Kyndryl officially spins off from IBM as $19B MSP

Kyndryl officially spins off from IBM as $19B MSP

Kyndryl starts off big but faces challenges in a fragmented, competitive services market.

Martin Schroeter (Kyndryl)

Martin Schroeter (Kyndryl)

Credit: Kyndryl

Kyndryl -- formerly IBM’s Managed Infrastructure Services unit -- is officially an independent company after launching as a mega managed services provider (MSP) across the world.

From the start the spin-off will be big, with more than 90,000 employees, US$19 billion in annual revenue, operations in over 60 countries, and a customer base that includes 75 per cent of the Fortune 100. Its goal of modernising customer infrastructure will remain at the centre of its strategy, but the new-look business wants to expand.

Company executives say by spinning out of IBM, Kyndryl will have more freedom to partner with other major tech companies and cloud hyperscalers such as Amazon Web Services (AWS), Microsoft and Google Cloud. Plus it can invest in its workforce as well as focus on developing services for hot markets such as 5G, edge computing, cloud, and security.

“We expect to continue helping some of the world’s really complicated, large organisations with their digitalisation efforts and help them move forward and become more secure and resilient,” said Matt Milton, president of the US at Kyndryl.

Milton said the company and its customers have three core challenges to address: The general speed of digital transformation; implementing strong security, which includes  technology and skills; and the ability to gather and protect insightful information from the data many companies are unlocking.

Part of that effort is helping large firms add new technologies to their enterprises. 

“It’s difficult to imagine moving forward on digitalisation and cloud computing without rearchitecting the network -- it is a foundational component,” Milton said. “Using 5G at the edge to run the vast amount of data being unlocked in the cloud is just one of the transformational areas we know are important to customers.”

Kyndryl offers network-specific offerings including network consulting and fully managed network packages as well as  software-defined networking services that help enterprises build programmable network fabrics that include SD-WAN, data centre branch, and LAN technologies. 

Networking and edge technologies are just a part of the overarching Kyndryl business, which comprises six global managed service practices including Cloud Services; Security and Resiliency; Digital Workplace and Core Enterprise and zCloud.

Kyndryl will no doubt face challenges. Business in 2020 was down 4.5 per cent compared to 2019, and it fell seven per cent from 2018 to 2017, according to a recent Network World article.  

In 2018, the managed services unit of GTS brought in $21.8 billion in revenue. By 2020 it was down to $19.35 billion. And for the first six months of 2021, revenue was $9.52 billion, which will mean $19 billion for the year if revenue stays constant. In addition, according to a recent SEC filing, Kyndryl had 5,100 customers in 2018, 4,600 customers in 2019, and 4,400 in 2020, the article stated.

It will too continue to face a phalanx of strong competitors such as Accenture, DXC Technology, Atos, Fujitsu, Infosys, Rackspace, Tata Consultancy Services, and Wipro.

Martin Schroeter -- IBM’s former CFO and the new chairman and CEO of Kyndryl -- said Kyndryl can expand its addressable market to more than $500 billion by mid-decade. 

“As an independent company, we will be flatter, faster, more focused and organised around high-priority customer needs and opportunities,” Schroeter wrote in the company’s  Form 10 Registration Statement with the SEC.  

“We will also have more freedom to invest in and build on our capabilities to serve an addressable market that we expect to expand to over $500 billion by 2024, which is being driven by an explosion in data, migration to the cloud to manage all the data and analytics, and an urgent and obvious need to make information and technology systems more secure.”

New markets and opportunities

IBM will be the company’s largest client and partner going forward but how it utilises that partnership remains to be seen. And although there are still close ties between the two companies -- IBM retains a 19.9 per cent stake in Kyndryl -- the separation is opening up new opportunities on both sides.

For Kyndryl, those opportunities include addressing new business in markets such as intelligent automation, data services, cloud services, or security and resiliency. The company estimates that those new areas increase its total addressable market from US$240 billion to US$415 billion immediately after the split. Today, it’s capturing a small fraction of that, with annual revenue of US$19 billion.

Technology -- in the form of the tools that Kyndryl creates and uses to deliver services to its customers -- will play a big part in exploiting those opportunities, outlined Antoine Shagoury, CTO of Kyndryl.

He knows the company’s capabilities well. A former CIO himself, most recently at State Street and before that at the London Stock Exchange, Shagoury was a customer of both legacy IBM and of what is now Kyndryl.

His first reaction when IBM approached him about the Kyndryl CTO position, he says, was, “Are you asking me as a former client? You’d better sit down and get a pen, because I have a lot of problems we’re going to have to fix.” 

That didn’t put either party off: “It was one of those fun discussions, and it really became exciting to get exposed to the appetite to close the gap, and really start to position what Kyndryl is becoming now, this facilitator, this enabler of services.”

Some of the problems Shagoury wanted to fix related to what he calls “the environmental issues” of what the managed infrastructure services business was targeted to do. “It had a lot of blinders on. It was very specific subsets of applications, very focused on IBM cloud,” he says.

That part of IBM was as deeply embedded in its clients’ organisations as the clients’ own teams, he says. In that situation, “It becomes very limiting how you can help the client navigate the complexity around modernisation, around digitisation, and availability in the marketplace, around that changed paradigm.”

Those constraints are gone now, though, as Kyndryl creates its own way of working with customers.

Naturally, customers will have concerns about Kyndryl’s separation from IBM: Shagoury says that when he worked in banking, “This type of separation would have made everybody pause in the building.”

What CIOs are asking

Concerns about continuity of service are top of mind for many Kyndryl customers, but there is no cause for concern, Shagoury says: Kyndryl and IBM are among each other’s largest vendors and clients, and have committed to ensuring continuity of operations for their clients.

Second to worries about too much change are CIO concerns about whether there will be enough change: They want to know whether they will continue to see innovation under Kyndryl.

Of course, they will, says Shagoury: “We are one of IBM’s largest customers: We have direct access to the research results. If there’s something that so unique to IBM, we can easily make sure that that’s going to be a part of the discussion, the opportunity and the inclusion.”

Kyndryl will also be an innovator in its own right, he says, starting out with 3,000 patents awarded, 800 pending, and more likely to be filed before year-end. 

“We are far more innovative than people think,” he says. “Almost 40 per cent of our patents are in AI. You wouldn’t think about that for an infrastructure company.” Those inventions won’t just be put up for sale. “We actually want to use them for the client, for their modernisation and transformation work.”

The third big concern CIOs have raised about the split, he says, is whether they will still have access to the right partners. “They come with a list of who they want us to partner with,” he says. “Every operating environment is different, and the recipe to help someone modernise or optimise their environment is never the same twice. You need to make sure you have the right partners at the table with you.”

Kyndryl’s new management have been educating people internally and externally about how they can help build the ecosystem partner environments that will help the company thrive, he says. 

The role of technology

Technology will play a key role in enabling the ecosystem, and Shagoury’s role is at the heart of that. “I run all the development, all of the architects, all of the research and the platforms themselves. So how we’re delivering the tools and the services, as well as the strategic platforms, how we’re going to deliver our services in a new way going forward in this ecosystem model,” he says.

He wants to expose the technology that Kyndryl has inherited, and that it will build, so that its employees working in different industries, in different practices, are aware of what is available, and can see whether it is applicable to their work.

Much of that technology concerns automation. “We’re doing over nine million automation activities every month for clients,” Shagoury says, including server lifecycle management, incident response and remediation, all the way down to asset and patch management services. Automation is creeping up the stack, he says, and now includes robotic process automation (RPA) services and programmatic automation services beyond that.

The managed infrastructure services business that is now Kyndryl has been collecting metadata about its operations. “We’ve now created one of the world’s largest operational data lakes around this metadata, so we now have AI components that are now feeding our client operations or automation tools, as well as our planning tools,” he says.

Opening up the ecosystem

Shagoury doesn’t want the knowledge of those tools to stay buried within Kyndryl. 

“Those tools are very rarely exposed to our partners and to our clients. And this becomes a huge opportunity for us,” he says. “Now we’re exposing that to the client, saying, ‘Hey, do you want to look at these tools yourself? Do you want to see how we can actually help you be a part of what we’re working on, so you don’t need all managed services?’”

His goal is to open up the possibility of customers choosing from a self-service menu of Kyndryl’s capabilities, or of bringing partners deeper into the Kyndryl ecosystem.

“If I came to you today, and we wanted to brainstorm on something, you’re going to want to have everything on the table: ‘What are the ingredients we have to work with? What’s going to help me modernise faster, compete better, adopt technology in a more secure way for my business?’ And that is the best recipe to engineer and design the right outcome for the client,” he says.

- - additional reporting by Peter Sayer (CIO)

Tags Managed ServicesKyndrylIBM

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