DC Discusses: The evolution of Enterprise IT catalyzing investment and M&A opportunities

BUSINESSES ARE INCREASINGLY RELYING ON CLOUD TECHNOLOGIES

Technical innovations in enterprise IT are driving the digital transformation wave. From an infrastructure perspective, one of the major innovations in the past decade is public cloud computing, which is a scalable, flexible IT platform to accelerate application modernization and digital transformation initiatives.

According to a survey completed by 451 Research, 65% of surveyed organizations mention the public cloud as their primary IT environment today or that it will be their primary IT environment over the next two years.[1]  According to Forrester, 95% of new workloads will be cloud native by 2025.[2] As the focus of IT increasingly moves toward public cloud usage, annual spending grew 32% in 2021 to $81 billion, and is projected to grow at a CAGR of 16% to $172 billion in 2026.[3] 

As public cloud adoption has increased, it has become a key platform for empowering emerging technologies that are native to cloud environments such as application containers, serverless computing and others. The adoption of cloud and these related new technologies represent a consistent set of challenges for enterprises with respect to complexity, lack of skilled resources, cost management, and integration with other IT resources.

EMERGING OPPORTUNITIES FOR GROWTH INVESTMENT AND M&A ACTIVITY

• Kubernetes

The adoption of application containers and Kubernetes is creating a new, substantial market opportunity for tools to monitor and manage this new and rapidly growing IT domain. 

Application containers are a method of deploying software that enables portability across environments (eg cloud, on-premise, edge) and resource types, while increasing resource efficiency and developer productivity. According to 451 Research, surveyed enterprises indicated that 89% are currently adopting containers in proof of concept or planning for trials. Global container ecosystem revenue was $4.8B in 2022 and is growing at a 21.5% CAGR to $9.9B in 2026. [4]

Kubernetes is an open-source project that has emerged as the de facto standard for container management and orchestration. While cloud native, Kubernetes is not exclusive to cloud. It can serve as a single control plane to effectively manage distributed applications across a range of IT infrastructure (on-premise, multi-public cloud, private cloud, edge) thereby playing a key role in enabling digital transformation by simplifying software deployment as organizations shift the composition of their IT estate over time.

Due to its complexity and scale, Kubernetes can be challenging in terms of monitoring and troubleshooting once it has been configured and deployed. It also presents additional challenges related to security, data sensitivity, storage, and networking, which are not well addressed by existing IT management tools and are compounded by larger scale production deployments.

As a result, Kubernetes adoption is poised to drive a broad, fast-growing market for new solutions beyond core Kubernetes management and orchestration functionality to address these concerns - mainly around monitoring, security, cost analysis, and other management functions. 451 Research estimates that spending on Kubernetes related solutions comprises approximately 25% of the overall global container ecosystem revenue referenced above or approximately $1.2B in 2022.[5]  

• AIOps

The management of complex, dynamic modern IT environments is an ideal target for the application of AI and ML to enhance analytics and automate workflows giving rise to a new set of tools – AIOps.

With growing cloud and container adoption, enterprise IT environments are becoming increasingly diverse and dynamic, while simultaneously becoming an increasingly critical component of customer facing services and products. IT organizations are charged with optimizing the performance of this complex and changing infrastructure, providing a positive user experience, and reducing mean time to resolution (MTTR) of faults cost effectively.

In many cases, existing IT management tools do not provide effective coverage of these new environments. In addition, the sheer volume of streaming data – logs, events, metrics – that these environments produce is much higher than legacy systems and far exceed the abilities of humans to analyze effectively. Subsequently, a new set of tools (AIOps) have emerged toto monitor and manage these environments. 

These tools can provide advanced observability that spans these diverse, and continually changing IT environments including capturing the perspective of the end user and relevant context. They leverage AI/ML to perform advanced analytics and enable the automation of IT workflows and the remediation of errors. AIOps tools can also be used as a front-end for managing all IT resources (including legacy resources) on a unified, holistic basis. As a result, the market for AIOps tools is growing quickly, Forrester estimates that spending on AIOps tools was $1.5b in 2022 and will grow at a 28% CAGR.[6] 

• Cloud cost optimization

Enterprise focus on cost management as cloud spending continues to ramp up has led to a vibrant market opportunity for cloud cost optimization solutions.

Cloud costs are growing quickly and becoming a larger portion of overall IT budgets. According to a 451 Research survey, an average of 40% of responding organizations’ IT budgets are allocated to cloud computing costs and 72% believe that, over the next 12 months, their spending will rise.[7]  Cloud is also a significant component in the cost of goods sold for SaaS vendors and can have a meaningful impact on a vendor’s pricing model and profitability. Cloud pricing is also complex, which can lead to unexpected charges and overspending. In addition, the recent spike in inflation and the macro-economic uncertainty have forced businesses to try to find ways to reduce expenses.

Based on the complexity of pricing and the growing nature of cloud environments, manual approaches to managing and optimizing cloud spending are not scalable. Cloud cost optimization tools have emerged to help enterprises solve this problem. These tools, which are available from the major cloud providers, as well as a range of third-party software vendors, enable enterprises to:

• Monitor, analyze and allocate spending and usage;
• Make recommendations on optimization;
• Detect and alert on anomalies;
• Predict future usage and costs;
• Create and enforce resource or spending budgets; and
• Manage permissions to resources by role and other functions that enable enterprises to manage and optimize their cloud spending.

Given that these tools have deep visibility into cloud resources, they are well positioned to enable other capabilities such as resource management, compliance, and security functions.

CONCLUSION

As the pace of enterprise adoption of modern cloud related technologies increases, large, high growth market opportunities are emerging for providers of solutions to monitor, manage, and optimize modern IT environments in three key areas: Kubernetes, AIOps and cloud cost optimization.

To find out more, please contact Joel Strauch

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REFERENCES

[1] 451 Research: Cloud Computing Market Monitor: Public Cloud Infrastructure Market Forecast September 20, 2022

[2] Forrester: AIOps Wave December 2022

[3] 451 Research: Cloud Computing Market Monitor: Public Cloud Infrastructure Market Forecast September 20, 2022

[4] 451 Research: Applied Infrastructure & DevOps Market Monitor: Application Container Ecosystem 4Q 2022

[5] 451 Research: Applied Infrastructure & DevOps Market Monitor: Application Container Ecosystem 4Q 2022

[6] Forrester: AIOps Wave December 2022

[7] 451 Research: Cloud Computing Market Monitor: Public Cloud Infrastructure Market Forecast September 20, 2022