Partnership Reality Check: Vodafone Needs IBM Today and IBM Needs Vodafone Tomorrow

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By Dan Shey | 2Q 2019 | IN-5384

On January 17, 2019, Vodafone and IBM announced that they have formed a new venture whose combined capabilities will help enterprises tap and realize value from an onslaught of disruptive technologies including IoT, 5G, edge computing, software-defined networking, AI, and cloud. The venture will have immediate access to all of IBM’s cloud offerings, from which it can co-develop digital services with early target markets identified as retail, industrial, energy, and agriculture. The joint presentation on the partnership recognized the key needs of enterprises to operate efficiently in an increasingly multi-cloud market where applications and data can flow freely and securely to benefit all enterprise operations regardless of world location. While it is early days, it is not clear what shape the venture’s governance structure, sales and marketing activities will take. Moreover, we are left unsure of how quickly the venture will offer products to market. Any partnership takes time to develop, but its results are as much about execution internally and on the ground, as it is about products and services. This Executive Foresight takes a deeper look at some of both companies’ key challenges and needs, the synergies necessary to drive the partnership, and early activities that need to be focused on in order to hit the ground running for market success.

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Why IBM Chose Vodafone

NEWS


IBM’s 2018 financial results were positive, beating analyst expectations and returning to revenue growth after nearly seven years of revenue declines. It should be pointed out that a big portion of the revenue growth came from a replacement cycle in mainframes, even though CFO James Kavanaugh has stated that cloud services without mainframe grew nearly 20%. Kavanaugh also said in an interview with CNBC that, with the Red Had acquisition, IBM is well-positioned to address the second phase of cloud migration. In the first phase, cloud adoption was more cost-driven and workload simplistic, which was the reason for public cloud growth; in the second phase, cloud migration will be more strategic and distributed to address workloads across multiple clouds. IBM feels it will be particularly well-positioned during the second cloud migration phase.

 

These financial results and IBM’s cloud services portfolio may suggest that IBM did not really need to partner. However, the competitive environment around IBM was rapidly changing in ways that could potentially slow its recent momentum. This is exemplified in the following observations and market trends:

  • Firstly, IBM’s revenues were softening over the last three years in EMEA. Finding the right partner headquartered in Europe could potentially reverse that trend.
  • Second, IBM’s competition, especially Alibaba, has been gaining momentum in Europe. Alibaba’s growth was inevitable as European companies attempt to build a presence in China to address local data laws and mitigate trade war effects. Regardless, bulking up IBM’s presence in Europe through a partnership is an effective way for IBM to bolster its market position. It should be noted that Alibaba was Vodafone’s first public cloud partner. Sitting in Vodafone’s public cloud boat at least gives IBM presence in Vodafone deals it previously did not have.
  • Third, from a product and results perspective, IBM has not had the same success in IoT as AWS and Microsoft. Vodafone not only has a track record of solid growth in connecting things, it also has a footprint in one of the largest and growing IoT segments of connected vehicles through its acquisition of Cobra Automotive Technologies. As the connected vehicle segment transitions to autonomous vehicles, IBM cloud and AI services will become more sought after.
  • Finally, current trends see more intelligence moved to the edge driving growth of multi-access clouds. Working with a mobile operator allows IBM to move its cloud IP closer to enterprise workloads. 5G will also accelerate the densification of mobile operator network footprint. The net result and an overall key benefit is that Vodafone gives a local flavor to IBM, especially since Vodafone controls the last mile.

Why Vodafone Chose IBM

IMPACT


Vodafone brings a global connectivity footprint with key assets in fixed line, wireless and IoT services. In addition, it has reported solid growth in IoT connections and is investing heavily in the latest network technologies, namely 5G and LPWA networks. Both technologies will open new markets and revenue streams such as in manufacturing and supply chain. Like many telcos, Vodafone is only capturing a small share of the potential revenue opportunity. Finding the right partner could help them overcome some key barriers, because:

  • Data/analytics services is one of the fastest growing parts of the market, not only for IoT but across a number of business verticals. IBM brings best-in-class services for capturing a full breadth of advanced analytics opportunities for which Vodafone has little capabilities or experience.
  • Cloud services are the center of gravity for starting an innovation journey. The venture adds to Vodafone’s credibility as a supplier of cloud services.
  • Vodafone was losing cloud talent—there have been some recent notable departures suchas Fran Heeran, former head of Vodafone’s network, cloud, and IT infrastructure activities; andPablo Jejcic, head of cloud and infrastructure center of excellence. (Vodafone states that the partnership will deliver through its Cloud BU and it has had no leadership departures.) This is not to say that Vodafone does not have a bench to work from as they have been able to pull in talent from Google, AWS, and Rackspace. Still, the partnership with IBM eases bringing in deals via a huge talent pool that otherwise may have been more challenging.
  • IBM has a well-established professional services organization in its Global Business Services unit, which was IBM’s third largest revenue generator in 2018 at US$4.15 billion. This expertise will greatly enhance the venture’s access to customers and solution development capabilities.

Where the Venture Should Focus Now

RECOMMENDATIONS


Vodafone and IBM have more than a twenty-year history of working together. Recently, IBM helped deliver additional capabilities to Vodafone’s private cloud services. The convergence of communications and cloud computing is a powerful combination for end-to-end solutions, especially in the world of interconnected physical and digital assets.

On the face of it, Vodafone and IBM are a promising combination for driving enterprise innovation, but execution and alignment between the two parents could prove to be the bigger hurdles in the way of venture success. There are three areas that the venture will need to address immediately to ensure market confidence and enable steady revenue growth. First is creation of a product and service roadmap. This needs careful attention not only to leverage resources affectively but also to tap the right markets with the right products and that addresses the solution development complexity issue that the vast swath of technologies creates. If done correctly, the range of services available through this partnership can enable “land and expand” revenue growth. Second is the venture’s positioning strategy. The key question here is whether the venture positions itself more as an SI with products and a trusted resource for enterprise transformation, an end-to-end solution provider for specific vertical markets, both, or something else. This decision is very dependent on its product roadmap and overall go-to-market strategy. Third is the pricing and offer strategy. What will be important is that the venture is flexible with how it prices and offers products, as it is likely the range of customers it engages will have various maturities toward implementation of new technology.

In early 2018, PTC announced its partnership with Microsoft and Rockwell, similar to the Vodafone-IBM announcement kicking off 2019. More announcements will come from big, multinational suppliers teaming up to capture a piece of the pie created by enterprises implementing new technologies in areas of IoT, AI and advanced analytics, robotics, 5G, and blockchain. These announcements effectively reflect that business is global, and that all enterprises, but particularly large ones, face multiple technology innovation challenges. IBM and Vodafone are a potent combination for realizing the disruptive power of the latest connectivity and analytics technologies. Their potency could be magnified in markets that need to converge IT and OT.

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