On-premises Managed Services Study. Final Report Prepared for Dimension Data. Nov. 7, 2014 TBR T EC H N O LO G Y B U S I N ES S R ES EAR C H, I N C.

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TBR

T E C H N O L O G Y B U S I N E S S R E S E AR C H , I N C .

Final Report

Prepared for Dimension Data

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1% 7% 1% 7% 5% 38% 26% 5% 23% 16% 80% 76% 90% 73% 85% 54% 69% 95% 72% 81% 19% 17% 9% 19% 10% 8% 5% 5% 3% 0% 20% 40% 60% 80% 100% U.S. Other Americas MEA Europe APAC U.S. Other Americas MEA Europe APAC P re m iu m L e ve l Ba se -L e ve l Percent of Respondents

ABILITY OF SERVICE PACKAGES TO MEET ORGANIZATIONS' NEEDS

Not enough services Good amount of services Too many services

SOURCE: TBR

A premium services package exceeds customers’ needs, while base-level

packages fall short, highlighting a sweet spot in the middle

TBR Findings

• Customers in the U.S., Other Americas and Europe were more likely than customers in APAC and MEA to indicate that base-level packages did not contain enough services. TBR believes this is the result of these regions having more mature on-premises managed services markets, therefore customers are accustomed to a wide variety of services.

• Across all five regions, more than 90% of customers reported the premium service package included a good amount or too many services. TBR believes this represents an opportunity for vendors to create custom service packages between base-level and premium that provide customers the services their organizations require rather than a one-size-fits-all package.

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Service Level Management Release & Deployment Management Access Management Change Management Problem Management

Percent of Respondents

SERVICES ORGANIZATIONS WOULD LIKE TO ADD TO THE BASE-LEVEL OFFERING

SOURCE: TBR

Customers perceive a need to add additional services to the base-level

offering, creating opportunity for vendors to generate larger deals

TBR Findings

• With the exception of request fulfillment, 50% or more of respondents indicated they would add the other services to the base-level offering. TBR attributes this to many organizations

needing additional services beyond a basic package, therefore it is important to offer customers the ability to customize service packages to meet their needs.

• TBR believes service providers’ sales teams should be able to communicate the value of each additional service, helping vendors effectively upsell on their base-level offerings, as customers are likely to have questions on these services they believe they need.

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30% 31% 33% 33% 33% 36% 39% 42% 47% 56% 0% 20% 40% 60% 80%

Release & Deployment Management Incident Management Capacity Management Change Management Service Level Management Asset & Configuration Management Access Management Problem Management Availability Management Request Fulfillment Percent of Respondents SOURCE: TBR

SERVICES ORGANIZATIONS WOULD LIKE TO REMOVE FROM THE PREMIUM-LEVEL OFFERING

Customers want most services in the premium offering, indicating these

services bring value to many organizations

TBR Findings

• Customers who indicated the premium service package included too many services reported request fulfillment and availability management were the two services most likely not to be needed. TBR believes this is the result of organizations being able to handle these tasks on their own, therefore they are less focused on having someone else manage them.

• Incident management and capacity management were two of the least likely services to be considered unwanted in the premium package. TBR attributes this finding to organizations having rapidly growing storage requirements along with a need to ensure downtime is limited by responding to incidents quickly.

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0% 20% 40% 60% 80% 100% Request Fulfillment

Release & Deployment Management Change Management Incident Management Problem Management Service Level Management Availability Management Access Management Asset & Configuration Management Capacity Management

SERVICES CURRENTLY USED FOR OPERATIONAL MANAGEMENT OF SERVERS AND STORAGE

APAC Europe MEA Other Americas U.S.

SOURCE: TBR

Organizations use a variety of services, with capacity management the

most popular in many geographies

TBR Findings

• Customers in MEA reported more often than customers in other regions that they used many services for the operational management of their servers and storage. Customers in Europe and the Other Americas were less likely to use services.

• TBR research indicates regardless of region more than 50% of customers are using services such as capacity management and access management. TBR believes this indicates

strong demand in the market for these services and an opportunity for vendors to build service packages around them.

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0% 10% 20% 30% 40% 50% None of these

Access Management Asset & Configuration Management Availability Management Capacity Management Change Management Incident Management Problem Management Request Fulfillment Release & Deployment Management Service Level Management

SERVICES CONSIDERED FOR ADOPTION IN THE NEXT 1 TO 2 YEARS

SOURCE: TBR

Service adoption plans vary by region, but almost all customers plan to

adopt additional services in the next 1 to 2 years

TBR Findings

• Depending on the region, customers plan to adopt different services over the next one to two years. For example, customers in APAC and Europe are most likely to adopt service-level management, while customers in Other Americas are most likely to adopt change management. TBR attributes the differences to organizational needs varying based on location as well as differences in the level of maturity of the region.

• With the exception of Europe, less than 10% of customers in each region indicated they do not plan to adopt any of these services in the next one to two years. TBR believes this represents a large opportunity for service providers, as most companies will be looking to adopt new services in the near future.

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APAC Europe MEA Other

Americas

U.S. SATISFACTION WITH ON-PREMISES MANAGED

SERVICES VENDOR

SOURCE: TBR

“HP is among the best when we talk about managed services. They have expertise to deal with all sorts of problems and act as a partner rather than a provider.”

— HP Customer, CIO, Retail, U.K.

“IBM has taken the effort to understand our business and its operation and provides solutions that are uniquely tailored to meet our current and future business needs.”

— IBM Customer, CIO, Banking/Financial Services, U.K.

“We are looking for services [that] are customized and end-to-end solutions in the present spectrum of needs.”

— Cognizant Customer, IT Manager, Insurance, Australia

Overall customers are satisfied with their on-premises managed services

vendor; however, customers in mature markets are most satisfied

TBR Findings

• Regardless of region, on-premises managed services customers are satisfied with their service provider; however, APAC and MEA customers were slightly less satisfied with their vendors than customers in Other Americas, Europe and the U.S.

• TBR believes customers in more mature markets such as Europe and the U.S. are more satisfied as a result of long-term customer relationships with their vendors, which helps the vendors understand and deliver effectively the services the

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0% 20% 40% 60% 80% 100% By number of physical servers

By number of virtual servers By TB of storage By number of physical servers By number of virtual servers By TB of storage P re fe rr e d m e th o d C u rr e n t m e th o d Percent of Respondents

MANAGED SERVICES PAYMENT METHODS

SOURCE: TBR

Organizations understand that service providers are likely to charge

based on multiple factors and prefer being billed this way

TBR Findings

• Managed services customers indicated they most often pay by the number of physical servers; however, more than 50% of

customers indicated their provider charged based on two or three factors, suggesting a complicated price scheme that allows providers to charge based on customers’ usage in multiple areas.

• Customers indicated they prefer to be charged in this way, with most customers indicating they prefer to be charged by the number of physical servers followed by the number of virtual machines.

• TBR attributes this finding to customers seeking to have relatively fixed costs that enable them to budget accordingly yet provide them the flexibility to scale up or down depending on their needs.

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APAC Europe MEA Other Americas U.S. P e rc e n t o f R e sp o n d e n ts

LIKELIHOOD TO PURCHASE STORAGE CHARGEBACK SERVICES

Very likely to buy

Somewhat likely to buy Undecided Somewhat unlikely to buy Very unlikely to buy SOURCE: TBR 11% 22% 19% 22% 32% 53% 55% _51% 56% 52% 30% 11% 19% 14% 11% 5% _9% _6% 7% 4% 0% 20% 40% 60% 80% 100%

LIKELIHOOD TO PURCHASE STORAGE CAPACITY PLANNING SERVICES

Very likely to buy

Somewhat likely to buy Undecided Somewhat unlikely to buy Very unlikely to buy SOURCE: TBR

Service providers are likely to see more success selling capacity planning

services than chargeback services as companies look to balance budgets

TBR Findings

• Customers in APAC and MEA were least likely to indicate they would purchase storage chargeback or capacity planning services; however, they were more undecided than customers in other regions, indicating there is still a potential opportunity to sell to these customers. TBR believes vendors looking to sell these additional services should be prepared for their sales teams to face uncertainty and be ready to explain the benefits.

• Capacity planning is more likely to be purchased than chargeback services in all regions. TBR attributes this to organizations seeking out services that are forward-looking, allowing them to plan budgets, rather than backward-looking, which can result in budget deficits should usage fluctuate.

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12% 27% 12% 27% 29% 47% 39% 35% 52% 51% 35% 23% 37% 17% 15% 5% _9% 10% 1% 5% 0% 20% 40% 60% 80% 100%

LIKELIHOOD TO PURCHASE STORAGE eDISCOVERY SERVICES

Very likely to buy

Somewhat likely to buy Undecided Somewhat unlikely to buy Very unlikely to buy SOURCE: TBR 17% 36% 27% 37% 41% 57% 39% 46% 44% 48% 20% _16% _17% 16% 9% 5% _6% _8% 1% 3% 0% 20% 40% 60% 80% 100%

LIKELIHOOD TO USE BUSINESS INTELLIGENCE SERVICES FOR STORED AND MANAGED DATA

Very likely to buy

Somewhat likely to buy Undecided Somewhat unlikely to buy Very unlikely to buy SOURCE: TBR

Business intelligence and eDiscovery services offer service providers an

opportunity to grow as customers look to overcome challenges

TBR Findings

• Regions such as the U.S., Europe and Other Americas contain a higher percentage of customers who are very likely to purchase eDiscovery services. TBR attributes this to

organizations in these regions having to turn over electronic records to law enforcement increasingly as the result of criminal or civil litigation, therefore creating a larger value proposition than in regions such as APAC and MEA.

• BI services present a large opportunity for managed service providers, with nearly 80% of respondents indicating they were very likely or somewhat likely to purchase. TBR believes as demand for BI software continues to grow,

organizations are increasingly seeking out service providers that can help them manage the data associated with the software.

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©2014 Technology Business Research Inc. 12 13% 16% 12% 17% 15% 19% 13% 7% 14% 11% 27% 30% 37% 29% 43% 40% 40% 44% 40% 31% 15% 22% 20% 28% 20% 17% 26% 14% 16% 21% 40% 31% 31% 33% 27% 27% 20% 35% 23% 33% 22% 25% 34% 21% 31% 39% 31% 31% 38% 33% 22% 25% 22% 23% 17% 17% 18% 13% 17% 20% 49% 36% 34% 33% 34% 24% 29% 48% 32% 36% 11% 13% 10% 15% 14% 16% 21% 8% 20% 16% 0% 20% 40% 60% 80% 100% U.S. Other Americas MEA Europe APAC U.S. Other Americas MEA Europe APAC U.S. Other Americas MEA Europe APAC U.S. Other Americas MEA Europe APAC C h a rg e b ac k e Di sc o ve ry C ap ac it y P la n n in g B u si n es s In te llig e n ce Percent of Respondents

IMPORTANCE OF STORAGE SERVICES

#1 Ranking #2 Ranking #3 Ranking #4 Ranking

SOURCE: TBR

Customers view BI and capacity planning as the 2 most important storage

services for their organizations

TBR Findings

• Customers in all five regions indicated BI and capacity planning were more important than eDiscovery and chargeback. TBR attributes this to customers’ demand for services that will help them better use their data and provide measurable outcomes.

• Chargeback services were considered to be the least important services by one-third or more of respondents in every region. TBR believes that particularly in emerging markets, this indicates low demand for the service, as organizations are not as concerned with allocating spending within the organization.

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13% _8% 24% 25% 10% 50% 58% 43% 54% 56% 34% 28% 30% 19% 29% 3% 6% 3% 2% _5% 0% 20% 40% 60% 80% 100%

PREFERRED LENGTH OF ON-PREMISES MANAGED SERVICES CONTRACT

One year

Three years

Five years

10 years

SOURCE: TBR

Organizations prefer to sign contracts for 3 to 5 years; however, in some

regions many customers prefer 1-year contracts

TBR Findings

• Customers in every region indicated the most popular contract length was three years. Customers in Other Americas indicated the second-most-popular option was one-year contracts, compared to five years in the other four regions.

• TBR believes three- and five-year contracts are the most common contract lengths managed services providers offer, and customers are often willing to accept these terms especially if a small incentive in the form of a discount or free add-on services is used to sweeten the deal.

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©2014 Technology Business Research Inc. 14 38% 34% 53% 29% 49% 19% 10% 19% 10% 13% 47% 46% 30% 48% 41% 29% 34% 28% 29% 35% 15% 19% 17% 23% 10% 52% 56% 53% 61% 52% 0% 20% 40% 60% 80% 100% U.S. Other Americas MEA Europe APAC U.S. Other Americas MEA Europe APAC T w o y e ar s fr o m n o w N o w Percent of Respondents

ORGANIZATIONS' CURRENT DATA STRUCTURE AND FUTURE EXPECTATIONS

Primarily a hybrid mix Primarily cloud hosted Primarily on-premises

SOURCE: TBR

The data structure of organizations is shifting to the cloud, creating

opportunities for managed services providers beyond on-premises

TBR Findings

• About 50% to 60% of organizations store the majority of their data on-premises, regardless of region; however, customers expect a

transition over the next two years as they adopt more hybrid and cloud hosting.

• TBR believes managed services providers should develop their portfolios to include managed services that cater to hybrid, hosted cloud and on-premises environments to help them adapt to changes in the market quickly and meet demand across environments.

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4% 3% 15% 33% 45% 1% 3% 13% 42% 40% 13% 9% 20% 36% 22% 5% 3% 26% 35% 30% 9% 12% 17% 33% 29% 0% 10% 20% 30% 40% 50% No plans to adopt

We are planning to adopt in more than 2 years

We are planning to adopt within 2 years

We are planning to adopt within 1 year We are currently using

USE OF PRIVATE CLOUD IN ORGANIZATIONS' DATA CENTERS

SOURCE: TBR

Private cloud adoption will be strong in the next two years, making it

critical service providers are ready to grow into that market

TBR Findings

• While some customers have adopted private cloud, more than 50% of respondents plan to adopt within the next one to two years, with only a small percentage indicating they have no plans to adopt.

• TBR believes adoption of private clouds will drive demand for cloud-based managed services in addition to on-premises managed services. Organizations are likely to need implementation services as they deploy their private clouds, creating opportunities for managed services providers to step in and assist customers.

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LIKELIHOOD OF USING A PROVIDER TO ASSIST IN THE IMPLEMENTATION AND MANAGEMENT

OF PRIVATE CLOUD Very likely Somewhat likely Neutral Somewhat unlikely Very unlikely SOURCE: TBR

Organizations are likely to seek out help to implement and manage their

private clouds as they look to simplify IT complexities

TBR Findings

• More than 60% of customers are somewhat or very likely to use a service provider to help get their cloud up and running in addition to managing it. TBR believes this is the result of many organizations lacking personnel with the experience necessary to ensure a smooth transition, thereby creating demand for service providers.

• TBR believes service providers should

prepare their sales teams to discuss managed services for private clouds as well as

traditional on-premises managed services, as many organizations are likely to use both, creating the potential for service providers to grow their customer bases and generate larger deals.

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Factors Region Critically Important Important Less important APAC 44% 55% 1% Europe 53% 37% 10% MEA 47% 47% 6% Other Americas 60% 35% 5% U.S. 60% 37% 3% APAC 53% 46% 1% Europe 44% 51% 5% MEA 64% 30% 6% Other Americas 49% 46% 4% U.S. 49% 47% 4% APAC 39% 57% 4% Europe 43% 50% 7% MEA 42% 53% 5% Other Americas 54% 43% 3% U.S. 45% 49% 6% APAC 35% 59% 5% Europe 43% 44% 13% MEA 36% 53% 11% Other Americas 49% 38% 12% U.S. 41% 49% 10% APAC 31% 63% 6% Europe 23% 71% 7% MEA 48% 44% 8% Other Americas 25% 74% 1% U.S. 33% 61% 7% SOURCE: TBR Provides the most competitive price Provides a wide breadth of services Provides geographic coverage globally Ability to cutomize services packages Provides easy-to-use reporting

On-premises managed services providers must have broad portfolios and

customizable service packages to appeal to customers

TBR Findings

• Customers examine many factors when selecting an on-premises managed services vendor. TBR research indicates the most important factors are having a large portfolio of services and being able to customize

services packages. TBR attributes this to each organization having different services needs that they want met by a single services vendor without having to pay for services they do not need.

• One of the least important factors for customers was global coverage, which TBR believes is the result of organizations likely not needing global coverage or assuming it is available with major vendors.

IMPORTANT FACTORS IN THE SELECTION OF AN ON-PREMISES MANAGED SERVICES VENDOR

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15% 3% 4% 13% 3% 7% 11% 16% 18% 1% 5% 5%

RESPONDENT INDUSTRY: U.S.

Consumer Goods Education Energy Financial/Banking Government Healthcare Industrials IT Manufacturing Materials Telecom Other SOURCE:TBR 16% 5% 5% 9% 5% 5% 4% 28% 18% 1% 2% 1%

RESPONDENT INDUSTRY: OTHER AMERICAS Consumer Goods Education Energy Financial/Banking Government Healthcare Industrials IT Manufacturing Materials Telecom Other SOURCE:TBR 18% 3% 4% 15% 2% 6% 7% 21% 12% 3% 4% 4%

RESPONDENT INDUSTRY: OVERALL

Consumer Goods Education Energy Financial/Banking Government Healthcare Industrials IT Manufacturing Materials Telecom Other SOURCE:TBR

Respondent Industry

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RESPONDENT INDUSTRY: MEA

Consumer Goods Education Energy Financial/Banking Government Healthcare Industrials IT Manufacturing Materials Telecom Other SOURCE:TBR 13% 5% _3% 16% 2% 5% 8% 25% 15% 1% 5%

2%RESPONDENT INDUSTRY: APAC

Consumer Goods Education Energy Financial/Banking Government Healthcare Industrials IT Manufacturing Materials Telecom Other SOURCE:TBR 21% 1% _3% 23% 1% 6% 5% 21% 4% 8% 3% 5%

RESPONDENT INDUSTRY: EUROPE

Consumer Goods Education Energy Financial/Banking Government Healthcare Industrials IT Manufacturing Materials Telecom Other SOURCE:TBR

Respondent Industry

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Grouping Industries within Grouping Grouping Industries within Grouping

Food/Beverage/ Restaurant Hospital/ Health Care - Private Travel/ Hospitality Hospital/ Health Care - Public

Consumer Packaged Goods Pharmaceuticals/ Life Sciences/ Medical Devices Consumer/ Personal Services Transportation/ Logistics

Retail Aerospace/Defense

Media/ Publishing Construction/Engineering/Environmental Services Sports/ Entertainment Public Institution/ Professional Association Distribution/ Wholesale Industrial Manufacturing

Automotive Manufacturing - Other Online Gaming Electronics Manufacturing Education - Private/ Training Chemicals

Education - Public Agriculture, Forestry, Fishing, Hunting

Energy/ Utilities Computer Hardware – Microprocessors/Components Mining/ Metals/ Oil and Gas Computer Hardware – PCs

Banking/ Financial Services Computer Hardware – Servers Business and Legal Services Computer Software

Insurance Computer Services/IT Consulting Real Estate Computer Services – Cloud Government - Federal Telecommunications Equipment Government - State/Local Telecommunications Services

SOURCE: TBR IT Telecom Education Government Manufacturing Industry Groupings Energy Materials Industrials Consumer Goods Healthcare Financial/Banking

Respondent Industry

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RESPONDENT JOB TITLE: U.S.

Analyst/Specialist C-Level IT Architect IT Developer IT Director IT EVP/SVP/VP IT Manager Project manager SOURCE:TBR 4% 26% 2% 5% 24% 3% 32% 2%

RESPONDENT JOB TITLE: OTHER AMERICAS Analyst/Specialist C-Level IT Architect IT Developer IT Director IT EVP/SVP/VP IT Manager Project manager SOURCE:TBR 3% 25% 2% 2% 26% 6% 30% 4%

RESPONDENT JOB TITLE: OVERALL

Analyst/Specialist C-Level IT Architect IT Developer IT Director IT EVP/SVP/VP IT Manager Project manager SOURCE:TBR

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5% 3% 2% 2% 12% 3% 66% 5%

RESPONDENT JOB TITLE: MEA

RESPONDENT JOB TITLE: APAC

RESPONDENT JOB TITLE: EUROPE

Analyst/Specialist C-Level IT Architect IT Developer IT Director IT EVP/SVP/VP IT Manager Project manager SOURCE:TBR

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Service Level

Definition

Base-level

Availability monitoring and reporting, capacity monitoring

and reporting, incident management, asset and

configuration management

Midlevel

Availability monitoring and reporting, capacity monitoring

and reporting, incident management, asset and

configuration management, problem management

Premium

Availability management, capacity management, incident

management, asset and configuration management,

service-level management, problem management, request

fulfillment, access management, release and deployment

management, change management

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IT Environment

Definition

Small Environment

An existing infrastructure of physical and/or virtual servers

with approximately 12 servers, up to 92 virtual machines

and 30 terabytes of usable storage

Large Environment

An existing infrastructure of physical and/or virtual servers

of approximately 26 servers virtualized into up to 256

virtual machines with 100 terabytes of usable storage

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