to deliver integrated, holistic security services Network-capable service providers; vendors that are network-knowledgeable and/or customer-centric; providers offering choice Hosting firms that are able to integrate; providers that offer local language capabilities at no extra cost Technology vendors that recognize additional channel value is about more than just fulfillment; partners addressing vertical markets and SMBs LOSERS Those without a plan; companies taking the DIY-only approach Vendors with limited cloud support; providers relying on traditional security tools and controls; companies that deliver disjointed point solutions Service providers without an interconnectivity strategy; companies that don t have service and billing right; providers that like to rest on their laurels Providers selling a limited range of services in traditional sectors; hosters trying to compete for new customers on price Vendors without an evolved indirect channel strategy; distribution partners with limited services capabilities METHODOLOGY Reports such as this one represent a holistic perspective on key emerging markets in the enterprise IT space. These markets evolve quickly, though, so 451 Research offers additional services that provide critical marketplace updates. These updated reports and perspectives are presented on a daily basis via the company s core intelligence service, 451 Research Market Insight. Forward-looking M&A analysis and perspectives on strategic acquisitions and the liquidity environment for technology companies are also updated regularly via Market Insight, which is backed by the industry-leading 451 Research M&A KnowledgeBase. Emerging technologies and markets are covered in 451 Research channels including Cloud Transformation; Customer Experience & Commerce; Data Platforms & Analytics; Datacenters & Critical Infrastructure; Development, DevOps & IT Ops; Information Security; Internet of Things; Managed Services & Hosting; Mobile Telecom; Multi-Tenant Datacenters; Networking; Storage; Systems & Software Infrastructure; and Workforce Productivity & Compliance. Beyond that, 451 Research has a robust set of quantitative insights covered in products such as Voice of the Enterprise, Voice of the Connected User Landscape, Voice of the Service Provider, Cloud Price Index, Market Monitor, the M&A KnowledgeBase and the Datacenter KnowledgeBase. All of these 451 Research services, which are accessible via the web, provide critical and timely analysis specifically focused on the business of enterprise IT innovation. For more information about 451 Research, please go to: V

6 Table of Contents TRENDS 1 TREND 1: XAAS WILL EXTEND OPERATIONAL MANAGEMENT OPPORTUNITIES FOR PROVIDERS 1 RECOMMENDATIONS WINNERS LOSERS TREND 2: MULTI-CLOUD SECURITY MANAGEMENT WILL EMERGE AS A CRITICAL ENTERPRISE TASK 3 RECOMMENDATIONS WINNERS LOSERS TREND 3: MANAGED CONNECTIVITY WILL BOOST INTERCONNECT SERVICE CAPABILITIES 5 RECOMMENDATIONS WINNERS LOSERS TREND 4: CLOUD SERVICES INTEGRATION WILL HERALD THE RISE OF THE MEGA-HOSTER 7 RECOMMENDATIONS WINNERS LOSERS TREND 5: SELL WITH WILL BECOME THE NEW SELL THROUGH FOR SERVICE DISTRIBUTION 9 RECOMMENDATIONS WINNERS LOSERS VI

7 2018 TRENDS IN HOSTING & CLOUD MANAGED SERVICES THE LONG VIEW 11 FURTHER READING 12 INDEX OF COMPANIES 13 VII