Overlapping Mixed Messages? Service Providers Aim to Commoditize Adjacent Peers

Brian Washburn

Brian Washburn

Summary Bullets:

  • Various service provider categories – ITSP/SI, cloud, data center, network and technology vendors – seek to outmaneuver each other and win control of the customer relationship.
  • The provider (and sector) that secures the customer relationship can seek to preserve its own margins and, through commoditization and automation, push down those of adjacent providers.

If you’re a large enterprise buyer and can wade through the mixed messages from service providers, it’s a great time for shopping around to find deals. But, for many service providers, the same overlapping messages are cause for apprehension. The mixing of cloud, data center, network and managed/professional services plays up fears that every adjacent sector is now a competitor. Those concerns are well-founded.

If you’re an optimist, you’ll see that providers across industry sectors have been building webs of cooperative interconnection and extensive partner ecosystems, to the benefit of buyers who can combine their best-of-breed favorites. But, if you’re more cynical, you’ll see each provider category fighting to own the customer relationship and preserve its own margins, looking to save customers money by turning adjacent sector services into generic shopping lists. For example, a big data center operator commoditizes the WAN through a bandwidth exchange, a big network operator provides a list of connected cloud partners, a big cloud provider provides a list of interconnected WAN partners and so on down the line. Below is a summary on five categories of service providers and how their interplay positions each group in this round robin of co-opetition:

— Large, carrier-neutral facilities providers such as Equinix seek to be centers of gravity housing and connecting the industry’s physical gear. They want major network and cloud players to have a physical presence if they want to ante in for customer contracts. The neutral facility then lines up network and cloud resources side by side, for customers to comparison-shop for the lowest price/best value.

— Cloud services providers like Amazon Web Services and Microsoft Azure are getting network providers to compete to provide cloud connectivity. Those network providers compete for WAN/cloud links on price and feature packaging. The largest cloud providers now have dozens of partners in their connectivity programs for businesses to choose among.

— The largest systems integrators (e.g., Accenture or CSC) and IT services providers (e.g., IBM or HP) predominantly have the deepest enterprise customer relationships, letting them call the shots. Besides delivering their own core expertise, their deep relationships can help promote their own cloud services and/or put them in control of network sourcing, using factors including lowest price/best value.

— The major network providers also have advantages. They can try to maneuver with big cloud providers by interconnecting WAN services to all their major destinations, making it easier for a customer to choose among, and occasionally to move between, cloud services and data centers. Many network providers also have in-house cloud services. They also have some IT and professional services, and unlike the ITSP/SI sectors, can more readily amortize those costs across long-term service contracts.

— Finally, some platform vendors have supplied service providers for many years, and believe they can become (or already are) effective service providers themselves. Microsoft is expanding this role with Azure, Lync and Office 365, and plans to add its own voice trunking support with Skype for Business. Cisco is similarly expanding with a long and growing service list that includes WebEx, Intercloud and offers like Meraki that can supply comprehensive cloud-based managed self-service.

About Brian Washburn
Brian Washburn is Research Director for Network Services at Current Analysis. Brian tracks the technology and initiatives surrounding carrier Ethernet, IP-VPNs, optical networking and applications closely tied to high-performance networking.

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