ISG Provider Lens™ Infrastructure & Data Center / Private Cloud Quadrant Report 2018 – Brazil – Managed Hosting & Colocation

Despite the economic crisis that impacted Brazilian service providers over the past three years, this study has identified competitors that have grown more than 10 percent annually and are confident about their future opportunities for continued growth.

Larger organizations are reinventing their portfolio offerings and adapting to a dynamically changing environment. The “disruption” expected for this market is, in fact, pushing innovation through the use of automation and software-defined everything. This innovative disruption is creating value rather than destroying established businesses.

Data center outsourcing is expanding

Many of the participants ISG interviewed described a market that is in development. Although this study does not capture the aggregated Brazilian market data to test this hypothesis, it is interesting to register that the perception comes from the fact that new deals are coming from new markets: clients in the small and medium business segments. What this research data shows is that providers that focus on SMBs are growing faster than the traditional service providers that focus on large enterprise clients.

The quarterly ISG Index published in April 2018 included some evidence to corroborate the expansion hypothesis. It showed the number of contracts awarded in the Americas market was up by 32 percent year-over-year, with strong results in both traditional sourcing and as-a-service annual contract value.

Software-defined data centers are at maturity

All of the organizations participating in this study have implemented or are implementing a software-defined data center (SDDC). The most popular choices are OpenStack and VMware, although this report is not endorsing products or providers. Clients that are planning a new data center or improvements to existing service contracts should not be afraid to consider SDDC if it is not already in place.

Zero outage has become a reality

When AWS arrived in Brazil six years ago, it sparked a veiled belief among service providers that the move to the cloud would crush all of the traditional competitors. The reality today is entirely different and service providers are surprisingly confident.

Ambiguous as it can be, the virtual-everything market demanded high investments in real solid data centers. Colocation providers built, acquired and renewed facilities to offer scalable and reliable infrastructure to public cloud providers. Gradually, the traditional local data centers started moving to colocation partnerships rather than maintaining the old, obsolete facilities, except for large players that could afford to compete and invest in improving and renewing their data centers.

The cloud competition raised the bar. While 99.8 percent data center availability was acceptable six years ago, our research found service providers are currently offering up to 99.99 percent availability, thanks to their massive and reliable colocation partners.

Slow adoption of artificial intelligence in Brazil

Brazil’s market is lagging behind in the use and adoption of artificial intelligence (AI) to improve service response time and automatically heal infrastructure incidents. While most international players report using artificial intelligence with automation tools to reduce outages and, consequently, to reduce the cost of operations, local service providers seem to be ignoring AI’s beneficial ability to reduce costs or they do not have the skilled resources required to be early adopters of innovation.

Providers are gaining traction with colocation partners

The emergence of colocation-only facilities is not new, but the impact of the reduced cost of virtual servers imposed from public cloud providers pushed local data center providers to reinvent their business models – owning a small- to a mid-sized facility is no longer competitive.

Many competitors have become partners or clients of large colocation providers to get the scale of operations that were never thought possible in the past. This trend that started with mid-sized providers is now widespread among large and traditional data center service providers, changing the landscape dramatically. In the past, scalability, availability and security were deciding factors to choose a data center provider, and only the large competitors could fund and invest to own such facilities. Today, service is the differentiator because the facility has become a commodity that is affordable for all players in this market.

Price reductions have been compensated with market expansion

Public cloud market entry, the development of colocation facilities and the affordability of software-defined data centers have leveled the competition and created a market of more competitors that are capable of attracting more clients. While large players that focus on large accounts compete for a limited number of large Brazilian companies (of which there are hundreds of companies), many providers have indicated that their new deals are coming from mid-sized companies (of which there are millions of companies).

Companies that still have internal data center facilities and that are looking for ways to gain security, infrastructure availability and reduce costs go to public cloud portals first. However, they do not understand how to use and leverage the cloud and then search for service providers that can offer transparency and hassle-free infrastructure services at a lower cost.