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Waves of disruption reshape IT service management landscape

We look at how technology commoditisation, open source and software as a service are changing the service management software market

There are cycles in technology, such as today's social, mobile and cloud disruption, which affect how technology and the business interact, manage technologies and respond to business demand.

Service management software suppliers follow these cycles, providing tools to manage not only the technologies but also their consequences in terms of scale, workload volumes and business models.

Today's cycle is influenced by the 2008 economic crisis and technology disruptions. Both have a profound impact on the way businesses define their interactions with technology, which has a ripple effect on infrastructure and operations (I&O) organisations and the way they select service management tools.

There are three major trends that influence how I&O organisations select service management tools: Optimisation, transformation and the adoption of alternatives.

First, I&O organisations optimise their service management toolset to reduce costs. Because most I&O organisations tend to acquire and select tools reactively and tactically, their service management and, in particular, their infrastructure management tool portfolio accumulates deadwood and duplicates over the years.

CA Technologies stated that there was a decline in old enterprise software revenues in 2014, claiming this was due, primarily, to a decrease in sales of certain mature product lines.

The effect of the crisis was that many I&O groups started to streamline their portfolio of tools. For example, a worldwide insurance company inventoried 130 management tools used in its datacentres in early 2015 and started a deduplication effort to reduce this number to 80.

Second, the I&O infrastructure transformation is well under way. Business focus is on winning, serving and retaining customers, which is causing a disruptive wave. Innovation, speed of service delivery and quality are all differentiators for businesses. To increase speed and quality, I&O professionals are favouring new infrastructure models such as converged infrastructures and hybrid models based on public and private clouds that include several infrastructure and service management tools.

Enterprises are shifting more of their core production workloads to the cloud. In his keynote at the Amazon Web Services (AWS) re:Invent 2015 show, GE CIO Jim Fowler reported that his company will move more than 60% of its global workloads to AWS. Again and again, Truths about the higher cost, lower security and startup-only nature of the public cloud are being challenged as innovative business leaders seize the opportunity to drive their business forward.

Third, as most of the I&O budget goes to supporting legacy systems of record, I&O organisations expect to find potential savings in alternative management solutions such as open source software and software as a service (SaaS). Cloud-based solutions such as New Relic and ServiceNow show that there is a viable alternative to the traditional on-premise acquisition and deployment of service management solutions.

Large suppliers feel the pinch

The overall effect is a slow decline in revenue for large service management software suppliers. This does not mean the overall size of the service management software market has declined, but simply that the market share of large suppliers has reduced.

Large suppliers' revenue has been declining steadily. CA Technologies' revenue, for example, declined sharply in 2009 to $3.94bn, compared with $4.28bn in 2008, showing the effect of the financial crisis on software investments. CA Technologies saw lower renewals and lower new product sales in 2015, which is likely to be a result of service management tools consolidation. Hewlett Packard Enterprise (HPE) software sales in the last quarters of 2012 to 2015 show a 9.3% decrease in revenue year on  year.

The market share of large suppliers has also been eroding over the past seven years. Forresterâ€(tm)s mega-suppliersâ€(tm) market share estimate was 43% in 2007. This declined sharply to 34% in 2009. the year following the 2008 crisis. This downturn has continued unabated. It is time for the large service management suppliers to reinvent themselves or face a slow descent to extinction.

Change in service management focus

The I&O organisation approach to service management reflects business disruption. Customer-focused services dictate technology choices and, thus, the changes in I&O organisation service management strategy. 

Originally, the traditional IT model of "plan, build and run" evolved only incrementally. Increases in capabilities and functions changed the fundamental infrastructure architecture, but did not challenge it. Thus, management processes were relatively stable and open to frameworks such as ITIL. The extensive nature of service management best practices favoured integrated product portfolios, which required large capital investments. This model promoted "mega-suppliers" such as BMC, CA Technologies, HPE and IBM, whose product portfolios covered most, if not all, disciplines of service management.

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Today's model is shifting towards “plan, procure and manage”. The customer-focused business differentiates through innovative services. Implementing these services requires the use of agile technologies. Thus, architects design the most appropriate infrastructures for the task and use a mix of ad hoc systems such as cloud, SaaS, external hosting and on-premise datacentres. This challenges the stability of the infrastructure and, thus, the ITIL model. Consequently, a significant part of the existing I&O toolset based on mega-suppliers' portfolios is now obsolete.

The low cost of creating and distributing software fosters innovative solutions. Technology commoditisation, open source and SaaS are changing the service management software landscape, and this trend is no longer limited to small client organisations. Large customers have been moving to infrastructure management solutions such as SolarWinds, Zenoss, Uptime and open source products.

Today's service management market is diverse and includes customers looking for products to resolve an immediate issue, such as application performance management. Most of these customers understand who the suppliers are and have collected information about their wares. Other customers have identified a problem for which they don't yet have a solution, for example, managing a hybrid infrastructure.

This is an extract from the Forrester report, How large service management suppliers can stay relevant, January 2016, by principal analyst Jean-Pierre Garbani.

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