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April 21, 2022

Kyndryl and SAP join forces to boost their cloud relevance

An extended partnership between the companies could help both grow their cloud market share.

By Matthew Gooding

Kyndryl, the IT services provider that spun out of IBM in November, has announced a new partnership with SAP which will see the two companies join forces to offer an integrated range of products and services to aid digital transformation. Both businesses have their roots in providing on-premise solutions, and by working together will hope they can boost their position in the cloud computing market, where they have so far struggled to make an impact in the face of strong competition from the public cloud hyperscalers.

SAP and Kyndryl announced a new partnership today. (Photo by Jakub Porzycki/NurPhoto via Getty Images)

Under the agreement, Kyndryl will offer services that complement SAP’s cloud ERP system, RISE, including AI-driven business data management and analytics solutions and application modernisation, the companies said. They will also work together to develop new products that apply Kyndryl’s expertise in AI to aid cloud migrations, as well as new cloud security offerings.

“As our customers embark on new and ongoing cloud transformation strategies, this joint effort allows us to streamline operations and enhance visibility across their mission-critical workloads at unprecedented speed and scale,” said Madhuri Chawla, global head of SAP strategic partnership and alliances at Kyndryl.

Kyndryl SAP partnership makes sense for both parties

Formed from the spin-off of IBM’s managed services division, Kyndryl officially launched in November and is the world’s biggest IT services provider, with 90,000 employees and 4,600 enterprise clients. But it has endured a rocky start to life as an independent business, and in March reported a net loss of $2.3bn for 2021, with annual revenue declining 5%. Though the company’s share price has recovered slightly since then, it is still trading well below its $40.75 launch price.

To boost revenue, Kyndryl wants to build out its cloud offering, and its partnership with SAP follows on from similar deals made with Amazon's AWS, the public cloud market leader, as well as the other two big cloud providers, Microsoft Azure and Google Cloud.

SAP has also struggled to convince customers to use its products as part of cloud deployments. It enjoyed just a 1% share of the cloud market in Q4 of 2021, according to data from Synergy Research Group.

And although 2021 saw the company grow its cloud income by 19%, to €9.59bn, overall revenue grew just 2%, continuing a trend of minimal growth of the company in recent years as spending on on-premise IT systems slows.

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Figures from Synergy showed that in 2020 spending on cloud infrastructure and software globally grew 35% to $130bn, while enterprise spending on data centre hardware and software dropped by 6% to less than $90bn.

SAP did score a notable victory for RISE with SAP in March, when it announced Microsoft was using the system internally, making it the first major cloud provider to do so. But the bigger problem for it and other non-cloud native companies like Kyndryl is that the services they offer are provided directly by the likes of AWS and Azure, making it difficult for them to distinguish themselves.

Speaking to Tech Monitor in March on Kyndryl's prospects, Joel Martin, research leader for cloud and SaaS strategies at HFS Research, said the company was likely to remain attractive to clients in heavily regulated industries, where IBM's traditional strengths have lain. But, he added: "If you're looking for a rapid change that will reimagine your business, why would you not just go to one of the hyperscalers directly?"

Read more: Does Kyndryl have a future as an independent business?

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