THINK IT Services

I recently had the privilege of conducting a podcast with Nick Lippis of the Lippis Report regarding the evolution of the managed services market. Specifically, we discussed how the market is entering a new era, which I refer to as Managed Services 3.0.

Why 3.0?

Having been a part of the managed services market for the past 25 years, I divide its history into three stages.

In the 1980s, the newly emancipated Regional Bell Operating Companies (RBOCs) formed as a result of the AT&T divestiture were the primary providers of managed services. While they called their offerings managed services, they were really outsourcing arrangements aimed at their largest corporate customers. These highly customized services were part of a larger portfolio of carrier services.

In the 1990s, a new breed of independent service providers emerged offering a new generation of specialized managed services to small- and mid-size businesses (SMBs). These standalone managed service providers (MSPs) leveraged third-party tools and their own homegrown systems to deliver highly standardized ‘point’ services aimed at addressing their customers’ desktop, network, storage, security and other ongoing management needs.

Despite plenty of hype about the managed services market opportunity, few of the MSPs founded in the 1990s survived the demise of the dot.com era. We can spend hours dissecting all the reasons why managed services failed at that point, but they can be summarized into three areas,

• Immature enabling technologies
• Immature marketing strategies
• Immature management skills

Improvements in each of these areas, plus an economic climate which is driving companies of all sizes to seek ‘out-tasking’ alternatives to managing their own IT operations, has produced a new opportunity for managed services to flourish.

Managed Services 3.0 represents the confluence of three important forces,

• More powerful and cost-effective enabling technologies
• More compelling marketing messages and effective marketing tactics
• More committed leadership and sophisticated management

MSPs are learning how to leverage SaaS-empowered enabling technologies to build and deliver their services. They are learning how to sell the right solution to the right IT/business buyer. And, MSP executives are learning about the operational and organizational requirements for building a successful managed services business.

Combine these with the growing receptivity among IT/business decision-makers within companies of all sizes to accept and adopt third-party services to better manage their IT operations, and you have a fertile market opportunity for MSPs.

Click here to hear my conversation with Nick Lippis regarding Managed Services 3.0. Visit THINKstrategies’ Managed Services Showplace to find more insights about these trends and information about the growing array of companies offering managed services.

If you are interested in keeping pace with the rapid changes in the IP networking and unified communications market, I highly recommend you subscribe to the Lippis Report.

Salesforce.com rolled out its Force.com Software-as-a-Service (SaaS) enablement platform last week after plenty of fanfare at its Dreamforce conference in September. The launch of the platform has sparked a new round of debates regarding the merits of Salesforce.com’s application development toolkit and its service delivery capabilities.

I’ve said many times in this blog and elsewhere, there is no more important or innovative player in the SaaS market than Salesforce.com. Every SaaS user and SaaS provider owes a debt of gratitude to Marc Benioff and Salesforce.com for pioneering the on-demand software services market and setting the standard for enterprise-class SaaS solutions.

While some elements in Salesforce.com’s strategies and solutions can be criticized as self-serving or ineffective, the company’s overall impact on the growth of the SaaS market cannot be denied.

Salesforce.com has set the bar for designing simple yet effective web-based business applications. It has shown how business applications can replicate the simplicity of popular on-demand services, while proving that SaaS can still meet the rigorous requirements of today’s corporate compliance regulations. It has also devised successful sales strategies for selling these applications to business end-users rather than IT departments.

Salesforce.com could have easily kept these accomplishments to itself in order to build its lead in the SaaS market, but wisely recognized that its long-term success depended on its ability to build an ecosystem of third-party applications and services around its core offerings.

This is the same strategy which has made every software company before it successful, including Microsoft, Oracle and SAP. These companies, and others, built their ecosystems and expanded their market penetration by making it easy for third-party developers to build applications on their software architectures. That is exactly what Salesforce.com set out to do with its AppExchange and is now extending with its Force.com platform.

Others may bicker about the iterative way in which Salesforce.com has evolved its platform capabilities and branding strategy from its AppExchange roots to its current Force.com form. But, what other company has created the same runway for SaaS solutions?

When it comes to SaaS platforms and partner ecosystems, the established players are still getting their acts together. Microsoft is a work in progress. Google is an enigma. Oracle is seen as primarily a database company. And, IBM is primarily good for middleware and hosting services. But, none has created a comparable set of platform tools and partner programs to match Salesforce.com.

Disclosure: Salesforce.com commissioned me to produce whitepapers regarding the Force.com and AppExchange.

Anyone who follows this blog or the broader on-demand services market is well-aware of the disruptive impact Software-as-a-Service (SaaS) is having on the software industry. Now, software and systems vendors are offering SaaS solutions that could have an equally profound affect on the way organizations acquire and manage technology, as well as transform the way vendors and channel companies sell and support technology.

While the managed services has grown steadily, many channel companies have experienced limited success migrating to a managed services model. As I’ve stated in previous blog entries and my other writings, part of the problem is that executives within established channel companies don’t fully understand what it takes to transform their businesses. But, another barrier to success has been the lack of cost-effective tools.

Until recently, many channel companies were unable to successfully transition to a managed services model because it required considerable investment in IT management tools and skills. Few of these companies could afford the upfront license fee for traditional management software packages, especially given the incremental revenue streams that come with managed service agreements. They often lacked the requisite skills to implement and maintain these management platforms.

Today’s SaaS-based management solutions can be acquired on a pay-as-you-go basis, and are easier to deploy and administer, making them perfectly suited to help channel companies transform themselves into viable managed service providers (MSPs).

These attributes led Dell to acquire SilverBack Technologies and Everdream, which now serve as the cornerstones of its new SaaS-empowered managed service offerings aimed at channel companies.

Cisco’s acquisition of WebEx was also partially driven by its SaaS-empowered remote management capabilities, as well as its collaboration applications. Cisco is now aggressively promoting a Managed Services 3.0 initiative aimed at helping channel companies and service providers more effectively develop and deliver managed services. (You can hear my views about Cisco’s initiative on a recent Lippis Report podcast.)

The most recent example of this phenomena is EMC’s new SaaS initiative, announced yesterday, that kicks off with MozyEnterprise™ powered by EMC Fortress™, an online backup service for desktops, laptops and remote Windows servers based on the service delivery capabilities it acquired from Berkeley Data Systems.

Not all systems and software vendors are buying their way into the SaaS-empowered managed service enablement business.

Symantec unveiled an internally developed SaaS platform nearly a year ago. While the Beta program that was a part of its initial SaaS launch generated mixed reviews, Symantec is committed to delivering a full-suite of SaaS solutions for its channel partners that will span its traditional management capabilities. The company’s channel partners will be able to leverage these SaaS offerings to build or enhance their their managed service capabilities.

This trend demonstrates that managed services and SaaS is gaining widespread acceptance at both the end-user and vendor levels. Approximately 40% of the companies surveyed by THINKstrategies and Business Communications Review a year ago were already utilizing a managed service. Over a third of the respondents to THINKstrategies’ most recent user survey in conjunction with Cutter Consortium are currently using a SaaS solution and another 37% are considering SaaS.

While many SaaS startups are trying to establish channel relationships to expand their market penetration, many established systems and software vendors are acquiring SaaS companies or adopting SaaS strategies to help channel companies migrate to a managed services model.

It is always gratifying to have the major research firms affirm my perspectives and THINKstrategies’ predictions.

Recently, Gartner predicted that the global outsourcing market will grow 8.1 percent in 2008, and that this growth would not be in the form of traditional IT and business process outsourcing (BPO) agreements, but fueled instead by growing the acceptance of Software-as-a-Service (SaaS) and other utility computing services offerings by companies of all sizes.

Let’s have some fun and do a side-by-side comparison:

According to Gartner, “publicly reported IT outsourcing (ITO) and business process outsourcing (BPO) contract values decreased overall by 50 percent in 2007.”

In January 2002, I wrote in a NetworkWorld commentary that the traditional outsourcing model was dying. Even at that time, the size and duration of these deals was shrinking because their rate of success was abysmal.

As I’ve been stating for many years, companies of all sizes must focus on their core businesses and rely on third-parties to perform various IT tasks in order to withstand intensifying economic and competitive forces. This has led many to adopt ‘out-tasking’ rather than outsourcing strategies, in which they contract for specific services which can perform particular IT tasks. As I stated in a 2005 NetworkWorld commentary, this sourcing strategy reduces their risks. And with the advent of powerful new on-demand utility computing services and SaaS alternatives, companies can also gain greater business benefits.

So, now Gartner is catching on and predicting, “the outsourcing market has reached a tipping point with regard to utility delivery models, and that change and innovation will take hold and accelerate in this area through 2008 and beyond.”

I made my own prediction of this shift in 2004 and allusion to a similar tipping point in 2005.

Gartner goes on to state, “The trend toward software-as-a-service (SaaS) is gaining the most traction, with major software vendors, such as Microsoft and SAP, and large Internet players, such as Google and Amazon, making announcements about new SaaS offerings and mass-customized software platforms.”

You could have learned about the same trends from THINKstrategies four years ago if you read my commentary, “IT’s the services, stupid!”.

Gartner suggests, “User organizations need to realize that the utility delivery model is a viable alternative to traditional outsourcing, and they should seriously consider utilities in their sourcing strategies.”

Although Gartner prides itself about having the ear of the CIO, CIOs were telling me about their growing interest in SaaS and utility computing services in 2004.

So, if you want to stay ahead of the Gartner hype-cycle, stick with THINKstrategies and check out our latest writings and publications.

I had the privilege this week of participating in an interesting webinar sponsored by Makana Solutions regarding the sales implications of Software-as-a-Service (SaaS) and other subscription services.

Tom Wilson, of the Wilson Group; Makana’s founder, chairman, and CEO Liz Cobb; and I discussed how the sales skills and processes differ in the on-demand services world from the traditional packaged product environment. Specifically, on-demand services come at a lower price-point which necessitates higher volume sales to be successful. This requires a transaction oriented sales process and telesales skills, rather than the long salescycles and highly personalized approach of traditional legacy software sales. Therefore, restructuring the sales process and retraining or restaffing the sales team is critical to transitioning to the SaaS and subscription service model.

Similarly, the support function also changes in the on-demand world. Rather than rely on technical support to react to problems implementing and maintaining software, customers expect their on-demand solutions to be easy to deploy and administer. They also expect their SaaS providers to ensure the availability and performance of their online applications, and to proactively assist them in utilizing the solutions and continuously enhance the solutions to make them more useful and easy to use.

Mikael Blaisdell explores these differences in greater detail in his recent blog, “SaaS & The Ghost of Computing Past.” It is worth reading his perspective which he will also discuss during his presentation at SaaScon.

As Treb Ryan of OpSource likes to say, in order to be successful in the SaaS business, vendors must stop thinking like software companies and start acting like web companies.

I’ve referred to this transformation as an ‘inversion’ process because it forces most established software and technology companies to re-think how they operate and how they go to market. It also will force them to replace many of their staff with a new breed of people that view their jobs and their customer relationships differently.

It is for these reasons that many established players will face traumatic changes in 2008 as customer interest and adoption of on-demand solutions will become as mainstream as ecommerce.

Gartner is predicting that economic and organizations forces will combine to fuel greater outsourcing, with SaaS gaining the greatest traction as a viable alternative to traditional IT and business process outsourcing (BPO). Gartner’s market assessment echoes my reasons for forecasting strong growth for on-demand services in 2008.

Last Friday’s government report indicating a dip in employment levels sent a scare through Wall Street and raised the spector of recession on the campaign trail in New Hampshire.

The irony is that more than half of 112 IT executives recently surveyed by the Society of Information Managers cited the ability to attract and retain IT personnel as their No. 1 concern for 2008. As I indicated in my previous blog, these concerns are among the ten reasons why I think on-demand services will soar in 2008.

Nonetheless, I’ve also received a growing number of resumes from IT/telecom professionals seeking positions in the on-demand market. Some want to get into this rapidly growing market. Others are looking for new jobs because their previous companies failed or have been restructured to better position themselves to capitalize on the on-demand services movement.

In response to these trends, THINKstrategies has added new Job Boards to its Managed Services and Software-as-a-Service (SaaS) Showplace directories. These free services are aimed at helping growing on-demand companies find qualified candidates and assisting individuals seeking new job opportunities.

Read more…

In his latest entry on ComputerWorld’s SaaS Revolution blog, Eric Norlin shows how the evolution of SaaScon reflects the maturation process of the broader SaaS marketplace. I think his commentary is right on.

When we launched the conference a year and a half ago, SaaS was still an embryonic market opportunity. Although Salesforce.com had proven its viability as a business, and there was a proliferation of start-ups and established players entering the market, it was still unclear how far the SaaS movement would evolve. It was also a movement of greater interest to the market participants than to potential customers. As a result, a large proportion of the attendees at our first SaaScon event were vendor representatives trying to get a handle on the business opportunity.

Our second SaaScon produced a broader assortment of speakers from a wider variety of vendors, but still lacked the number of customers who hoped. Despite numerous industry surveys, like those produced by THINKstrategies in conjunction with Cutter Consortium, indicating that user adoption of SaaS was growing, user interest in tradeshows on the topic was still limited.

Early registration numbers for this year’s SaaScon clearly indicate that customers are now very interested in attending a conference to better understand the business implications of SaaS and learn more about industry best practices.

As an advisor to the ComputerWorld team organizing this year’s event as well as a speaker, I’ve been able to see very impressive statistics regarding the number of IT and business decision-makers from enterprise organizations who have already registered for SaaScon. And, this is with the agenda still incomplete and conference promotional campaigns yet to be initiated.

But, you don’t have to be a SaaScon insider to see the difference in this year’s event. Just look at the titles of many of the keynote speakers in this year’s agenda who are senior executives of major corporations that are using SaaS, rather than the corporate executives of SaaS companies who spoke at our previous events.

You can find the ten reasons why I think the SaaS market will soar in 2008 in my previous blog entry. My views were recently echoed by my friend and colleague, Phil Wainewright, in his ZDnet blog.

As Eric Norlin suggested in his blog, this year’s SaaScon is already shaping up to be an important milestone in the evolution of the overall SaaS movement.