IBM announced that it’s acquiring Taos, a provider of managed and professional IT services with a strong focus on public cloud computing platforms. At the same time, Deloitte Consulting announced that it has completed its previously announced acquisition of HashedIn Technologies Private Limited, a software engineering and product development firm specializing in cloud native technologies.
Terms of both deals were undisclosed. However, they both come at a time when the number of workloads being shifted to public clouds has accelerated significantly during the COVID-19 pandemic. That shift is altering the center of data gravity in the enterprise in a way that requires IT services providers to add additional application and data management expertise that spans multiple clouds.
Most of the data organizations manage today still reside in on-premises environments. It’s not likely all data will reside on-premises or in the cloud, but rather organizations will find themselves managing data as it ebbs and flows across multiple centers of data gravity, said David Sun, director of corporate business development for IBM Services, in an interview with VentureBeat.
“All our clients are telling us their applications and data will reside in multiple clouds and hybrid cloud computing environments,” said Sun.
Taos, which will operate as an IBM company based in San Jose, California, will remain with IBM after the rest of IBM’s managed services business focused on infrastructure is spun out sometime next year. That relationship is similar to the one IBM is establishing with 7Summits, an IT services provider focused on the Salesforce platform that IBM acquired last week. This follow IBM’s announcement last month that it plans to acquire Nordcloud, a provider of cloud consulting leader in Europe. Overall, mergers and acquisitions among IT services providers is at an all time high.
The challenge enterprise IT teams face today is that there is a general shortage of cloud computing expertise. IBM and other IT service providers are counting on organizations to augment the limited IT expertise and resources they have with external cloud expertise. That expertise is even more sought after now because most enterprise IT organizations don’t have a lot of experience employing cloud native technologies such as containers, Kubernetes, and serverless computing frameworks.
A report published earlier this week by Information Services Group (ISG), a technology research and advisory firm, finds commercial outsourcing contracts with an annual contract value of $5 million or more involving as-a-service platform and managed services reached $16 billion in the fourth quarter of 2020. That’s up 13% over last year and 9% over the third quarter. Managed services specifically accounted for $7.2 billion for the quarter, which according to the report marks the first time managed service deal sizes have returned to their pre-pandemic levels.
A significant percentage of those managed services contracts revolve around cloud computing projects, said ISG president Steve Hall. Managed service providers (MSPs) are trying to strike a balance between a decline in demand for managing on-premises IT infrastructure against cloud computing opportunities that require more software expertise, said Hall. “Many MSPs have been focused on the data center,” he said.
The biggest challenge in the last year has been the simple fact that landing new business typically requires in-person meetings because of the level of trust that needs to be established between service providers and their end customers, noted Hall.
Less clear at the moment is to what degree organizations will ultimately rely more on outsourcing as IT environments become more complex. The overall percentage of IT consumed as a managed service has been relatively small compared to the trillions of dollars in applications and infrastructure that is managed internally by an IT staff. However, Gartner is forecasting that the market for cloud professional services will exceed $200 billion by 2024.
Internal IT staff, of course, are often resistant to relying on service providers that they often perceive to be a potential threat to their jobs. The challenge IT services providers face is either overcoming that bias or simply finding a way to bypass that internal IT altogether by establishing a relationship with a business executive or CIO who has come to believe external services providers simply have a level of expertise in one area or another that is needed much sooner than an internal IT team can acquire.
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