In November 2021, when IBM spun off its infrastructure services to create ‘Kyndryl’, there were quite a few naysayers. Many called it the unshackling of an unwanted part of the business with declining revenues and earnings. Two challenging years down the line, Kyndryl seems to have done a lot of things right. It’s third quarter fiscal 2024 earnings stand as a testimony. 

It beat Wall Street’s expectations, cut its losses by 50% and raised full-year outlook, increasing its stock value by more than 12%. Its 10% revenue decline is attributed to the strategic exit from zero-margin, low-margin revenue streams. At the time of spinoff, about 40% of its contracts were reportedly making little or no profit. 

In Q3 FY24, the company reported double digit growth in its consult revenue, indicating a strong growth in high-margin services. It’s clear that Kyndryl is shedding businesses that added little or no value, and becoming more focused towards areas where it sees higher margins and potential for growth. 

Quite understandably, it was an uphill battle to turn things around, says Karen Forbes, Vice President – Global Go-To-Market and Customer Advocacy at Kyndryl, during her recent visit to Bangalore. 

CIO Dimension caught up with Karen to know more about Kyndryl’s transformation journey. 

Edited excerpts: 

It’s been over two years since the spin off and it’s been a mixed bag, which is not a surprise after a big spin like this. How would you summarize the last two years of Kyndryl’s journey? 

It has been a big journey for us to embed the brand in the market as we stand alongside some of the giants. We had to build a services company that was unshackled by a product company. Two years down the line, we can say with conviction that we are not a legacy spinoff losing money. Our business results clearly project that now. Besides, we are in the new areas of market, we have built new practices and capabilities and are growing those capabilities in our customers. 

Our leadership had two key mandates for us during this massive transition. The first one is to look after our customers, most of whom agreed to stay with us. Secondly, we decided to retain every employee and give them the confidence to come across. Our leadership has done a fantastic job in steering us through that journey.

Two years ago, when the spin was announced, I don’t think many people were placing the bets on us. There was a lot of cynicism out there. But what we achieved in two years is phenomenal and each of us is proud of it. 

Preparing an organization with about 85,000 employees worldwide during a transformation of this scale is not a small feat. What are your learnings? 

The cultural journey has been challenging because we are changing hearts and minds. We were focusing on building confidence among our people. We spent a huge amount of time talking to them about the brand of Kyndryl, the purpose and mission of the brand. 

We created something called the ‘Kyndryl Way’ which talked about the changes we must embrace as we become a services company. For example, most of our teams on the ground never had to work with channel partners or alliances before. We had to teach many new skills to our teams and build trust because this different way of engaging with customers was not usual for us in the ‘old co’. 

The second big vector is our 3A’s strategic objectives that are at the center of our transformation, which is around Alliances, Advanced Delivery and Accounts. We have been making steady progress in all these areas. Our Alliances with tech leaders like AWS, Google and Microsoft have helped us expand our addressable market. Kyndryl Bridge platform has roughly 750 customers performing over 1 billion automations, generating annual savings of $500 million.  

Kyndryl’s hyperscaler partnerships are a significant part of your growth strategy. Tell us a bit more about these alliances. 

We exceeded our alliance revenue targets, with over $300 million generated this year and raised our full fiscal year target to $400 million. We increased our cloud-related capabilities with 38,000 hyperscaler certifications.

Clearly, there is a lot going on in the cloud space. We work with the hyperscalers to help customers understand what their cloud strategy must be VS leading them to a particular hypervisor.  We work together a lot to understand what we can deliver to customers around data management, Gen AI, sustainability, hybrid cloud, FinOps and much more. Some of these areas help us build relationships beyond CIOs to include CFOs, data managers among others.  As our revenue is historically shrinking, it’s important to be in those new places. 

We are also building specific solutions and reference architectures around different industries like financial services and technologies such as genAI and analytics with each of these hyperscalers. So, we are moving the partnership beyond the cloud migration aspect to larger areas. 

How are you modernizing your GTM to align with the new ways of doing things? 

We have been focusing on simplifying how we show up in front of the customer. For example, instead of having multiple specialists as multiple touchpoints, we try to be more cross-practice to solve the customers’ business problem. We start with changing the narrative by focusing on ‘Innovate, modernize and secure’. It’s kind of a flip on from being a product company where you walk in and talk about the products that you like to sell. 

We had an agreement with IBM to use their process and technology at spin. In the last two years, we completely modernized and transformed our front & back offices to “fit-for-purpose” modern IT infrastructure. This helped us consolidate over 80% of the application portfolio we inherited, from over 1,800 business applications to fewer than 360 applications. That made us more efficient and effective in the way we go to market. 

The third important part of the GTM is the skills. We continue to invest heavily on the skills of our people. People are the heart of what we do and they are our most valuable asset as a services company. 

Lastly, would you like to talk about some interesting customer stories from India and the significance of India as a market for Kyndryl? 

India is a particularly exciting market for us. Some of our key customers in India are from the banking and financial sector. A notably big win for us from this sector is Canara Bank which partnered with us to manage and transform their IT operation including the application landscape. We also work a lot of with small finance banks like Suryoday Bank for technology transformation and digital banking. NPCI is another key customer for us, helping them manage their data centers which handle up to 70 billion transactions a month. 

We have some really inspiring stories from our customers like Honda Motorcycle & Scooter India, USDC / Jain University and Dr. Lal Path Labs from India. Most importantly, what we see in India is a market where we can innovate in and scale for the rest of the markets globally.

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Securonix, the Unified Defense SIEM company, has appointed Venkat Kotla as Chief Technology Officer. In this role, Kotla is responsible for leading and scaling the company’s engineering function and fostering partnerships with leading technology organizations to support the growing demand for the company’s Unified Defense SIEM platform.

“I am thrilled to have Venkat join our executive leadership team,” said Nayaki Nayyar, Chief Executive Officer, Securonix. “As we continue to evolve and move into our next phase of growth, it is critical for our platform to scale with enterprise-grade reliability and meet the growing needs of modern enterprises charged with defending an expanding threat landscape. Venkat’s deep experience with advanced technologies, including AI, successfully expanding technology partnerships and streamlining processes across multiple stakeholders will be invaluable in driving product development that protects our customers from internal and external threats.”

With more than 25 years of experience at world class enterprise software companies, Kotla brings an established track record of driving engineering innovation at global organizations. He most recently served as Vice President and Head of Engineering for Economy BU at Atlassian, the makers of workplace productivity tools such as Jira, Confluence, and Trello. Kotla helped grow the Economy line of business to more than $500 million ARR.

Prior to joining Atlassian, Kotla spent over 14 years in senior engineering leadership roles at Google. He spent more than three years at Google as the Senior Director of Engineering for Google Assistant and the Google Looker, a multi-cloud enterprise SaaS for business intelligence, data applications, and embedded analytics.

“I’m excited to join a team that is hyper focused on product development and deeply committed to innovation,” said Kotla. “SIEM is the backbone of cybersecurity defenses, and Securonix has long been the industry’s premier solution provider. I look forward to working with the leadership team to incorporate advanced technologies into the platform and aggressively develop new partnerships with the world’s leading technology providers.”

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In a big move, Anthropic, Google, Microsoft and OpenAI have come together to form the Frontier Model Forum, a new industry body focused on ensuring safe and responsible development of frontier AI models. Frontier models are defined by the Forum as large-scale machine-learning models that exceed the capabilities currently present in the most advanced existing models, and can perform a wide variety of tasks. 

The Frontier Model Forum will draw on the technical and operational expertise of its member companies to benefit the entire AI ecosystem, such as through advancing technical evaluations and benchmarks, and developing a public library of solutions to support industry best practices and standards, according to a blog post on Google’s website. 

The post states four core objectives for the Forum: 

1. Advancing AI safety research to promote responsible development of frontier models, minimize risks, and enable independent, standardized evaluations of capabilities and safety.
2. Identifying best practices for the responsible development and deployment of frontier models, helping the public understand the nature, capabilities, limitations, and impact of the technology.
3. Collaborating with policymakers, academics, civil society and companies to share knowledge about trust and safety risks.
4. Supporting efforts to develop applications that can help meet society’s greatest challenges, such as climate change mitigation and adaptation, early cancer detection and prevention, and combating cyber threats.

The official statement from Google highlighted the need to extend the existing efforts to mitigate the risks associated with AI. 

“Governments and industry agree that, while AI offers tremendous promise to benefit the world, appropriate guardrails are required to mitigate risks. Important contributions to these efforts have already been made by the US and UK governments, the European Union, the OECD, the G7 (via the Hiroshima AI process), and others.

To build on these efforts, further work is needed on safety standards and evaluations to ensure frontier AI models are developed and deployed responsibly. The Forum will be one vehicle for cross-organizational discussions and actions on AI safety and responsibility.”

Brad Smith, Vice Chair & President, Microsoft  said, “Companies creating AI technology have a responsibility to ensure that it is safe, secure, and remains under human control. This initiative is a vital step to bring the tech sector together in advancing AI responsibly and tackling the challenges so that it benefits all of humanity.” 

Also read: Artificial intelligence and human creativity: A tug of war 

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Zoom announced a strategic partnership with and investment in Anthropic, an AI startup founded by former OpenAI employees, which focuses on constitutional AI methods. 

As part of the collaboration, Anthropic’s AI assistant, Claude, will be integrated with Zoom’s platform (which includes Team Chat, Meetings, Phone, Whiteboard, Zoom IQ), starting with Zoom Contact Center. 

“Anthropic’s Constitutional AI model is primed to provide safe and responsible integrations for our next-generation innovations, beginning with the Zoom Contact Center portfolio. With Claude guiding agents toward trustworthy resolutions and powering self-service for end-users, companies will be able to take customer relationships to another level,” said Smita Hashim, chief product officer for Zoom. 

The partnership, according to Zoom, is part of its federated approach to AI which leverages its own proprietary AI models, along with those from leading AI companies. 

As the next step in evolving the Zoom Contact Center portfolio, (Zoom Virtual Agent, Zoom Contact Center, Zoom Workforce Management), Zoom plans to incorporate Anthropic AI throughout its suite.

Zoom’s move comes soon after Microsoft’s announcement of the new version of Teams with Copilot-driven AI smarts. Google too announced a number of AI-based upgrades to Google Workspace. Recently, Salesforce introduced Slack GPT with generative-AI capabilities integrated into Slack.

Early this year, Google had made an investment of $300M in Anthropic, which is touted to be an OpenAI rival. 

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New data from Synergy Research Group shows that Q1 enterprise spending on cloud infrastructure services exceeded $63 billion worldwide, up by well over $10 billion from the first quarter of last year. 

The year-on-year growth rate was 20% in Q1. While this is well down from previous years, it was similar to the level of growth seen in the previous quarter. Q1 spending was up by 4% from Q4, similar to the quarter-on-quarter growth rate seen in Q1 of last year. 

There is no doubt that the current economic climate has constrained some growth in cloud spending, but the market continues to expand at a healthy rate despite those short-term challenges. 

Among the largest cloud providers Microsoft and Google had the stronger year-on-year growth numbers, resulting in both increasing their worldwide market share by a percentage point from the first quarter of last year. Their Q1 worldwide market shares were 23% and 10% respectively. Meanwhile market leader Amazon stayed within its long-standing market share band of 32-34%. In aggregate the three leaders accounted for 65% of the worldwide market. Among the tier two cloud providers, those with the highest year-on-year growth rates include Oracle, Snowflake, MongoDB, Huawei and the three main Chinese telcos.

With most of the major cloud providers having now released their earnings data for Q1, Synergy estimates that quarterly cloud infrastructure service revenues (including IaaS, PaaS and hosted private cloud services) were $63.7 billion, with trailing twelve-month revenues reaching $237 billion. Public IaaS and PaaS services account for the bulk of the market and those grew by 21% in Q1. The dominance of the major cloud providers is even more pronounced in public cloud, where the top three control 72% of the market. Geographically, the cloud market continues to grow strongly in all regions of the world. When measured in local currencies, North America, APAC and EMEA regions all grew by well over 20% year over year.

Economic pressures are crimping cloud spending in some quarters, but the foundational benefits of cloud adoption continue to drive the market to ever-higher levels. The large Chinese cloud market has also returned to growth, though it is the telcos who are benefitting more than the traditional main internet companies. And, as the US dollar pulls back from its recent historic highs, that now provides some tailwinds for cloud growth metrics in the EMEA and APAC regions, which together account for over half of the world market.

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