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Q4 2019: Infrastructure Quarterly Report

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Internet Infrastructure Sector Overview: Q4 2019

Executive Summary

The infrastructure services sector continues to evolve. There is a core in place that shows remarkable resilience, but underneath the surface, the foundation has been shifted dramatically by hyperscale cloud and the repercussions are being felt across the sector.

Data centres are increasingly reliant on hyperscale clouds and the capacity they require along with the interconnections they are driving. Meanwhile, the economies of scale and innovation are pushing MSPs to go asset-light and look outside the infrastructure layer to drive value. Service providers are moving into the application layer and expanding in managed services. They have become more focused and specialized and they have re-defined where their profit centres are.

This new world built on hyperscale is global, but highly centralized. Sooner than later, even that will change. Infrastructure is already decentralizing and the edge is going to extend and add value to what is happening at the hyperscale core.

Amid all this change, legacy services have faced accumulating headwinds and this has reflected
in the results. But legacy services, somewhat paradoxically, have also demonstrated incredible staying power. Decelerating growth is not negative growth. There is still movement in a positive direction across the board. But services like bare metal still have importance – not as an emerging category necessarily, but as a pathway or adjunct to what is happening at the hyperscale core.

The rise of outsourced infrastructure services has always been marked by fierce competition. That is not going away anytime soon. But it is also opening the doors to new alliances. Service providers are now critical partners for hyperscale clouds and even clouds are looking to cooperate as seen in the Microsoft and Oracle efforts to interoperate.

As the sector moves into 2020, it is more susceptible to cycles than ever before. What
was once a predictable landscape moving incrementally is now marked by more pronounced
ebbs and flows.