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When using the Make Image Server Layer tool in ArcMap 10.3.1 and earlier versions, the tool fails to produce an image layer if the word services is present in the fully qualified domain name (FQDN) of the image service for the input of the tool.
The FQDN consists of the hostname and the domain name. Having the word services in the FQDN (for example, webservices.domainname.com or demoservices.domainname.com) for the input image service of the Make Image Server Layer tool results in the tool failing to create the image layer. This is a known limit.
The Make Image Server Layer tool parses the input string of the image service name to verify if the SOAP URL or REST URL is used to reference the image service. This is done by searching for the word services in the URL. Since the FQDN also contains the word services, the tool fails to construct the path correctly, and thus, fails to produce the image layer.
Use one of the workaround options listed below to solve this issue.