Information technology industry analysis for 2019
October 31, 2018
Digital transformation is fundamentally changing the way that IT companies must operate in order to be profitable. As more and more businesses move to the cloud, previously profitable business models are becoming practically obselete. This profound change means that IT service providers must adapt rapidly to meet the challenges of digital transformation, and to satisfy the expectations of today’s customer. As a result, roles and responsibilities are shifting, new business models are emerging and the IT industry, as a whole, is rapidly redefining itself.
Cloud is the new battleground
Generally speaking, cloud is now crucial for the immediate and future business success of IT service providers. In today’s world, companies across a variety of industries are using cloud technology to offer next-generation, connected functionality as well as more innovative services to their customers. It is the provision and maintenance of these cloud-based services that will determine whether Resellers prosper or falter in today’s economy.
Microsoft has recently hit the headlines for its extraordinary transformation and success in the cloud sector. This transformation is emblematic of an industry that is going through major change at a rapid pace. Once a vendor who sold and licensed software packaged in physical boxes, under CEO Satya Nadella’s guidance Microsoft has evolved into one of cloud’s top players. In fact, 90% of the Fortune 500 companies have joined the Microsoft Cloud – it is now one of Microsoft’s key drivers of revenue.
It is becoming clear that the IT industry must now cater to a customer who is more discerning and expects cloud services as a standard. IT buyers across a variety of industries increasingly demand cloud services to manage their day-to-day business operations.
Here are just a few examples:
- Uber takes driver selfies to enhance rider security
- Ikea is using augmented reality to enable customers to design their home
- BMW is creating connected driving experiences
As more companies move into the new territory of connected services and artificial intelligence, they expose themselves to risk. Of course, technology and software must be maintained over time. These companies need to be sure they are engaging an IT Reseller who can reliably deliver the full range of services they require. Indeed, IT service providers who can offer a broader range of services are positioning themselves for success in today’s market.
Assets, roles and responsibilities are changing in the IT industry
Whether it’s the advertising industry or the finance sector, a paradigm shift can mean old ways of doing business must be completely rethought in order to avoid extinction. In today’s hyper-competitive, cloud-first market, the roles and responsibilities that previously served the IT industry well, are beginning to seem unsuitable and inadequate. Instead, companies at every level of the industry are evolving and redrawing their business models in order to meet the demands of digital transformation.
The acquisition of COMPAREX by SoftwareONE is evidence of an industry that is reshaping itself. Two licensing giants have merged to tackle the challenges of a new licensing environment. As the adoption of cloud services increases at breakneck speed, licensing, software procurement and service provision is moving increasingly towards a subscription model. A statement by Dieter Schlosser, a member of the executive management team as SoftwareONE reads:
“The software and services industry continues the transition to a subscription business model heightened by digital transformation, with a strong demand for cloud services. SoftwareONE has always been at the forefront of driving industry innovation and delivering leading solutions and services that meet our customers’ evolving needs. The acquisition of COMPAREX is an important step in this journey, and together we will have the scale, geographic footprint, comprehensive portfolio and wide-ranging capabilities needed to provide our customers with enhanced service quality and stability around the world.”
The IT sector is a market that, like other industries, is being disrupted and remoulded by innovators. Schlosser’s statement demonstrates a broader realization amongst IT service providers that old business models are no longer adequate to serve the needs of today’s customer. As companies join forces, they are creating new ways of doing business, and often conflating the traditional roles and responsibilities of the IT Distributor and IT Reseller into one. This example from the licensing industry is one of many, which highlights a broader trend that is sweeping through the IT industry.
The future? More cloud, more services, more partnerships
IT industry leaders have placed big bets on the future of the cloud. Investments, and in particular, mergers and acquisitions, are often a strong indicator of where a company, or even an entire industry is heading in the future. Cloud has has created a new paradigm in which companies are racing to build end-to-end solutions. Now, businesses that were commonly competitors in the marketplace, are partnering to find new ways to deliver value dependent on the specific needs of each customer they serve.
The slew of major cloud acquisitions continues to prove that partnering and providing cloud services is the future of the IT industry. Earlier this year, Cisco acquired Broadsoft for $1.9 billion to expand their cloud capabilities. Following a similar trend, IBM recently acquired cloud software company, Red Hat in a record-breaking mega deal worth $34 billion. Oracle also announced that it has acquired business intelligence company DataFox an undisclosed amount in October 2018.
Tellingly, major companies who have been slow on the cloud uptake are paying what may be an inflated price of entry to compete with the likes of Amazon and Microsoft, who already have well-established stakes in the market. Today’s IT companies are using the cloud to offer more added services and provide even more value for their customer. In a cloud-first world, customers have come to expect a 360 experience – and IT service providers are doing their best to offer it.
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