Editor’s note: In the first of three special reports, analysts at Technology Business Research offer a detailed analysis of what is likely to happen across the data center industry. Transformation will reach “unprecedented levels” in a market were Red Hat, Cisco, NetApp, IBM, Lenovo, Oracle and many others are major players. And each of the mentioned firms has a major presence in the Triangle. WTW Insiders can read the details.

TBR analysts contributing to the series include: Christian Perry, Scott Dennehy and Stanley Stevens.

TBR Data Center Predictions overview: Transformation reaches unprecedented levels

HAMPTON, N.H. – As data center owners grapple with unprecedented levels of complexity in their ecosystems, they are looking beyond the traditional hardware stalwarts for solutions to their challenges. Although dedicated servers, storage arrays and switches remain core to many data centers, customers are discovering that business-changing innovation can be found most often in system software.

This spurred hardware vendors to re-evaluate their long-term strategies. Some vendors are exiting market segments that were previously strategic to their goals, while others are shifting their resources to focus on software or new iterations of hardware standards.

Taking these changing strategies into consideration, TBR developed predictions for 2015 and beyond. Predictions are organized into three categories:

  • Trends that will continue in 2015: These are current trends TBR expects will continue or accelerate in the coming year.
  • New trends for 2015: These are maturing nascent trends from 2014 that TBR believes will expand in 2015.
  • Longer-term trends: These trends are opportunities TBR believes will begin in 2015 but will not have a full effect on the industry for several years.

Report one: Hardware vendors

  • Trend: Consolidation of data center hardware vendors
  • Driver: Hardware commoditization, software maturity
  • Result: Smaller, pure-play vendors will survive only on the cutting edge of data center transformation

Hardware commoditization continues to create a harsh operating environment for data center vendors. As margins shrink, the number of vendors that can survive longtermshrinks, leading server and storage vendors to sell, divest or merge.

This trend — as seen in 2014 with IBM selling its x86 server business and Atos purchasing Bull — will continue into 2015 as the data center landscape shifts its value focus from hardware to software and services. For data center vendors, this shifting landscape
requires a close examination.

In May Cisco CEO John Chambers predicted “brutal consolidation of the IT industry” in coming years, including the exit of many current vendors within 10 years. Hardwarecentric vendors face the harsh reality of software-defined IT as this technology grows more prevalent in servers, storage platforms and networking devices and the underlying hardware becomes more commoditized. Some, such as IBM, are in the midst of major transformations away from their traditional hardware selling base, while others, such as Cisco, are scrambling to implement software-defined technologies into their core hardware lines.

As these changes occur, business units are split from others or sold to maximize the addressable customer market. TBR believes consolidation in the data center hardware market will continue in 2015, but this activity will not be limited to splits and divestitures.

As the major hardware incumbents investigate ways to remain relevant, they will work to acquire smaller companies that sit on the cutting edge of software-infused hardware innovation, including companies currently shaping the markets of software defined networking (SDN), software-defined storage (SDS) and hyperconverged servers.

While this strategy might protect the relevancy of hardware titans in the near term, it is no guarantee of preservation for the long term. Data center customers are detaching from their traditional loyalties to hardware. As customers develop a better understanding of holistically managing local and remote data center resources, their loyalties to solutions vendors will diminish if software-only vendors deliver the
capabilities they require.

Although TBR expects market consolidation to continue, major market players will consider the concept of federation more frequently. EMC’s model of federated businesses proved successful in helping EMC begin its core business shift from hardware to a hardware-software hybrid that accommodates customer requirements more accurately.

We expect other vendors will examine similar models that could be driven initially by acquisitions or even partnerships. Any movement that ultimately results from these examinations could help vendors stay relevant in a market that continues to transform and shift value away from high-end hardware.

Next: The rise of SDN - Networking vendors will adapt to the next phase of IT by adjusting their business

(C) TBR