Workloads heretofore bound up in information technology outsourcing (ITO) contracts will become a potential source for cloud migration under a new agreement forged by AWS and Atos. Cloud has already been draining the data center outsourcing market by incrementally siphoning off workloads to the cloud, thereby reducing the potential market scope of ITO. In this new agreement, ATOS and AWS are going further by purposely and directly reducing burdens to migrating these ITO-bound legacy workloads without having to wait for contract termination by eliminating financial obstacles in the form of existing information technology outsourcing agreements.
For many existing ITO contracts, assets such as data centers, mainframe computers, and others are transferred and amortized over time. The result is that the latter years of an ITO contract can be the most lucrative for suppliers but frustrating for customers who find their freedom of movement limited. By eliminating these assets, outsourcing agreements can be rendered “asset-light,” meaning that there are fewer financial impediments to renegotiating agreements to an “asset-light” style more conducive to cloud migration. The program does not necessitate a new contract, per se, but will likely spur significant renegotiations. While willing to purchase and hold these assets for itself where it makes sense, AWS will prefer to facilitate its disposition by assisting customers in understanding how much these assets are worth and for how much they can be sold. In addition, the two companies will collaborate in training Atos staff to be capable of supporting DevSecOps operations, potentially qualifying them for more lucrative and impactful services engagements, hoping to mitigate the revenue decline associated with ITO. Previously, Atos was more closely associated with Google under an agreement struck between Atos and then Google Cloud CEO Diane Greene but has been following a different path under Thomas Kurian. Atos and AWS will also make use of AWS Outposts for on-premises requirements using the new 1RU and 2RU options now generally available (Outposts was originally available at a standard 42RU rack).
Infrastructure-centric service providers have struggled to achieve growth, with persistent margin pressure due to their reliance on commodity infrastructure management services. But the existing base of ITO contracts is sizable. Atos has some 800 existing ITO customers. Complicating matters is Atos’ intention to split into two entities, a la IBM-Kyndryl. As was true in the prior case, the split is inspired by the likelihood that, in theory, Atos will then be free to pursue higher-margin services. But cloud-centric relationships and capabilities may be retained this time by the resulting Atos unit focusing on ITO, meaning that Evidian, like Kyndryl before it, will have to reconstitute its cloud partnerships and advisory capabilities. But much has yet to be decided before the split takes place, which will be complete by mid-2023 “at the earliest.” Although strong in mainframe and private cloud technologies, Atos has struggled to be a player in cloud migration. For his part, Atos’ co-CEO Nourdine Bihmane said the partnership is aimed at getting Atos “back in the game.”
Can it work? For some Atos customers who are feeling dead-ended in their ITO relationships with assets worth selling, they can accelerate their cloud journey by working with AWS. Expect similar relationships to be established with other infrastructure-centric outsourcing providers including Kyndryl and DXC.
