The Rapid Segmentation Of The SP Industry

Sorry if I haven't been keeping this blog as updated as I should. 

Yes, there's a lot to talk about.  No, there's never enough time in the day to write it all down :)

I suppose the first observation is obvious: the "IT as a service" service provider industry in in full swing.  Many new players, many new plays.

A while back, I offered up some thoughts as to how the industry might segment itself along predictable lines. 

Turns out I was both right and wrong.  It's happening, but much faster than I would have predicted.

The Basics

At EMC, one of our core beliefs is that -- over time -- more and more IT services will be delivered externally by specialists, and less using traditional in-house enterprise IT approaches.

Call it "cloud", call it "workload rightsizing" (or anything else that works for you), but it's happening, and with amazing ferocity.

You likely won't see this if you meet with IT rank-and file.  You will see this if you spend time with senior IT leadership, and -- especially -- the folks who are footing the bills.

Another one of our core beliefs is that our role at EMC should be to enable service provider business models, and not compete with them.  This approach is dramatically different than IBM, HP, Dell, Microsoft, Oracle et. al. who all intend to deliver IT services directly to end users.

Enablement can be described as back-end and front-end.  In addition to providing technologies and solutions that are aimed at SPs, we believe there's a lot we can do on the front-end to help SPs grow their business, especially if they're targeting enterprise IT markets which we (ahem) have a certain familiarity.

This means that we do more than just product pitches -- we invest the time to understand how our SP partners' business models are evolving, and what we can do to help out.

Segmentation Matters

If you look at the world of IT vendors, they're all subtlely different and specialized.  Take a look at their traditional partners (resellers, OEMs, integrators, etc.) and you'll see the same thing.  So it's no surprise that the new IT channel (IT service providers) will progress along the same lines.

I don't know which marketing guru said it, but the most useful phrase here is "segment until it hurts".  I take that to mean not only segmenting at the front end (who are your customers, what is your unique value proposition, how do you reach them effectively, etc.) but at the back end as well (e.g. which bits do you do yourself, and which areas do you partner or outsource?)

And it's this back-end segmentation of SP models that I'm starting to find extremely fascinating.

An Early Preview

Way back when, I was peripherally involved in one of our first large-scale SP deals.

About halfway through, they said something interesting: can you deliver our storage as a managed service?  We were a bit taken aback -- we were presuming that any service provider operating at their size and scale would want to acquire and deliver storage services themselves.

Their logic was unassailable.  They weren't storage experts, and didn't want to invest in becoming storage experts.  They wanted the ability to quickly dial storage services up, or perhaps down, as the case might be.  They wanted access to smart storage expertise as they envisioned new services and new architectures.

In a nutshell, storage wasn't their core competency, delivering IT services was.  And the more they could invest in what made them unique (and less in what was simply table stakes), the better off they'd be from a business model perspective.

Although EMC *does* deliver storage as a service when requested (especially when the requestor is a ginormous cusotmer), it's not a mainstream business for us.   But the early example made an impression on me, and I presumed at the time we'd see more of that before long.

And it's started to happen, albeit on a modest scale.

Consider The Specialized IT Service Provider

I've now met more of these SPs than I can count. 

What makes them "specialized" is that each has a unique angle that sets them apart.  It might be an application domain (e.g. SAP or collaboration), or a industry vertical (e.g. healthcare, financial serivces, etc.) or maybe a particular IT discipline (e.g. security as a service, etc.).

They recognize that the easist way out of the commodity trap is to be really good at what you do, and -- presumably -- better than the IT organization you're calling on.

All of them use infrastructure to deliver their unique specialization.  Few of them really want to invest in being world-class infrastructure specialists.

So, the logical thing for them to do is to partner with a "SP for SPs" -- someone who can deliver the required infrastructure services -- as a service -- to the SP who's focused on something more specialized and differentiated.

And we're starting to meet more than a few "behind the scenes" SPs who are doing exactly that :)

The Road Ahead

Stepping outside of IT for a moment, there is a vast cornucopia of business models that are all about aggregating services, adding a bit of unique value-add, and then distributing those services through multiple channels.

Manufacturing, distribution, healthcare, consulting, etc. -- it's quite a long list, and a very familiar industry structure.

I suppose -- in retrospect -- what's happening now is rather obvious -- we've seen this movie before, haven't we?

 

 

 

 

Comments

[Jeramiah Dooley]

Especially in the federal space, we are seeing the "SP for SPs" more and more often, just as a way to cut through some of the red tape. At the high end, wouldn't some of the acquisitions that we've seen (think Verizon/Terremark) be another means to this same end? If the infrastructure isn't your core competency, buy it, build it or outsource it...

Ironically, geting to close to the customer can sometimes be bad for the customer. Hopefully SPs don't abstract themselves from the platform that delivers their service to the degree that they lose the ability to communicate at that level. For most SPs the initial contract is signed by the CFO, but the incremental change orders that make up the meat and potatoes of the SP business model are usually driven by IT/line-of-business owners. Part of the challenge is making sure you heed all the masters. :-)

[Chuck Hollis]

Good point Jeramiah ... at the end of the day, any SP is accountable for the entire customer experience, regardless of how many underlying services are used to deliver that experience.

Funny, the same thing is true of any enterprise IT organization as well ...

-- Chuck

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