It’s called a pivot. By definition, it can be a swivel, spin, rotation or turn. It’s a term commonly used in the tech industry to denote the shift of a business from one model to another, and it’s happening a lot, especially in the evolving world of cloud computing and information technology.

The shift taking place involves a move from selling products to offering services, and there are a number of tech companies over the past year that have done exactly that. One example can be found in Nutanix Inc., which is shifting away from its core products of data center operating systems and hardware appliances to a more software-centric portfolio.

Another company making a pivot is Kaminario Inc., which announced last month that it would exit the storage array hardware business and focus on software solutions for its customers. Comments from a recent interview with Kaminario’s chief executive officer revealed that reduced cost of inventory and public market valuations were key factors in the decision.

“We’ve got companies like Amazon Web Services and others that are much more dependent upon the notion of services revenue, where the delivery of the value is in a continuous service orientation,” said Peter Burris (pictured, left), host of theCUBE, SiliconANGLE Media’s mobile livestreaming studio, and chief research officer at Wikibon, in a recent discussion with the Wikibon research team at theCUBE’s broadcast facility in Palo Alto, California (Wikibon is owned by SiliconANGLE Media Inc.). “This march is going to continue. There will be significant and ongoing drive to increase the role that a services business model plays in how value is delivered and how value is captured.”

Fewer throats to choke

A byproduct of this trend could be that as information technology departments move from purchasing assets toward purchasing services, it will have fewer vendors to deal with. Michael Dell, founder and CEO of Dell Technologies Inc., was recently quoted as believing that fewer vendors is precisely what customers prefer.

“The interesting thing from an IT enterprise point of view is that you’ll have fewer people to do business with,” said David Floyer (right), a research analyst at Wikibon. “It’s a win for the customer, because his costs are lower and he can concentrate on differentiated services. And the vendor wins because he has economies of scale and can provide [services] at a much lower cost.”

Being able to concentrate on differentiated services is an important component in the shift-to-services model. If an enterprise is running 100 different workloads, but half of them don’t differentiate the company from the competition or create value, then it makes better business sense to focus on services that can make a difference.

Affirmed Networks Inc., a software-defined networking firm, recently introduced an industry-first “network slicing” feature that will allow operators to more easily offer differentiated services. “The industry is gravitating towards a service model, and I think it’s a function of differentiation,” said Ralph Finos, project manager at Wikibon. “The slow march of service makes a lot of sense to me.”

The move toward a more services-oriented infrastructure will likely change the role of IT inside companies as well. Historically, IT departments brought hardware and software in-house and guarded the infrastructure zealously. It was often a process of managing from scarcity. The business wanted more, but IT usually had limited budget and resources to meet the demands. Now, IT departments have more options and greater flexibility to find the services it needs.

“It created a lot of tension between IT and organizations,” explained Wikibon analyst Neil Raden. “When the IT business becomes less insular, a lot of this tension between IT and the rest of the organization will start to dissipate. That’s what I’m hoping will happen.”

IoT as next growth industry

The industry’s march to services comes at a time when “internet of things” devices are proliferating and will play an increasingly important role in enterprise computing. IoT edge platform revenue is expected to grow by at least 81 percent this year, according to a MachNation report.

Wikibon analysts believe that edge pre-processing will begin to reduce the cost of gathering data from IoT devices. As IT departments come to rely more heavily on services, the lower cost and increasing reliance on IoT may make this the final “growth industry” of new products in the field.

“The IoT, sensors and actuaries that are embedded in your machine tools and everything else that you [use to] run the business are the last bastion of products in this new marketplace where everything else becomes a service,” said James Kobielus (@jameskobielus), research analyst at Wikibon.

IoT devices gather data, a lot of data. Researchers have estimated that one autonomous car will generate 25 gigabytes of data every hour. Multiply that by the expected number of self-driving cars on the roads, add all of the other devices entering the market and the scale becomes hugely significant.

The major challenge will be value capture, how to transform the tidal wave of data into something useful for the enterprise. And an important dynamic is that as IT organizations move toward the services side, this will also mean that both the user of a particular service and the provider will benefit from the data being collected. IBM Corp. works with Airbus to build data services for its aircraft, which in turn provides feedback information that can be quite useful to both parties.

“The key here is that since it’s a data service that’s being embedded with the product, multiple vendors can benefit from that data service,” said George Gilbert (@ggilbert41), research analyst at Wikibon.

As 2017 came to an end, Wikibon analysts were already forecasting that the industry’s move toward buying more cloud services would continue, especially in areas such as artificial intelligence and deep learning. Nothing so far in 2018 has changed that opinion.

“The consequence of the move to greater integration, greater external delivery of things within the business, has catalyzed this movement to the cloud,” Burris said. “We believe that the fundamental question is going to come down to what process you use to create value … and how you are going to deliver that value.”

Here’s the complete video interview:

Photo: SiliconANGLE