Published: April 9, 2020

Authors of this Market Insight report: Brian Partridge, William Fellows, Carl Lehmann, Nancy Gohring, Liam Rogers, Mike Fratto, Fernando Montenegro, Jay Lyman, Henry Baltazar, and Jean Atelsek

Introduction

COVID-19 disruptions in the world of IT have been immediate, and the impact will be everlasting. 451 Research's Voice of the Enterprise: Digital Pulse, Coronavirus Flash Survey March 2020 reveals more than half of enterprises expect a major disruption to their businesses due to the outbreak. But given the timing of the survey, in mid-March, we expect that in hindsight, this viewpoint will be deemed hopeful. The pressure to reduce capex and therefore speed datacenter evacuations will increase.

Our Voice of the Customer: Macroeconomic Outlook, Business Trends Q1 2020 survey showed COVID-19 as the leading concern mentioned by the senior-level IT managers responding. Fifteen percent of survey respondents expected to reduce capital expenditures in 2020, compared to 8%, who expected spending increases.

The outbreak is causing leaders of organizations of all sizes in all industries to rethink IT priorities among others. While we are certain that the coronavirus will,in the long run, amplify the attractiveness of cloud infrastructure and services in general terms, in this report, we focus on cloud-native technologies specifically. As we consider the time frame extending to end of CY 2021, we expect the supply/demand impacts to vary greatly depending on who you are and your starting point vis-à-vis cloud-native, as well as your industry and your segment focus.

The 451 Take

We expect that the COVID-19 impact on cloud-native technologies will end up, in aggregate, to be positive. The 'cloud' sits strategically at the top of the list of IT technologies viewed as most transformative, and any work in progress is prone to acceleration, not retrenchment, for those for whom the short-term negatives of COVID-19 can and will be absorbed. Clearly, there will be outliers and exceptions, but the journey to cloud-native has been embraced widely as a strategic imperative. The C-suite points to cloud-native as a weapon it will bring to the fight against variables such as uncertainty and rapidly changing market conditions. This viewpoint was born prior to COVID-19 – which brings all those variables in spades. As this crisis passes, and those who survive plan for the next global pandemic, there are many important reasons to include cloud-native at the core of IT readiness.

Impacts

In late 2019, 451 Research took steps to hone our approach to covering the landscape of cloud-native technologies, which we described here. Our approach was to simplify the useful, but overly complex, Cloud Native Computing Foundation landscape taxonomy into nine component technology subsegments, while also having a catch-all segment that includes infrastructure services, training and certification (see Figure 1 below).

By our count, there are more than 550 discrete vendors populating these subsegments. We think some segments are better positioned than others to weather the COVID-19 impact through the end of 2021. While the use of some cloud-native technologies such as containers and container orchestration has reached a tipping point, newer technologies such as service mesh and serverless are still matriculating, and therefore could lose momentum among firms that have yet to get started as they focus on shoring up what they already have in place. (See Figure 2 below, for quick take on each of the subsegments we focused on.)

We do worry about the vast number of startups and small vendors supporting the cloud-native movement. Short term, we expect at least 50% of these vendors to see material contraction of their revenue profile, and they may need significant interventions (stimulus grants, credit extensions, loans, layoffs, etc.) to survive. Depending on their cash on hand, burn rate, convertible pipeline and existing revenue stream, it's likely that COVID-19 will, unfortunately, thin the herd, especially where they have no revenue diversification, or where their business model involves lots of high-touch integration, for example.

Figure 2: COVID-19 Market Impact

Source: 451 Research


Recommendations

Vendors across the cloud-native technologies landscape should take the following actions to support customers in need during the new reality caused by the pandemic:

  • Prioritize investment in virtual/digital channels for customer support. Your customers are unlikely to be able to host you on-site for a very long time. Use this opportunity to take your ability to remotely support your customer across their project lifecycle to the next level, and go beyond just using Zoom meetings and remote phone support. Consider regularly hosting virtual 'lunch and learn' sessions. Any on-site training products should be immediately transitioned to online.
  • Targeted product development. While in most cases it shouldn't be necessary to significantly shift product development roadmaps, we recommend considering the kinds of capabilities that can be added to quickly meet COVID-19-specific needs such as promoting features that better support distributed teams and remote collaboration.
  • Don't ignore new interest from security stakeholders. With security often recognized as a key concern on cloud initiatives, vendors are advised to ensure not only that their offerings have the necessary security features, but that they can articulate their security story to both cloud-native teams and traditional security stakeholders.
  • Tailor packages, and market at targeted verticals. Businesses like retailers that rely on physical stores for revenue generation will benefit from guidance and packaging in cloud-native-based observability features and best practices for digital properties, while born-in-the-cloud e-businesses may require support that scales up to meet unforeseen demand. Think through how each client you serve is impacted in its operations and adjust accordingly. They will appreciate the understanding, and will likely be happy to talk specifically about steps you can do to navigate the COVID-19 disaster together.
  • Step up the thought leadership, establish your voice: Delivering tactical advice and insight can not only support businesses looking to get started with cloud-native or to scale/accelerate its first steps, it can also demonstrate potential value that may expand usage for existing customers. Potential prospects and clients are more glued to their workstations than ever, so redirecting marketing spend toward digital channels of engagement and form factors is a no-brainer given the outlook for business travel.
Penny Jones
Research Director - MTDC & Managed Services

Penny Jones is a Research Director for the Multi-Tenant Datacenter channel and the Managed Services & Hosting channel. Penny provides insight into the European multi-tenant datacenter markets; European managed services and hosting markets; and European cloud (IaaS, PaaS & SaaS) markets.

James Sanders
Analyst

James Sanders is an Analyst with the Cloud Transformation team at 451 Research. Prior to joining 451 Research, James worked as a technology journalist at CBS Interactive, covering cloud computing, open source software and hardware, programming trends, quantum computing, as well as mobile and satellite communication. James received a Bachelor of Arts from Wichita State University.
William Fellows
Founder & Research Vice President

William Fellows is a cofounder of The 451 Group and VP of Research for the Cloud Transformation Channel at 451 Research. The Channel provides a point of intellectual convergence for 451 Research around cloud computing, in much the same way that the industry is converging on cloud from all points. In addition to keeping tabs on players entering the cloud and IT services space with disruptive business models, new technology and innovations in service delivery, William has also created 451 Research's Digital Economics unit.

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