2016 Predictions update shows more channel changes needed

IT Europa's 2016 predictions commentary has had a record number of downloads, and provoked some interesting debates among our followers and in the office. The original is still here http://www.iteuropa.com/?q=it-europa-2016-predictions .

We've now added some more ideas and feedback on the various topics that stood out as most important. The main items are cloud and security, as expected, but the debate seems to be about speed of transition and how the channel can change.

Gabriel Gambill, Director of Product and Program Management at Quorum comments:

“As virtualisation continues to grow, we will see many channel partners turning towards cloud solutions as a way to offer customers a flexible and cost effective approach to IT. 2016 will be an important year for the growth of cloud technology and channel partners will have an important role to play in this development. Customers are becoming more aware of the risks of business downtime, and they will start to place on emphasis on channel partners to be able offer high available, disaster recovery and business continuity solutions. Next year it will become vital that channel partners work closely with vendors to offer solutions that can provide business continuity and educate customers on the consequences of business downtime.”

“Red Hat’s Certified Cloud and Service Provider program was based on the continuing shift from on premise to cloud, and ensuring our partners are best-placed to deliver on customer projects. Whilst not all organisations want to move entirely to the cloud, we will see much greater growth in the adoption of hybrid cloud, and organisations making this shift will want to do so sooner rather than later, and we see this playing a big part in business investment in 2016,” says Frank Basinski, Red Hat EMEA Partner Programs & Enablement director.

The change to cloud and hosting is impacting everyone. The infrastructure industry is seeing dramatic upheaval as major forces are driving change. Against a backdrop of continued staff limitations, increasing service level demands, and workload shift to cloud-like models, comes increasing demand for lower Total Cost of Ownership (TCO), easier deployment and management, and greater flexibility in the data centre. George Symons, Gridstore CEO, makes several predictions how all this will impact 2016 and his storage business including:

• The market for hyper-converged solutions will grow faster than any other server or storage category. The demand for easier to deploy and manage as well as a lower TCO is driving significant growth in the hyper-converged segment. This is reflected in both infrastructure refreshes and upgrades as well as for specific workloads. The loser here is both standalone servers and legacy SANs, against which the new hyper-converged infrastructure is taking market share.

   

• More Software Defined vendors will deliver their software as an appliance on hardware. Software-defined as a category has developed substantially in the past year, with more customers understanding what it is and can deliver. However, mid-market users do not want to be their own integrators by getting software from one vendor and the hardware elsewhere. They want an engineered, supported, and easy-to-implement solution. Alternately, those that are very price-sensitive or large organisations with lots of resources are more willing to be their own internal integrators and therefore are interested in software only.

   

Legacy software is already feeling the strain: applications revenue grew only 3.9% year-to-year in 3Q15 for the 23 vendors tracked in Technology Business Research Inc.’s (TBR) Applications Software Vendor Benchmark. Cloud adoption generated subscription revenue growth of 39.9% year-to-year in the quarter and, as an alternative option, caused new license sales decline to accelerate to -25.3% among the same 23 vendors. As these two segments balance each other, total product revenue grew 7.6% year-to-year.

While cloud compresses revenue per solution and the associated margins, some mature cloud models begin generating returns despite continued investments in portfolio and global expansion; most notably, Salesforce reached its second quarter of positive organic operating margin, beginning to prove the profitability potential of cloud applications, TBR says. As these proof points multiply, greater scrutiny will be brought against vendors still operating at a loss, and ongoing profit weakness should trigger more exits and consolidations of smaller-scale competitors. “Inability to compete with entrenched competitors prompted HP to bow out of the public cloud market, and we expect smaller-scale vendors to admit this same defeat in the coming year,” said TBR Analyst Meaghan McGrath.

Beyond the impact of cloud delivery options on sales and vendor financials, disruptive trends, including the expected integration of analytics, APIs and intuitive user interfaces, dictate application transformation for vendors to remain competitive amid these changing expectations. Referring to mobilization and intuitive user experiences, TBR Principal Analyst Geoff Woollacott said, “Consumerization has reached another inflection point, as the need for mobile front-end development for existing legacy applications swamps internal IT departments, pressuring applications vendors to build simple-to-use design shells.”

Frank Basinski, Director, Partner Programs & Enablement, Red Hat EMEA says that as IT technologies continue to evolve to support the inevitable Digital Transformation, 2015 has been a year of significant change in the market, driven mainly by customers. Over the past year, the technologies that are fundamentally changing businesses, Cloud, Big Data and Mobility, have begun to mature. This trend will continue in earnest into 2016 and those companies that aren’t able to provide or support these technologies will be in danger of being left behind. So what do channel partners and supporting vendors need to prioritise, pay attention to and nail down in 2016?

Training, training and more training – partners needs to get trained up and vendors need to ensure that they are offering the type of training needed to put partners in a position of confidence and competitive advantage. Partners need to make crucial decisions – do they choose to specialise in one particular area or offer a wider portfolio? Partners that sit on the fence many find themselves at a significant competitive disadvantage with their solution provider or system integrator competitors, who will over-take them. Whatever they decide, they have to know that the vendors they are working with offer the training that they need.

In the first six months of the current fiscal year, Red Hat trained and accredited more than 1000 Red Hat Partners in its technologies in the EMEA region, and the momentum continues. On top of this, Red Hat has implemented a model for partners that gives them access to as much training as they need, free of charge, in order for its partners to ensure sustained quality-of-service to customers, he says.

“Interoperability and integration – The importance of this to customers cannot be stressed enough, and so we expect strategic alliances to play an important part in the direction that the industry will take next year.. Realistically speaking, end customers are invested in both, and need integration and interoperability to facilitate their Digital Transformation plans.”

This removes a major question mark from the transformation strategies of end customers, representing a major business opportunity that has received so much positive resonance around the world with System Integrator partners, he says.

It also affects the channel's relationship with the client and the role of the CIO. With technology increasing in importance in every business sector, Emma de Sousa, Managing Director at Insight UK commented on these predictions and suggests ‘Organisations will need to ensure that they are making the correct investments. Next year, improvements to the modern workplace will be vital to keep employees productive and happy, while new combinations of on premise and subscription IT services will offer greater agility and value for businesses. However, the IT landscape is more complex than ever and in this context, CIOs and businesses’ technology experts will be crucial to helping businesses navigate important technology decisions.”

The trends that Insight believes will shape the IT sector in 2016 are:

• The role of the CIO will transform

• Greater agility will reduce the gamble of IT investment

• Workplace tech will evolve even faster

• The global race to the cloud will slow

• Cyber breaches: preparing for the inevitable

   

The rise in importance of business IT has placed the CIO’s role as the heart of this space - at risk. In many organisations, responsibility for IT innovation is diluting across different business teams, taking away the most innovative and important parts of the CIO’s role. The result? It leaves their main responsibility as maintaining legacy IT infrastructures unless they drive changes required.

“CIOs must continuously transform to reinvent themselves in 2016. They need to take the lead in introducing new technological solutions to meet their business’ demands and represent the technology needs of the business in the boardroom. This way, CIOs can balance their responsibility for IT maintenance with strategic technology innovations that deliver real value for their organisations.”

The security aspect was a topic for Bill Platt, chief architect at BMC, who says “You will be hacked: are you ready to defend your data?”

“This year we saw security become a board-level discussion, as many high profile brands fell victim to vulnerabilities, cyber attacks and data breaches. It is taking far too long to address vulnerabilities, essentially giving hackers an open door to access anything they consider valuable. 80% of vulnerabilities are known yet it takes an average of 193 days to patch these vulnerabilities – meaning that companies are exposing themselves to a potential breach for more than six months at a time. In 2016 it’s not a matter of if your enterprise is going to get hacked, it’s a matter of how and when. BMC expects more organisations to seek out internationally recognised data protection accreditations, like Binding Corporate Rules (BCRs), which allow secure data transfer across borders while continuing to comply with local rules and regulations,” he says.

In 2015, Gartner stated that digital business currently accounts for 18% of overall revenue, and predicts a jump to 43% by 2020. That seems modest given digital natives like Uber, AirBNB and Etsy continue to disrupt the market. Still, only 5% of respondents in BMC’s 2015 survey had fully implemented the necessary digital services and mobile technologies to drive new revenue, open up new markets and deliver new operational efficiencies. “In 2016, we see this number growing significantly, as they accelerate the adoption of digital practices to enter new markets, streamline operations in their current lines of business and strengthen the competitive advantages they have built for years,” he says.

But the pace of change may be different depending on the size of user business: Mark Banfield, VP International at Autotask says “We believe the transition to cloud for SMBs will only accelerate. The average SMB network will be more oriented towards client/cloud architecture. Companies will develop a cloud-first mentality when buying new systems, as this is the most cost-efficient, secure and convenient way to consume any IT solution.

Is Europe far behind the US in terms of cloud moves for security and storage? “Since Europe is very diverse in its use of technology, it’s hard to compare Europe to the US in terms of cloud moves. We can attest to the fact that countries like UK, the Netherlands, Finland and Sweden are ahead of the US in some areas. There is a mature understanding of how to implement proper security, data management and business continuity in those countries. The European IT markets are very close already. IT Service providers in most countries will use the same vendors, products and have very similar problems that they are trying to solve. To be successful, we are strong advocates of a local and personal approach. It’s vital to understand the key differences between the countries, and we don’t see that changing anytime soon.”

Another topic is company valuations, with some owners and IT business managers seeking to take advantage of the apparent wave of new investment money. The writing may be on the wall for some top names, however: Brett Cole, M&A analyst, ansarada says: “Yahoo’s core business has a big for sale sign out. Marissa Mayer is no longer a chief executive of a business, but a dealmaker manoeuvring an Internet business in terminal decline because Ms. Meyer has been unable to find another raison d’etre for Yahoo apart from its current one of being an Internet destination.”

Yahoo has annual revenue of about $4.55bn but its core business is assigned a negative equity value. The company derives its market value from its stakes in Alibaba and Yahoo Japan, $32bn and $8.6bn respectively.

“Surely Yahoo’s 1 billion users are worth more than less than zero? Ms. Mayer and her board will be entertaining different pitches for Yahoo’s 1 billion customers over the coming months, perhaps running an auction to try and bolster the value of the company’s core business that some analysts estimate is worth as much as $8 billion.”

In a year where tech initial public offerings have struggled, Australia’s Atlassian has given tech venture capital reasons to smile again says Brett Cole. The maker of business development and collaboration software prices its IPO at $21, above the $19 to $20 price range set by its bankers at Morgan Stanley and Goldman Sachs.

Atlassian’s market value at the IPO price is $4.38 billion. The Sydney-based company’s stock sale is in contrast to Jack Dorsey’s Square that took a steep discount in November . Many Silicon Valley VCs will hope their companies, if they list in 2016, get an Atlassian like reaction during their pitches to fund managers during their IPO road shows. But they will have to show, perhaps, a bottom line, something Atlassian has as the company earned $6.8m on revenue of $319.5 million in the year that ended June 30. Atlassian has been profitable for three years, something some unicorns can only dream of.

“This month will close its largest single fund raising round, $2.1 billion that values Uber at $62.5 billion. How Uber is valued by insiders is very much an inside job. But people recently hired by Uber say they have joined partly because they have been bluntly told it was their last opportunity to lay their hand on stock options in the company before an IPO. That date is drawing ever near, perhaps accelerated as investors question tech valuations, now with more skepticism than support. But the world’s most valuable private company has the cojones to try and prove such skeptics wrong that question a $62.5bn valuation.”

The main topic for those trying the plan the year seems to be to guess how much clients have left to spend on IT after the necessary security uplift. IT will increasingly compete for technology budget with buyers from other lines of business within their organisations. As digital continues to play a larger part of marketing strategies, organisations’ IT teams need the flexibility to integrate complex new solutions quickly, comprehensively and reliably.

“Because of this we are already seeing partners with complementary skill-sets focus on building strategic collaborations, placing themselves in a strong position to offer end-users exactly what they require. This trend can be highlighted in UK partners LinuxIT, Softcat and Tier 2 Consulting, operating under the project name ‘The Three Musketeers,’ who used their combined skills on customer projects with Red Hat Enterprise Linux and Red Hat Mobile Application Platform,” says Frank Basinski at Red Hat.

Knowing what’s needed is just as important as having access to it, and partners that keep their ears to the ground will have a much better understanding of why many end customers are planning to, or have already initiated the transformation of their IT and business methods. Adaptability and flexibility play a major factor in end users’ investment decisions, which is why transformation-enabling technologies are becoming the focus of many business’ future-proofing activities.

It may be that technologies which converge push these alliances forward. Lee Caswell, VP Product, Solution & Services Marketing at NetApp, says: “Converged infrastructure will minimize the drudgery of hardware integration and free up customers to experiment with software innovation. It’s designed to increase IT responsiveness to business demands while reducing overall cost of computing.

In its Voice of the Enterprise: Converged Infrastructure survey, 451 Research found that 40% of surveyed end users increased spending on converged infrastructure through 2015 – a clear sign that converged will become more prevalent in 2016.

In addition to simplicity and speed, converged infrastructure is one of the fastest growing segments in enterprise infrastructure as it solves a issue most organisations have: shortage of IT skills.

In 2016, organisations will see an increase in investments on converged infrastructure, as DevOps emerges as a key use case driving growth, he says. While DevOps requires more time for application programming, it automates and optimises many processes like hardware configuration. It also promises reduced time to deployment for new applications. This transition of workflows can help IT teams refocus their staff to take on tasks that help achieve and further business goals.

Finally, there was also some thoughts on the emerging EU rulings expected later this month (January 2016). Geraldine Osman, VP of International Marketing at Connected Data comments:

"Concerns over data storage and protection have been on the rise and this something that will continue to grow in 2016. With the EU Safe Harbor ruling and the continuing growing concern about data locality, channel partners will see opportunities to provide solutions that offer locality control, privacy and ease of use. In 2016 customers will increasingly implement their own private cloud solutions to support their growing mobile workforce and will want solutions that offer public cloud features without compromising the security and privacy of their data.”