25th November 2020
In early November, FPE Capital hosted a Technology Partner-focused virtual roundtable event.
We were pleased to be joined by eight founders and CEOs of growth stage consulting and managed service providers representing a wide range of application and infrastructure partners, including Paul White, Executive Chairman of The Nav People (‘TNP’), and Leeland Pavey, CEO of Optimity, from FPE’s portfolio.
The session aimed to digest the rapid transformation seen across all sectors since the global pandemic began from the perspective of the technology partner, and to look forward to what Technology Partners should expect over the next 12 months as Covid-19 continues to impact the way we all do business. The conversation naturally found its way to other pressing topics in the IT industry including public cloud vendor selection, and the evolving cloud offerings of leading application providers such as Microsoft, SAP and Salesforce.
We were also pleased to be joined by Ian Dorling, Head of IT at Thatcher’s Cider, who kicked off the session by providing us with an overview of his experiences during the last six months, as well as his predictions looking forward. Thatcher’s is a >£100m revenue family owned cider maker and during the pandemic it has reaped the benefits of the IT investments made by Ian and his team, allowing the company to make a smooth transition to remote working and operate with a reduced number of employees allowed on-site.
Most people around the table, whether their specialty lay in AWS or Azure, ERP or CRM, Microsoft or SAP, or managed services or consulting, were in agreement on a number of key topics facing the industry:
1. Nobody in the IT sector likes the term “digital transformation”
Improving business outcomes through changes to infrastructure, applications and business processes has always been the IT department’s raison d’etre. The term “digital transformation” is just a more recent term to describe business adopting new technologies.
In certain areas, digital transformation has become almost synonymous with “cloud transformation” but shifting to the cloud is only one aspect of the IT agenda, and although it is a major focus for IT organisations, using the terms synonymously simplifies a broader set of business aims.
2. IT customers will not be cloud agnostic
As the conversation turned towards cloud infrastructure, almost everyone around the table agreed that cloud vendor choice has become increasingly important, and that in the longer-term customers will not be cloud agnostic.
You can’t just simply take what you built in AWS and put it in Azure
As we know, approaches towards application portability such as containerization can be effective in certain use cases. However, there are still limitations to performance when porting applications, for example when working with monolithic applications. Also, if IT organisations want to be in the public cloud but independent of any one provider, in order for applications to work they need to absorb the responsibility and cost of deploying their own necessary infrastructure services (storage architecture, databases, load balancers, proxy servers, etc.).
- In contrast, if they deploy the same applications in AWS or Azure alone, they can consume the same services on a PaaS model (platform-as-a-service), providing flexibility and significantly lower overheads. This cost-benefit analysis is pushing more and more organisations to one cloud vendor versus another.
- There are other benefits to doubling down on a public cloud partner. For example, AWS, Azure and GCP continue to create value for customers as they push into the application layer through offerings in areas such as AI and automation. The adoption of these products will continue to increase the barriers to customers switching, and further tie them to a single public cloud vendor.
3. Public cloud offerings will mature in more sophisticated application categories
In more sophisticated application categories, such as ERP, even though vendors such as Microsoft and SAP have pushed their public cloud-deployed products hard in the last few years, many customers are not yet ready to fully migrate.
Ian provided his experience at Thatcher’s Cider as an example. Over the last couple of years Thatcher’s has been moving functionality such as telephony and office automation (Office 365, One Drive, Sharepoint etc.) into the cloud. However, Thatcher’s has made a conscious decision to retain an on-premise ERP solution (MS Dynamics NAV) at this time. This is because his perceived value of moving it into Azure is outweighed by foregoing functionality built up over many years, which can be costly and difficult to replicate in the public cloud.
Despite much fanfare about cloud migration, companies such as Microsoft and SAP will continue to adopt more sophisticated hybrid on premise / private cloud / public cloud strategies that closer aligns to the business outcomes that IT leaders aspire to achieve.
4. Smaller technology partners focused on cloud migration should choose their cloud vendor strategy based on their customer size
Large enterprises with complex business, technical, and security needs require technology partners with deep expertise in their chosen public cloud, as well as the capacity to deliver migrations at scale. As a result, large IT service providers such as Accenture and Cognisant are well positioned to win in this market.
However, across Europe a number of smaller AWS, Azure and GCP partners, who have focused on a single vendor and invested time and resource into building practices with both strategic comprehension and execution capability, are able to compete. They often have particular strengths in areas of migration that lend themselves favourably towards industries with certain requirements, for example data security in financial services. These companies are confident that the market opportunity for each hyper cloud vendor is large enough at the enterprise level to justify the narrow focus.
Small and mid-sized customers require less domain expertise from their migration partner in order to successfully transition applications to the cloud. As a result, some technology partners have adopted a multi-cloud approach, building capability in AWS and Azure, for example. This means they are able to increase their total addressable market whilst delivering ample outcomes for customers.
5. Connectivity limitations are still a barrier to cloud adoption
For many businesses in the UK, sufficient connectivity is still the key barrier to cloud adoption, particularly when they are based in more rural areas. However, infrastructure investment channelled through businesses such as Community Fibre, Cityfibre and Gigaclear, as well as the rollout of 5G, will help to alleviate the issue.
6. Most technology partners see RFPs as a waste of time in cloud migration
The cloud services sector is primarily driven by consultancy led sales. This is because public cloud migration is complex and very few organisations have enough in-house knowledge to fully understand what “good” looks like, or in many cases where to even begin. IT leaders are looking to learn best practice from their technology partners and are often open to new ideas, if not proactively looking for them.
As a result, almost all the technology partners around the table agreed that they therefore try to avoid RFPs, particularly because it can be more difficult to work with prescriptive customers who do not fully understand their needs (for example, central government).
Almost every technology partner is focused on improving their customers’ operations by modernising infrastructure and applications and making business processes more efficient. As a result, it was encouraging to see that many of the opportunities and challenges discussed were recognised by almost everyone around the table. The conversation became most decisive when the table got busy agreeing that customers cannot be cloud agnostic, that RFPs are a waste of time, and - regarding possibly the most emotive topic – that the term “digital transformation” is BS!
We would like to say a big thank you to everyone who attended and contributed to the event, with particular thanks to Ian Dorling for sharing his insight and experience.