Global economic growth has been severely impacted by COVID-19 lockdowns, especially between April and June. While most major economies reopened by August, there are still varying restrictions in place that will dampen economic activities globally. Many enterprises continue to struggle, and their immediate focus is on business continuity and supporting remote working. The impact of COVID-19 will be profound on several fronts:
- Infrastructure build out for the vast majority of enterprises was put on hold as cash conservation was key. This had a direct impact on infrastructure services. Although long-term managed services contracts and engagements are expected to be relatively steady, corporate downsizing will have an immediate negative impact.
- The migration to cloud is also expected to accelerate, especially when the uncertainty eases, and this will have a major impact on several datacenter-related services.
- Certain regulated industries will continue to be cautious in adopting a public cloud-first strategy. These industries will accelerate adoption of digital initiatives and continue to support storage services and infrastructure build out for now.
Overall, Omdia expects the infrastructure services market to reach $321 billion in 2020: a growth rate of 2.4%, and lower than the 5.4% growth forecast in our last update.
Infrastructure services growth takes a hit from COVID-19
While long-term managed services contracts will likely be resilient, especially if recovery is a possibility in 2021, there are several factors that will have short- and medium-term implications.
- Furloughs and downsizing of enterprises will translate to a smaller desktop and IT infrastructure footprint. This will have a knock-on effect on managed desktop, service helpdesk, co-location, managed hosting, and managed datacenter services. Few enterprises are expected to add employees and invest in expanding their datacenter footprint.
- Digital initiatives continued throughout the pandemic and will pick up steam as recovery takes hold. Managed storage services will remain one of the fastest growing areas for infrastructure services. Enterprises will also invest in business continuity and disaster recovery (BCDR) initiatives, as this IT resiliency is critical as many enterprises become 24/7 entities.
- Cloud migration, both public and private, will continue undiminished post COVID-19. This can reduce the datacenter footprint of large enterprises and impact large datacenter outsourcing contracts. One of the lessons from the pandemic is that enterprises with Agile infrastructure are best-placed to weather economic shocks and volatility, and cloud delivers on this benefit.
Figure 1: Global infrastructure services forecast, 2020─25 Source: Omdia
Cloud budgets remain resilient
The biggest impact over the long term to infrastructure services will remain cloud migration. Enterprises will reduce or limit the growth of their datacenter estates and this will have a negative impact on datacenter outsourcing which is expected to decline with a five-year CAGR of -0.6%.
Omdia’s COVID-19 Recovery Survey showed that the budget for public cloud remained resilient throughout the pandemic, with 71% of enterprises stating that their budgets for public cloud remained the same, or actually increased. Enterprises that own Agile IT infrastructure were better off during the pandemic as most were able to scale down quickly with the corresponding decrease in overall opex.
Figure 2: COVID-19 public cloud budget Source: Omdia COVID-19 Recovery Playbook Survey, n=419
Recommendations for IT service providers
The future is cloud, and digital and IT service providers need to pivot their services portfolio to address these needs. Large datacenter contracts will come under pressure, and legacy IT service providers will need to move resources towards managing hybrid and multi-cloud environments.
- IT service providers must proactively encourage their existing installed base of datacenter management customers to move to the cloud, even though this may impact revenue in the short term. Cloud migration is usually consulting-led, and will generate incremental revenue. This will include constructing a proper cloud framework and governance to deliver better cost returns and faster innovation. The longer-term benefits will be substantially positive to all IT service providers.
- IT service providers need to have a trained team of cloud migration experts to take on this opportunity. Existing engineers in the professional services team should be re-trained or upskilled. This would usually mean a multiyear approach, and involve a large number of employees.
- Despite the move to cloud, there will be demand for co-location and managed hosting services, but demand will move from enterprises to cloud providers, especially those that do not want to build and own datacenters. All IT service providers should be courting cloud providers if they wish to continue with their co-location and managed hosting business. In addition, IT service providers should try to main their “trusted relationships” with enterprises as their IT needs will evolve and the challenge for IT providers is to respond accordingly.
- IT service providers should build more automation and artificial intelligence into managed desktop and service desk offerings. The set of services will be increasingly commoditized, and a hybrid offshoring or near-shoring approach should be part of any future model.
- Managed storage services will continue to grow, but enterprises will be more confident in a cloud model going forward. IT service providers must be able to offer both delivery models.
This document is derived from Omdia’s latest Global Enterprise Services Forecast, 2019─24 and the recent COVID-19 Recovery Playbook survey series.
Global Enterprise Services Forecast, 2019─24, ENS002-000116 (February 2020)
Adrian Dominic Ho, Practice Leader, Advanced Digital Services