managed services

SaaS impact felt on software market

Showing that oversimplification isn’t unique to network reporting, there’s recent discussion that SaaS will have a major impact on the software market by making it harder to justify incremental functionality in “resident” versions of software to promote upgrades. In fact, Novell was the original poster child for the notion of “function value slip”; its network operating system could not create valuable new features beyond file/printer sharing and thus failed to generate upgrades, eventually pushing Novell to a second-tier player.

Productivity software is already showing a similar problem; fewer companies upgrade to each new version of Office, and it’s not that they’re adopting a competing product; they’re simply continuing to use what they have. The impact of SaaS is really the same as the impact of open source or freeware products: A lower-function version of a tool is fine if the area where functions are being lowered isn’t one a given user depends on.

One truth about the impact of SaaS is that the TCO for desktop software is increasingly the cost of supporting it, not the cost of the software, and that cheaper hosted models may be the way of the future. Whether enterprises would elect to host their software on somebody like Google, however, is another matter. Right now, enterprises believe they would be three times as likely to use their own private cloud for centralized application hosting. Google’s Chrome OS and Microsoft’s Gazelle project may be aimed at supporting these users.

Outsourcing operations trend appeals to carriers, too

Sprint is outsourcing its network operationst o Ericsson, the latest player in a series who have taken this sort of step. Alcatel-Lucent has been the beneficiary of most of these deals recently. One might think the whole of the carrier space is outsourcing network operations, but that’s an oversimplification.

Verizon, for example, says it has no plans for network oursourcing. Most of these deals are for pure “NOC” or operations center outsourcing. For some providers, like wireless carriers, that may be a big chunk of total network operations costs, but for access providers, the physical outside plant maintenance part is the great majority. Therefore, everybody doesn’t save a bundle with this kind of deal. Second, the operators tell us these deals are really seen internally as a kind of extended network integration process.

Operators are finding it harder to acquire and retain skilled network personnel and are concerned about the burdens of moving into new technology areas. In modernization and network enhancement projects they’re turning increasingly to integration deals, and these are extending into ongoing operations. Ericsson is likely hoping to use Sprint to develop some U.S. economy of scale in its outsource operation.

Carriers increase managed home electronics services, surveillance

AT&T is touting the value of home networking standard G.hn in supporting self-install home networks for triple-play. The real value of the standard lies in its ability to not only help reduce spurious field service dispatch where no carrier-equipment problem exists, but also in the possible support it could bring to managed home electronics services.

Operators like Verizon have already begun to offer users managed PC support. All forms of customer support are valuable and profitable immediately only if they can produce good support economies of scale. That means a lot of automated problem analysis and isolation, and that demands on-premises management agents.

We believe that the trend in the industry—both for consumers and enterprises—is toward managed services and that on-premises surveillance is key to making them work. There is also some interesting convergence between the Customer Experience Management activities, in which Telcordia has recently made an investment, and the broader issue of home network management and surveillance. It’s all likely related to the simple fact that surveillance might stop a truck roll.

Alcatel-Lucent focuses in on management contracts

Alcatel-Lucent announced yet another managed service deal, this one with Bharti Airtel. We’re starting to believe the company is making a very specific and broad shift into the service space, focusing on its operations/management integration skills (which we cited in our SWOT analysis). This could be either to gain quick traction in the service management area, which is critical, or to build margins that are under pressure from equipment commoditization—also critical, but without the details of the deals we can’t be sure margins are adequate. In any event, the experience in service operations will be valuable for the company.

Telepresence: A hotel-based services options

AT&T is expanding the commitment it’s made to Cisco Telepresence by doubling the number of conference rooms available. AT&T offers a managed conference service based on Cisco’s high-end technology.

The high-end telepresence market has always been dependent on “room-package” solutions like this, according to our research, because only the largest firms can afford and/or justify a private solution. Even the room-package approach isn’t populist enough for the great majority of businesses, however. Among the 3,500 largest enterprises, we calculate about a quarter could justify some in-house facilities and more than 90% of the remainder could use room-based services. In the next tier of the market (5,000 worldwide), only a tenth can justify private facilities, and only 40% can use room-based services.

A broader approach is needed to gain full market acceptance. Our research shows that the most significant shift would be hotel-based conference facilities, because they could be more easily reached because of greater ubiquity. These should also offer lower-cost service than the high-end Cisco approach.

Who’s growing the managed services trend?

There are indications that some smaller providers are going to make an entry into the enterprise managed services and applications market, including Reliance and Tata. The goal is to make a wide-ranging network with ample capacity into a financial asset by relying less on its commoditizing bits and more on what can be done with the capacity—services, in short.

We believe that the decision is also linked to a slow response from incumbent providers to the sudden interest in managed services, interest that was mounting even before the current economic bust. In tough times, enterprises often want to trade expense for capital investment, particularly in markets where credit is tight or expensive.