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IBM’s divestiture of its infrastructure services business represents a paradigm shift for the industry

On 8 October 2020, IBM announced the spin off of its Managed Infrastructure Services business as a separate entity temporarily dubbed “NewCo”. The new public company would be launched “as the world’s #1 managed infrastructure services provider”. This is a significant development. But what does it mean for the infrastructure services industry?

The infrastructure services industry has been witnessing a big disruption. While the journey to the cloud has just begun, its forward march is unquestionable. For 7 straight years, revenues for IBM’s Global Technology Services have been declining. Since 2002, GTS revenues have declined by 32% - steadily and continuously. In contrast during the last 5 years (the time since Amazon started to report AWS figures on a stand alone basis), AWS has grown by 3.5 times. And Microsoft Commercial Cloud has grown by 4.6 times during this same period. See graphic below.


  1. Microsoft Commercial Cloud figures includes O365 and Dynamics 365. It excludes revenues for LinkedIn.

  2. Microsoft fiscal year is from July-June. 2019 figures show revenues for July 2019 until June 2020 (which Microsoft reports as 2020 figures).

  3. IBM GTS revenues includes Infrastructure & Cloud services, and Technology Support services. This includes both traditional datacenter and IBM hybrid cloud services.

It is clear that that the traditional datacenter services players cannot match the scale, the financial muscle, and the innovation of the 3 Hyper scalers – Microsoft, Amazon and Google. The traditional datacenter business as we know it is dying.

Announcing the divestiture, IBM CEO Arvind Krishna said “IBM is laser-focused on the $1 trillion hybrid cloud opportunity. IBM will focus on its open hybrid cloud platform and AI capabilities.” Ginni Rometty, IBM Executive Chairman said "We have positioned IBM for the new era of hybrid cloud". It is clear, the datacenter and associated services are no longer part of the future looking IBM.

During a recent interview as part of our Partnership Benchmark market study, the CIO of a leading financial services company in Belgium who works with IBM for datacenter services wondered if they were now left with the “ballast”.

Our discussions with the leadership of DXC in Belgium also reveal that DXC is reinventing itself. They are actively distancing themselves from the traditional datacenter – which they consider as “the legacy from HP”. Going forward, DXC’s focus is on modernizing applications on a secure cloud platform. If you look at the Enterprise Technology Stack from DXC – you will find no mention of the word Datacenter. Datacenter has become a dirty word to be avoided.

What does it mean for the traditional services?

Traditional datacenter services have included a lot of hardware component management: adding or replacing servers, network or storage. This has been high margin business. As companies move to the cloud, all of this work will disappear into the cloud. Where does this leave the traditional players?

While there will still be some aspect of managing (e.g. managing virtual machines or containers), providers will also need to become cloud enablers. At the beginning there will be a lot of focus and work around setup, security, compliance, governance and migration.

While multi-cloud is a commonly stated principle, low cloud adoption rates mean that most companies are typically working with one cloud vendor only. As cloud adoption increases, multi-cloud will become reality. Service providers who manage a Dell, HP or Sun today, will instead need to manage Azure or Amazon. They will need to develop new capabilities around Cloud Orchestration and Cloud Brokerage.

The Cloud offers unlimited and instant supply side flexibility – but someone will be needed to manage the demand. We will need skills to manage and monitor the security and governance aspects of the cloud. And we see a constant flux of new technologies and products – companies will still need skills to make sense of all this complexity and innovations.

What does it mean for the traditional players?

All the traditional infrastructure services players are repositioning themselves towards the Cloud. In addition to IBM and DXC who we talked about before, Atos launched the OneCloud initiative with a €2bn investment combining industry specific services and AI / machine learning capabilities.

But the Cloud is more than just a technology replacement for the datacenter. With the Cloud come the possibilities to develop new capabilities powered by AI and Analytics. The possibility to reimagine and transform your business and operations. This opens the space to new entrants – not just the traditional datacenter players but also companies who combine technology expertise with deep business understanding. Accenture recently announced the setup of its Cloud First practice with a $3 bn investment.

5G is going to accelerate Edge computing. By some estimates, there will be more action taking place on Edge devices than on the cloud. This has important implications for bringing together IT and OT under the CIO but also has implications for the service providers.

There is a lot happening and it surely promises to be an exciting journey ahead. Most companies will have to rethink their models to survive and win in this changing environment.

And where does all of this lead the CIO?

All of these evolutions throw up a number of challenges and decision points for the CIO. How and when should you move into the cloud? Ideally, you should leverage the cloud to drive true business transformation by developing new capabilities e.g. AI and analytics. This requires a top down commitment starting with the board and having your business counterparts fully engaged. Easier said than done.

As you move a large part of the operational tasks move into the cloud – how do the roles and responsibilities evolve? What new skills and capabilities do you need to develop internally? And what roles on managing and orchestrating should you source from specialist providers?

And finally, how to successfully work with your service provider? Incumbent service providers under standard operational contracts are not always motivated or driven to drive the cloud transformation. There is often an inertia and a skills gap – people rooted to the old way of doing things. Cloud may even cannibalize service provider revenues. Client CIOs need to take the driver’s seat, design the cloud transformation program and objectives, and contract specifically for cloud transformation. This cannot be expected as normal evolution of the legacy contract.


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