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Managed services: Beyond point solutions

15 Feb 2011
00:00
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The evolution of managed services has been rapid and the discussion on developing a successful managed services program no longer focuses on just point-product solution features and services for transport.

More than ever, carriers need to differentiate their managed services programs by offering not only world-class customer service, 7/24 support, proactive IT service delivery and the latest technological developments, but also develop a business model that incorporates partnerships that address end-customers' business processes rather than just their underlying technology or delivery systems.

The key to evolving a program is to understand how managed services can become a value proposition in relation to the evolution toward managed cloud-based offers. Companies generally start as server huggers, migrate to backup junkies (for redundancy in the cloud) and then quickly turn into cloud adopters because of the efficiencies and cost reductions, reliability and always-accessible applications.

Three steps

Server huggers refer to premise-type equipment where together the carrier and the enterprise manage the service. In this scenario the initial trust between the carrier and enterprise is tentative, so managed services tend to be simple, such as transport and access services to connect the server to IP networks.

The next step in moving to more robust cloud-based manage services is what we see as the first step in letting go of the on-premise device to becoming a "backup junkie," which encompasses a more complete line of managed services, usually an offering of a cloud-based or hosted backup of crucial server. The evaluation of the access to the backup as the source becomes a business evaluation.

Why do I need the staff, on-premise server and management, upgrades, cooling and power for this on-premise device when the backup is ready for access anywhere? Some aspects of this type of managed services option are driven by capacity issues, such as content of video or high traffic demands. In this scenario the enterprise cannot support the rapid growth so instead looks to cloud-based managed services to support the redundancy. The enterprise needs scalability offered through cloud-based managed services or virtual managed capacity. This generally leads to the discussion between the needs of the business and the services offered by a service provider.

The third and most sophisticated level of managed services is anytime cloud adoption, which deals with technologies, corporate time to revenue, and strategies that enable the business to be more effective. The cloud discussion revolves around utility-based products tied to a business value proposition.

To see how fast the carrier space has evolved you only have to look back 10 years. Then, 10% of global carriers had POP lines and 15% penetration in POP lines. Today, carriers have 70% penetration in the mobile market. This transition rate has introduced both opportunities and challenges.

From a carrier perspective, the complexity scale, connectivity and volume need to be addressed behind the scenes because end-users expect to have a reliable experience. However, many carriers have been left out of this value chain, for example, with companies such as YouTube and Skype, which have leveraged over-the-top type services.

Why were carriers left out?  The answer is simple: some of their models are cost based. Even though carriers have seen up to 70% ramp up in their mobile business, there are still challenges that they have not tackled. How do you maintain revenue when there are a finite number of customers to penetrate the mobile space? Competition is forcing carriers to be creative in developing new services and innovative products so that with their existing customer base the priority is customer retention and increasing average revenue per user.  

Because both consumers and enterprises have become savvier about their spending, providers now are looking at monetizing their networks, technology and equipment through differentiated services that transform the customer experience. And it isn't always about price. Even in the recession, companies introduced high-priced products that transformed customers' experiences, for example, the iPhone, and these products sold well despite the economic conditions.

Why? What is most interesting is that the iPhone technology did not introduce anything new to precipitate these sales. What the company did was focus its capability on how a consumer interfaced with the phone. Apple made it so simple that consumers purchased it in droves. 

The situation is similar with Amazon's EC2, which is not a new cloud hosting service. The company focused on the interface and created a front-end called Instance, which essentially walks the user through the server set up process, resulting in a start up time in a matter of minutes.  

Adding value 

When markets initially faltered, analysts were screaming cost reductions, operational efficiency, consolidation and optimization. However, after surveying global service providers, even in this type of recessionary market, providers cited how to continue adding customer value as the No. 1 priority and how to differentiate and remain sustainable. Their No. 2 priority was service innovation and finding those that aligned with their business initiatives to continue delivering customer value. Even in tight economies people were willing to pay for a differentiated experience. 

In a negative economy or the perception of a negative economy, two things tend to happen: companies rely on advanced technology products because they have less staff and need the technology to accommodate for this reduction to maintain productivity and the tend to outsource more because they reassess and focus on their core competencies. These scenarios provide carriers with the ideal opportunity to penetrate the enterprise space.  

Although carriers have more opportunities for managed services, they need to have the capability and trained staff to offer and maintain managed services to ensure they become trusted business partners vs the carriers that offer just a less expensive internet pipe. 

As managed services gain momentum, IT is moving from technology to technology-as-a-service and carriers are in a strategic position to take advantage of that transition. When we look at the opportunities for the carrier, the first factor in their favor is that they know how to build highly reliable, scalable IP networks. They also know how to design and support large, complex networks as well as set up contracts to manage SLAs.

Within the cloud they can increase their ARPU by creating tiers of high-end experienced users to create a management capability for the enterprise to manage the service but not the infrastructure. And although there is more competition as carriers recognize the benefits of offering managed services, standing out and differentiating will capture revenue.

Analysts predict that the market will generate $226 million within the next five years. IT managers will allocate between 7% and 30% of their budgets to some sort of cloud service. 

Vendors also play an important role in this vision and strategy; they not only provide the technology but they can show carriers how to create new revenue. Carriers need to establish partnerships that allow them to deliver network automation across their customers' entire portfolios. The conversation is now about partnership: generating more leads, branding and developing go-to-market strategies.

Going forward, 51% of companies will have some form of cloud computing service. Clearly, cloud is more than a marketing term; it is now becoming a vision and strategy within many enterprises. Are you heading for the cloud or will you be stuck offering just point products?

Managed services: Critical success factors

  • Move away from point products and offer a range of solutions
  • When deploying services, you need to achieve scale
  • Increase the time to revenue
  • Contain ARPU erosion by offering differentiation
  • Increase share of current high-value customers
  • Create pervasive open network infrastructure to enable dynamic business models
  • Create stickiness through customer loyalty by differentiation

Lauren Robinette is principal analyst for ACG Research's managed service business. Contact her at lrobinette@acgresearch.net or follow her on twitter at www.twitter.com/robin12lauren
 

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