Turbocharge your enterprise’s cloudification to survive and thrive the pandemic shock

COVID-19 changed life for all of us, and it changed technology adoption in a major way. The seismic disruptions meant organizations had to find out the hard way if they could fully deliver digital services, and cloud computing was the only way to do it. Customers’ accelerated demand for cloud computing is clear evidence. Service providers exhibited significant restructuring to meet the growing demand, including new cloud investments, refreshed cloud offerings, co-creation approaches, workforce training, and graduate programs. Between enterprise leader’s investment preferences, the state of hyper-scalers, and the service providers that made the first move, there’s lots to unpack; let’s discuss!

Cloud is shifting to hybrid cloud and end-to-end delivery

As remote working becomes the new normal business operating model and the need to deliver services end-to-end, irrespective of location, becomes the critical benchmark, the requirements for cloud deployments are shifting. Further to that, managing data, business continuity, disaster recovery, cost, and many other critical business functions are only possible through cloud computing. Our recent research found that more than two-thirds of enterprise leaders expected to increase overall IT spending by around 5% in the next 12 months. Only 3% of the respondents believed that the pandemic impact would reduce cloud spending. Additionally, 41% of enterprise leaders strongly agreed and 47% agreed that cloud migration in the post-pandemic era is an absolute necessity (Exhibit 1). Furthermore, enterprise leaders believe that they must allocate their one-third of IT spending solely to the cloud in 2021.

Exhibit 1: Cloud requirements are shifting toward expansive capabilities and end-to-end delivery

To what extent do you agree/disagree with the following statement in the post-pandemic era: Cloud migrations become an absolute necessity.

Sample: 150 C-level executives across the Global 2000 enterprises

Source: HFS Research, 2020

The results suggest that enterprises expected overall IT spending to increase in the 12 to 18 months following the study. The pandemic triggered businesses to increase their use of cybersecurity, automation, analytics, cloud, AI, and IoT, driving most of the growth.

Hyper-scalers are the pandemic’s beneficiaries

Cloud providers’ quarterly revenues further underpin our observations; the report indicates that cloud spending isn’t going to slow down because of the pandemic (Exhibit 2). Enterprises are going to further invest in cloud computing and cloud-native computing. Azure and GCP posted double-digit YoY growth, 50% and 43%, respectively, in Q2 2020. AWS and Aliyun also achieved double-digit YoY growth in Q2 2020. Deutsche Bank partnered with Google Cloud to deliver its cloud services and co-innovate useful cloud-based financial products. Similarly, Microsoft’s $10 billion cloud contract from the US Department of Defense is a recent major win for hyper-scalers. In addition to our survey data, our discussions with providers and enterprise leaders further confirm the cloud investments in stages for the long-term benefits.

Exhibit 2: Cloud providers’ quarterly performance

Source: Company financials. We did not use Azure and GCP revenues because they announce only combined revenues.

Service providers are pivoting their organizational models toward the cloud

Identifying clients’ demands and delivering them is critical to thriving in any business. Some tier one service providers meet clients’ demands by realigning cloud offerings and investing funds to strengthen cloud capabilities, such as cloud transformation, cloud engineering, cloud platform, and infrastructure. We’ve seen numerous recent initiatives from service providers in the cloud space:

• Infosys launched Cobalt to expand its cloud business. Cobalt is a set of services, solutions, and platforms that help enterprises accelerate their cloud journey. With the Cobalt launch, innovation and improved focus on cloud professional training help enterprises by rapidly launching solutions and building business models to meet ever-changing market needs. It also helps perplexed enterprises yield their cloud investments faster by leveraging Infosys’ cloud communities, rich partner ecosystem, and deep industry expertise.
• Accenture launched (in Sep 2020) Cloud First with an investment of $3 billion over three years, one of the biggest recent cloud investments. Cloud First focuses on automation, R&D in edge computing and related cloud technologies, and cloud talent. Soon after the investment announcement, the firm disclosed its acquisition of New Zealand-based SAP and cloud solutions technology firm Zag. The acquisition bolstered Accenture’s ANZ digital transformation capabilities. Accenture’s Cloud First investment announcement is yet another smart move. The investment demonstrates the company’s commitment to delivering value to clients.
• IBM recently announced its spin-off plans. After the spin-off, the new IBM will focus on its open hybrid cloud platform and artificial intelligence (AI) capabilities and accelerate clients’ digital transformation journey. The split is a strategic move to scrap low-margin operations. We discussed this big move from IBM in a recently published
• Atos recently announced its ambitious OneCloud initiative, a reenergized focus on the cloud, helping clients with a differentiated set of offerings. We discussed this in detail in our recently published highlight.
• Cognizant acquired six cloud-focused firms (Code Zero, EI Technologies, Lev+, Collaborative Solutions, and New Signature and 10^th Magnitude), aggressively strengthening its cloud capabilities.

These are just some of the initiatives addressing the market’s cloud computing demand. Other providers are also equally part of the race: Wipro, HCL, Tech Mahindra, and others are also bolstering their cloud capabilities.

The Bottom Line: Cloud is shifting toward AI-infused, end-to-end, and verticalized focused capabilities; related realignments, investments, and M&A activities will intensify.

Our recent research revealed that 64% of executives believe that the combined use of emerging technologies such as AI-powered and cloud-enabled technologies is more beneficial than utilizing any of the technologies alone, and it is emerging as the foundation. The service providers’ investment and realignment activities in their cloud and AI offerings to meet the growing demand is a clear reflection of a paradigm shift in the market toward AI-infused, end-to-end cloud capabilities.

The pandemic revealed the power of the digitally native process. Cloud migration became an absolute necessity, and enterprise benefits are tangible. Additionally, many enterprise leaders believe AI has an even more prominent role in the current business environment. Cloud combined with AI is the must-have technology and a foundation for enterprises in the future. Therefore, the industry has yet to witness many cloud and AI-focused investments, realignments, and acquisitions to bolster and scale their respective capabilities.