More conversations with various flavors of service providers. More patterns starting to recur.
Here's one to consider: a service provider has an interesting piece of the winning formula -- but it's not enough.
How best to complete the picture? Buy, build or partner?
It's a classic business development strategy discussion. And it's one that I'm increasingly asked to comment on.
The New Value Chain?
The classic IT value chain had distinct components.
Vendors who built infrastructure: servers, storage, networks and the products that orchestrate it. Vendors who built applications and their tools. Resellers and distributors that provided a convenient delivery mechanism. System integrators and consultants who would tie all the pieces together. Or a sales organization with a unique coverage of a geography, market segment or industry vertical.
One way of viewing the secular shift to SP models is in terms of new components that get added to this familiar value chain. Some of the pieces are the same, some are new, and others are simply familiar functions working in new ways.
Let's take a quick look ...
SPs who have an infrastructure advantage of one form or another.
I meet SPs who have great networks, for example. It's an asset that they've already invested in, and they want to figure out how to do more with it.
I also meet SPs who have either inherited or acquired relatively modern data centers in attractive geographies. Again, they're interested in doing more with the assets they have -- more than just co-lo.
A few have access to lower energy costs than generally available, or access to a talented labor pool at below-market costs. And a few have privileged relationships with certain government entities.
All important pieces of the infrastructure, but no one is likely to be compelling enough on its own.
SPs who have unique capabilities with applications, or the tools that build them.
My expanded definition of SPs includes vertically-oriented service providers, and -- once you look at it -- there's not only a huge market there today, but one that's growing rapidly. So many industry-specific applications lend themselves to an SP-oriented model due to economics, competitive pressures or simply efficiencies of scale. In effect, many of these SPs are delivering unique IP as the underlying part of their value proposition.
An adjacent market is showing up around development platforms as well -- presuming that the SP can bring some sort of expertise to the table in that regard.
SPs that have system integration and/or consultancy capabilities to bring to bear.
Rarely is there a significant "pure play" SP offering where there's absolutely no process change or integration within the customer's organization. Indeed, having a team of smart people who can bungee into a customer environment to create the business case, assess the effort, accelerate the conversion -- whatever -- can make a big difference in a customer's ability to consume SP offerings.
SPs who already have a route to market for adjacent capabilities, and can simply add something new to the mix.
Many SP models are borne from telcos, who usually have a sales force that already engage with potential customers.
Unfortunately, there's a big difference between selling network-oriented services, and a richer portfolio of IT-as-a-service offerings. Although having an existing customer-facing organization in place can be a huge asset, leveraging that asset can be challenging.
But telcos aren't the only ones who can have existing customer-facing organizations to leverage -- the list includes outsourcers, resellers, system integrators, solution providers and consultants.
Assembling The Model
Gaining a sustainable infrastructure advantage can be a capital-intensive endeavor. You either have a taste for large amounts of capital tied up in infrastructure -- or you need to be working with someone who does. The good news? There's a plethora of infrastructure owner-operators who are more than willing to offer up slices of infrastructure (be they physical or virtual).
Gaining unique application and/or tools expertise can be expensive, but in a different way. You're basically hiring smart people. That being said, if you go looking for smaller, boutique companies that have a unique industry application capability, you'll find hundreds to choose from -- they're everwhere. Some of these organizations want to partner; others simply want to to be bought. And taking a killer vertical app and giving it SP-class scaling will undoubtedly be a popular model in the next few years.
Getting access to customer-facing system integration and/or consultancy capabilities is actually easier than it looks. The expensive part is investing the time to get to know these players, and finding a few customer opportunities to invest it as a starting point. And there's a large raft of smaller SI/consulting organizations to go work with. The bigger guys, generally speaking, plan on delivering SP services on their own as part of their integrated business model.
Route to market is the thorniest question of all for most SP models. Building close and trusting customer partnerships is not quick nor cheap -- it can take many years to grow and nurture these "trusted advisor" relationships. And -- without that sort of trust -- you'll be limited to offering commodity-oriented SP services that target the least-critical parts of the IT organization. Not an attractive prospect.
And just because you have a sales organization doesn't mean you have the right kind of sales organization.
For example, I've seen telco after telco stumble on this one -- IT services are a different class of offering, made to a different part of the organization, with a different value proposition and an entirely different set of skills. That being said, I am familiar with a number of telcos that are limiting their SP portfolio to convenient-to-package offerings and simply going wide, so to speak -- and investing in growing sales (and technical pre-sales) proficiency over time.
Many SPs are looking to work with organizations that already have these relationships established. Large IT vendors (such as EMC, VMware and Cisco) are good examples, as are some of the more sophisticated solution providers. These players, in turn, are looking for compatible SP partners that complement existing selling motions.
Figuring It Out
Time for the obligatory EMC plug. Recently, I've been involved in a number of EMC Consulting engagements that have helped SPs not only assess their specific market opportunity, but figure out the supporting model behind the opportunity -- covering all of the bases here, as well as a few more.
I don't think any one consulting organization can claim superiority in this nascent field. But I will say that the EMC Consulting organization can bring a broad range of perspectives and skills to the engagement, and I have seen clients quite delighted with the results.
And if you're considering some aspect of IT-as-a-service as part of your SP model, we understand the technologies, the operational models -- and, most importantly, the buying preferences of the customers we sell to :-)
Making It Clear
Just because you've got some sort of infrastructure advantage doesn't guarantee a thriving business model. Nor the fact that you might have a customer-facing sales organization today.
It's pretty clear to me that the high-value pieces will be things like unique application or tools expertise. Vertical knowledge or geographical familiarity. System integration and/or consulting expertise. Being able to build not only your own high-touch sales organization, but being able everage other high-touch sales organizations from your partners.
And all of these are essentially people investments.
So, how is your SP model coming together?
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