A few years ago, service providers thought it was enough of a value-add to provide their business customers with an air-conditioned, secured room where they could keep their web servers. But now, it's a whole new ball game. Today's business customers expect--and need--more.
As a result, service providers have had to add a new pitch to their repertoire--outsourced IT offerings.
Plain, old access and transport services aren't enough to strike out the competition these days. Service providers find that to satisfy all their customers' needs, they have to add an array of outsourced IT functions, from security and network management and monitoring to personal consulting in regards to the best product and service solution sets.
The pace of technological change and the ever-present shortage of qualified IT personnel are among the factors that will make IT outsourcing grow into a $650 million to $675 million industry by 2004. The current economic slowdown will play a role in acceptance of outsourcing as businesses want to find someone to handle the mundane IT tasks that aren't a source of revenue, freeing employees to focus on the companies' core business.
"The long-term prognosis for outsourcing is very strong because the economics are too compelling for companies to ignore, says Mike Liscovitz, vice president of QIS product management at Qwest Communications International Inc. (www. qwest.com). "If an organization works out the true costs, they'll find out that the long-term economic benefits far outweigh what they're doing today."
Companies such as IBM Corp. (www. ibm.com) and EDS (www.eds.com) long have been known as the experts that large businesses could count on to take over IT functions that were too complex, too time-consuming or employee-intensive, or too expensive for companies to do in-house.
But several new kids on the block are vying for a piece of the IT action, including telcos, IXCs, and CLECs--all of which have their own network platforms.
"Telcos are going to be a huge player, though it remains to be seen who has the best approach," says Eric Goodness, principal analyst for network and Internet services at Dataquest Inc. (www.dataquest. com). For instance, Verizon Communications Inc. (www.verizon.com) recently developed an IT outsourcing division from its existing employee ranks, while BellSouth Corp. (www.bellsouth.com) is partnering with IBM and others.
"Telcos have to be there," Goodness adds. "They own the transport, the access. This is going to be the platform for differentiated value going forward, even in the wiring closets."
But with telcos and other service providers entering the IT-outsourcing business, it begs the question as to whether they have the necessary computing experience to make it a success.
"There are some challenges in the telco market," says Byrne Mulrooney, vice president of portfolio-management solutions for EDS Information Solutions. "Everyone is trying to move upstream and there are questions about whether they have the skills to do it. The value that EDS can bring to the customer is not in transport. We can provide and end-to-end, converged service offering that lets us run a single IP infrastructure that encompasses LAN, campus, desktop and the WAN."
But even some of the traditional outsourcers are partnering with telcos as part of their channel strategy. Witness the BellSouth-IBM relationship.
The telco announced in early June that IBM would provide systems integration, training and support for Cisco Systems Inc.'s (www.cisco.com) Architecture for Voice, Video and Integrated Data (AVVID), on which BellSouth is building its VoIP infrastructure.
"BellSouth understands that there are certain core competencies that we'll leverage with our partners," says Cindy Hamrin, vice president of product management and marketing for equipment and network service at BellSouth Business. "We'll look for the best of breed partners to provide part of that solution and knit it together for our customers."
From its e-Business Centers, and throughout its entire network, BellSouth
can support web hosting, a managed router offering, network management and monitoring and security, as well as providing the necessary hardware and software. "Customers don't want to have to shop for those various components. If they can get the hardware and experience wrapped around, plus the network platform we have, we see that as a much more valuable proposition," says Hamrin.
Telcos such as Qwest and Verizon are going at it in a slightly different way than BellSouth. They're building an IT outsourcing offering in-house, rather than partnering with others.
Within Qwest's Interactive and Total Care groups, the telco offers professional services along with IT functions, such as web-application development, hosting and monitoring.
"Where we focus our energy is on an outsourcing model that leverages core Qwest assets," says Liscovitz. "Playing in our favor is ... Qwest's assets and size. That's something that customers feel comfortable with because of the fear, uncertainty and doubt about some of the newer players out there."
In mid-June, Verizon announced its managed services initiative, which is offered through its Enterprise Solutions Group (ESG). The offering is available in all 50 states and is supported by NOCs in Pennsylvania and Texas, and 5,000 field personnel.
Verizon said they saw the need for installation, maintenance, monitoring and maintenance of their customers' networks after a survey showed that corporate network managers spent about 50 percent of their time troubleshooting network problems.
"It's expensive from a people and a systems perspective. People found out that they were investing in systems and having problems getting things to work," says Daron Young, director of custom-managed network solutions for Verizon's ESG.
Current Verizon offerings include SiteWatch, which allows Verizon to manage and monitor all customer devices; and FrameWatch, which monitors network utilization via a probe at each customer site. There are other customized offerings that Verizon hopes to eventually productize, including a managed help desk for customers' employees and applications monitoring to ensure ASP SLAs are being met.
IXCs also are leveraging their network assets to branch into IT outsourcing. For instance, Sprint Corp.'s (www.sprintbiz.com) E|Solutions group, which provides IP transport, Internet centers functions and consulting, is targeting Fortune 1000 companies with outsourced offerings.
"Now more than ever, customers don't want that cost of ownership. Customers have tried to do this on their own and found it's more expensive than outsourcing," says Keith Paglusch, president of Sprint E|Solutions. "And about the time they got it right, they were generations behind in their technology. By outsourcing, they have the constant ability to upgrade."
While the major telcos and IXCs focus on the Fortune 1000 types of customers, there other competitive carriers that wish to bring the same cost benefits to the small and medium-sized business community.
"We would like to reach small and medium businesses with a bundle of IT solutions that simplify the way they have to consume and manage technology within their organization. We want to remove the technology burden that they have to bear," says Michael Peck, vice president and director of marketing at Netisun LLC (www.netisun.com). The company, which was formed about a year ago through the merger of an ISP, a CLEC, an ASP and a systems integrator, primarily focuses on midwestern cities, like Chicago and Indianapolis.
Netisun will provide everything from basic e-mail and Internet access to LAN support and development of customized solutions. Netisun's other natural play is on the consulting side, because it acquired a systems integrator and, along with that, a staff that is certified with all of the major manufacturers, like Cisco, Citrix Systems Inc. (www.citrix.com) and Microsoft Corp. (www.microsoft.com).
ITC^DeltaCom Inc. (www.itcdeltacom.com) is another CLEC that is putting a strong emphasis on outsourcing. The company created its e^deltacom division with just that goal in mind.
"e^deltacom morphed together to bring professional services and network services together on a platform," says Steve Johnson, senior vice president and general manager of e^deltacom. In addition to consulting, the company provides a host of managed services, including hardware, storage, security and monitoring.
"We're looking for a point of pain and trying to branch out from there," says Johnson. "I truly think that certain forms of IT are going to be looked at the same way payroll is looked at today. Every IT director I know wants to get rid of security, and would like to move mission-critical applications from his facility to ours."
While the approaches these service providers take in delivering IT solutions vary as much as the companies themselves, they all believe that the key to successful IT outsourcing is the ability to provide personal service and consulting expertise to help businesses determine what they can farm out, and what they need to keep in-house.
"Having a personal relationship allows us to deliver a proposal that fits their needs," says Johnson.
