THINK IT Services

Although the Software-as-a-Service (SaaS) business applications and cloud computing development environments are getting the lion’s share of the attention in the press today, the most prevalent form of on-demand services continues to be hosted email and security services.

Email and security management are escalating challenges for IT and business decision-makers facing greater demands for real-time communications from their end-users, coupled with growing concerns about viruses, hackers, compliance and litigation.

As a result, an increasing proportion of companies and non-profit institutions are choosing to ‘out-task’ their email and security management to third-party hosting companies and managed service providers (MSPs).

However, enterprises and on-demand service providers alike are also recognizing that email, security, storage, archival, e-discovery, business continuity and disaster recovery are all intertwined. Therefore, IT/business decision-makers are seeking providers who can service as a strategic source for these services and providers are seeking to build service portfolios which can satisfy these requirements.

It is for these reasons that Symantec announced its acquisition of MessageLabs yesterday. Symantec has made it clear that it recognizes the growing demand for SaaS alternatives to traditional software products and is committed to providing on-demand solutions which respond to its customers’ rapidly changing needs. However, the company has also discovered that there are a myriad of internal and external challenges fulfilling this promise.

The acquisition of MessageLabs gives Symantec a proven set of on-demand services and experienced business executives who can help the software vendor overcome the obstacles which have prevented it from rolling out its offerings more quickly.

MessageLabs’ hosted email and security services can complement Symantec’s storage services. In addition, MessageLabs has a solid installed base of customers and strong channel partners, an aspect of the on-demand services puzzle which Symantec has been trying to assemble. Symantec has its own vast base of customers and channels to market for its traditional products and services, along with the service delivery infrastructure and provisioning engine it has built for the Symantec Protection Network (SPN).

Because of MessageLabs’ track record of success, the company’s leadership team will assume responsibility for Symantec’s entire on-demand services portfolio and go-to-market strategy. The infusion of this new leadership, along with their indepth understanding of the business requirements for delivering scalable on-demand services, should enable Symantec to accelerate its efforts to become a major player in the SaaS marketplace.

This isn’t the first acquisition of this nature. Google bought Postini and Dell acquired MessageOne in response to the same market trends. Now, Symantec is in a better position to respond to its customers’ needs and keep pace with the competition for these services.

I’ve just returned from my fourth trip to Las Vegas in four months where I spent three days attending my second annual Symantec Vision user conference and worldwide industry analyst briefing. The event offered a number of important insights regarding the state of the Software-as-a-Service (SaaS), as well as the managed services market.

I’ve stated in this blog numerous times, we are entering a pivotal new stage in the evolution of the SaaS market in which IT professionals are starting to view on-demand services as a powerful means of addressing many of their age-old management challenges, rather than a threat to their operations.

The Symantec executives who spoke at the conference and shared their candid views with me during the event confirmed my perspective by reporting that they are seeing rising receptivity toward SaaS ‘out-tasking’ alternatives to traditional management products among the company’s existing IT customers, as well as prospects of all sizes.

They suggested that this change in the IT department’s attitude is being driving by a number of trends,

• Escalating complexity due to the proliferation of new technologies and business challenges.
• Ecological concerns, escalating energy costs, and ‘green’ initiatives.
• Consumerization of IT as the result of end-users introducing their own technology devices into the corporate environment.

Generational changes among new employees demanding a wide array of Web 2.0 and social networking tools to perform their jobs.

The latter two trends are blurring the lines between the corporate and consumer worlds. Symantec’s prominence and brand equity in both worlds gives it a competitive advantage addressing the convergence of these two IT environments.

Symantec first started to talk about its SaaS intentions in 2006 and rolled out its initial SaaS solution aimed at online backup and storage services under the Symantec Protection Network brand name in 2007. However, the company encountered a series of internal operational problems dealing with service provisioning issues and external challenges responding to channel conflict concerns that slowed the rollout process.

Despite the bumpy start, Symantec’s resolve to deliver a full portfolio of SaaS solutions was made clear throughout this week’s conference. The first indication was during the kickoff keynote address by John Thompson, Symantec’s Chairman/CEO, who alluded to the company’s SaaS initiatives in his opening remarks.

The seriousness of Symantec’s focus on SaaS was even more strongly stated during an analyst briefing by the company’s new Chief Strategy Officer, Greg Hughes. Hughes previously ran Symantec’s service business, including everything from support and professional services to SaaS and managed services.

Hughes admitted that his service background has shaped his views regarding Symantec’s future direction. As a result, he revealed that the company’s top three emerging market priorities and new incubator focus areas are SaaS, cloud computing and virtualization. The company views SaaS as business oriented on-demand solutions and cloud computing as its consumer oriented services. Although I see this as an artificial distinction, the heavy emphasis on the overall development of on-demand solutions is the most important message.

The SaaS theme even permeates Symantec’s virtualization strategy. An example is the company’s new SaaS oriented Veritas Storage and Availability Management Operations Service aimed at large-scale enterprises. This service automates numerous virtualization management tasks and provides a web-based repository of management best practices to service subscribers. Over 1000 customers have participated in the Beta version of the service, creating a massive ‘ecosystem effect’ via social networking model.

Symantec isn’t planning to abandon its traditional, packaged product business, but is beginning to formulate a strategy for building an integrated set of complementary on-premise and on-demand solutions across all of its IT management competency areas and product families to satisfy the diversity of customer needs.

Demonstrating this point, SaaS was a part of every presentation during the analyst briefing.

Enrique Salem, Symantec’s new Chief Operating Officer (COO), also referred to SaaS as a ‘game changing’ trend during his brief talk with the analysts. He said that one of his goals is to simplify Symantec’s product/service portfolio to make it easier for customers to identify the right solution to meet their IT/business and make it easier for Symantec and its channel partners to sell these solutions.

Part of this effort includes an internal reorganization to consolidate related products and services into integrated business units. For instance, the company has merged its NetBackup and Backup Exec product teams, and integrated their capabilities. Symantec has also aligned these product groups with the company’s SaaS Symantec Protection Network (SPN) SaaS platform.

Enrique also stated that Symantec is now measuring its success on three criteria, including Net Promoter Scorecards based on customer loyalty. This customer satisfaction metric is now a key variable in employee compensation and recognizes that offering SaaS solutions is essential to enhancing the customer experience and to Symantec’s long-term success.

The company is also making acquisitions to fortify its SaaS capabilities. It announced the acquisition of SwapDrive which gives it added storage service resources which have been used to power Dell’s storage services.

The company executives I met with on a one-on-one basis said they are not only gratified with the positive response their new SaaS solutions have received from customers, but are also pleased with the dramatic change in attitude among Symantec’s product management and sales teams toward the company’s SaaS strategies. They admitted that a year ago, these internal groups viewed Symantec’s SaaS initiatives as a cannibalistic threat to their traditional products and sales efforts. Today, they recognize that SaaS can produce net-new revenue opportunities and want to jump on board the bandwagon.

Symantec is not likely to be the first to market with its SaaS solutions because of the myriad of internal and external challenges it faces. However, it could become one of the most prominent players in the IT management segment of the SaaS market over the longhaul as customers seek strategic sources to meet their needs. Along the way Symantec will have to overcome the ‘me too’ look and feel of its SaaS solutions.

In addition to attacking the overt market opportunities in the consumer and corporate worlds, the executives I met with during this week’s conference also suggested a long-term vision of Symantec become a key SaaS platform supplier for a wide array of Internet service providers (ISPs), leading telecommunications carriers and business service vendors. For instance, the company is planning to rollout a new Symantec Secure Scalable Storage (S4) cloud-based platform later this year.

While all of these developments represent a strong endorsement of the SaaS movement, the user conference attendance was noticeably smaller than a year ago raising questions about Symantec’s overall standing in the market. The decline could be a reflection of the recessionary times. However, other analysts attending the conference reported that they had seen attendance growing at other vendor user conferences this year.

Nonetheless, Symantec’s SaaS strategies and solutions are an important indicator of the rapid evolution of the on-demand services market.

As the Software-as-a-Service (SaaS) “gold-rush” intensifies, industry consolidation is inevitable. The latest example of this consolidation process is today’s announcement by NetSuite that it intends to acquire OpenAir.

This announcement not only reaffirms the SaaS industry consolidation trend, but it also is the latest example of a company profiled by THINKstrategies being acquired shortly thereafter. Other examples include,

• Vtrenz which was acquired by Silverpop
• Everdream was acquired by Dell
• AimNet was acquired by Cognizant
• Corio was acquired by IBM

(Contact me if you’d like a copy of our Strategic Thinking profiles on these companies.)

I had the privilege of talking with Zach Nelson, CEO of NetSuite, and Morris Panner, the CEO of OpenAir, moments before today’s announcement was made public. They indicated that the acquisition was based on a trend which THINKstrategies has seen coming for a few months now.

Prospective SaaS users are not only seeking more industry-specific SaaS solutions, they are also looking for more strategic sources for these SaaS solutions. Instead of contracting for a series of SaaS point products from a wide array of vendors, corporate decision-makers, both business and IT, are taking a closer look at the SaaS vendors’ overall portfolios, platforms, partner ecosystems and financial viability so they can establish broader, long-term relationships with a fewer number of SaaS suppliers.

While the OpenAir acquisition gives NetSuite a stronger foothold in the professional services market, I think the acquisition also gives NetSuite a stronger set of human resource management (HRM) capabilities in its horizontal portfolio of enterprise applications.

Although the acquisition is another example of a Boston-based tech vendor being acquired by a west coast based company, the good news for OpenAir’s employees and the Boston area SaaS community is that NetSuite plans to use the acquisition as a beachhead for further investment aimed at establishing a greater east coast presence centered in the Hub.

Interestingly, NetSuite refers to its OpenAir plans as based on Oracle’s acquisition model and plans to operate OpenAir as a stand-alone product group with tighter integration to NetSuite’s platform. This reference just reinforces market perceptions of the close alignment of NetSuite with Oracle, and keeps alive suspicions that NetSuite may be acquired by Oracle in the future.

In the meantime, Zach Nelson and Morris Panner told me they will do all they can to maintain OpenAir’s relationship with Salesforce.com via the AppExchange, and build on their other third-party relationships, including their respective channel partners.

Having gone through a number of unsuccessful acquisitions, I know first-hand about the various issues that can get in the way of these transactions achieving their business objectives. However, I think NetSuite and OpenAir have a very good chance of succeeding because they have the right combination of complementary executive personalities, solution capabilities, channel partners and geographic orientations.

The next question is what this acquisition means for OpenAir’s primary competitor, QuickArrow? My bet is that they will also be an acquisition target in the coming months.

As I’ve suggested multiple times, the major hardware and software vendors are aggressively pursuing the tremendous business opportunities in the managed services market.

Now, the key questions are how will they bring these offerings to market and what role will their channel partners play in provisioning these new services?

The two most recent examples are IBM’s new Express Advantage security-as-a-service offerings and Dell’s April 24 closing of its MessageOne acquisition.

IBM’s security-as-a-service solutions are its first on-demand offerings based on its acquisition of Internet Security Systems in August 2006. The new solutions will primarily serve small and midsize businesses (SMBs). They include Express Penetration Testing Services; Express PCI Assessments; Express Multi-Function Security Bundle, which includes protection against worms, spyware, anti-virus and spam in a unified threat management offering; and Express Managed Protection Services for Servers.

These solutions have been historically been offered as on-premises offerings, but Peter Evans, director at IBM ISS, is quoted in eWeek as saying,

“Spending on security is rising 6 percent a year… But spending on the labor needed to manage that security is rising 11 percent a year; therefore we need to help SMBs remove some of the cost by offering solutions as fully managed services.”

IBM will sell these services to SMBs through its ISS channels, but you can bet it will also offer them directly to some of its larger, key accounts.

Meanwhile, in its announcement of the completion of its $155 million acquisition of MessageOne, the company said:

“With its acquisition of SilverBack Technologies, Inc., Everdream Corp., ASAP Software Express, Inc. and now MessageOne, Dell is architecting an integrated service delivery platform of SaaS applications that will enable it to remotely monitor, maintain, troubleshoot and address the majority of routine IT infrastructure issues that challenge businesses of all sizes. The company anticipates that services such as patch management, anti-virus, online backup and recovery, asset tracking, software license management and e-mail continuity delivered and managed over the Internet will reduce the cost of infrastructure management and free budget for the IT driven innovation that grows business.”

This statement makes more explicit the strategic implications which I outlined earlier this year.

Dell’s President of Global Services, Steve Schuckenbrock, goes on to say that Dell is “building a services supply chain” that will give customers greater flexibility regarding how they support their IT environments.

Again, Dell is offering these services to its growing array of channel partners but is also expecting to deliver these services directly to its key accounts.

So, channel organizations must determine how to fully leverage these offerings while at the same time effectively differentiating themselves from others, including the vendors, who will be offering the same managed services.

Microsoft is finally recognizing the fundamental ways in which people’s lives and work-styles are changing, and it as a company and its technologies must respond to these changes.

Welcome to the world of Software-as-a-Service (SaaS)!

Live Mesh is Microsoft’s attempt to catch up to the Web 2.0 movement which has quickly evolved into an Enterprise 2.0 migration process in which a rapidly growing number of companies of all sizes are shifting their IT strategies from on-premise products to on-demand services.

This trend is being led by Salesforce.com and Google, and being supported by hundreds of other start-ups and established vendors, including Cisco Systems, Dell and EMC.

Salesforce.com and Google’s alliance which produced a new set of integrated services last week is the most recent challenge to Microsoft’s dominance in the workplace.

Cisco Systems has been talking about the melding together of network-centric business processes for years, and has elevated its vision of the market to include new collaboration opportunities to showcase its WebEx acquisition.

Dell is seeking to redefine how companies will manage their servers, desktops and other devices by leveraging web-based managed services.

EMC is repackaging its storage systems into SaaS solutions, led by its Mozy acquisition.

By coincidence, I attended Salesforce.com’s Tour de Force roadshow in Boston yesterday where Marc Benioff and a series of guest speakers spoke persuasively about the power of its Force.com platform. In order to make the point that its platform capabilities can appeal to any software developer in any type of business, the event speakers included:

• Cheryl O’Connor, Worldwide CRM strategy manager of Analog Devices.
• Narinder Singh, Co-Founder and CTO, Appirio
• Jeremy Roche, CEO, CODA

Microsoft is now trying to define this trend in its own terms. Conceptually, it is hard to argue with the company’s view that the world is changing. Its latest initiative goes beyone the “Software Plus Services” ideas it has been promoting for the past two years. Practically speaking, it will be interesting to see how far Microsoft is willing to go to respond to these changes, and how successful it will be convincing corporate and consumer customers that it has the right portfolio of web-based services to satisfy their changing requirements and preferences.

Since Michael Dell returned to the helm of his company, he has been dramatically reshaping its channel and services strategies. He is also putting the IT industry on notice that the way hardware companies define and deliver services is changing.

The old guard of the IT industry recognized in the 1980s and 1990s that tech support, professional services and outsourcing could generate lucrative revenues and create greater lock-in opportunities in an increasingly commoditized hardware business. Lou Gerstner saved IBM by turning it into a services company.

Dell bucked this trend by investing in sophisticated supply-chain, fulfillment and customer service processes which enabled it to succeed as a low-cost, high-margin manufacturer.

HP stole a page from Dell’s book and usurped its price advantage. Without a strong services story to serve as a safety-net, Dell was vulnerable to customer defections. It is now seeking to regain its competitive advantage by redefining how services are delivered. In the old world, services were a people-intensive business and highly customized. Dell plans to automate and simplify the way services are delivered.

After acquiring SilverBack Technologies and Everdream in 2007, Dell acquired MessageOne this past week. MessageOne is a leading provider of Software-as-a-Service (SaaS) enabled enterprise-class e-mail business continuity, compliance, archiving and disaster recovery services. MessageOne is in the same business as Postini, which Google acquired last year to fortify its Gmail capabilities and recently rolled out as an enterprise-class email archival service.

What makes Dell’s acquisition intriguing is the fact that it doesn’t offer an email service. But, that isn’t stopping Dell from adding this functionality to its rapidly growing portfolio of SaaS capabilities that now include remote desktop, server, security and helpdesk management services.

Dell has promised to deliver these SaaS capabilities via its growing array of channel partners to support their managed service offerings, but has also admitted that it will utilize them to support some of its customers directly. This direct service capability and a history of ignoring resellers has led to rising concerns among channel companies that Dell is going to commoditize their traditional on-site support business.

Dell isn’t just SaaSifying its services business.

Dell also unveiled this week a new Storage Simplification Assessment program which Dell promises will simplify the process of evaluating and selecting storage, backup, recovery and archiving solutions. Dell will offer these assessments directly and through its channel partners.

Dell has also restructured its customer support portfolio, consolidating its previous offerings into two simple options,

1. ProSupport for IT
2. ProSupport for End-Users

At Ziff-Davis’ recent Channel Summit, Dell’s channel czar in the Americas–Greg Davis–was asked if Dell intends to commoditize services the way it commoditized the hardware business. He said no, it planned to simplify the way services are packaged and priced.

If Dell’s moves are successful, they will encourage customers to set new standards for how services are sold and delivered. This will force other technology companies to restructure their service portfolios and streamline their delivery mechanisms in order to compete. It will also force channel companies to re-think how they package, price and position their services.

Since the holidays are traditionally a time for people to take stock of the year past and offer their new year forecasts, here are my top ten predictions why the shift from packaged products to Software-as-a-Service (SaaS), utility computing and managed services will accelerate in 2008:

1. Services are Recession Proof: Escalating oil prices, the uncertain political landscape and faltering financial institutions beset with the aftereffects of the sub-prime lending debacle could mean a tough year for the economy. In this tenuous climate, consumer and executive confidence could decline, leading to an economic slowdown. As a result, many companies could hold back on their capital investments to mitigate their risks. The ability to adopt on-demand services on a pay-as-you-go basis will be a perfect sourcing strategy for businesses seeking greater cost-controls and flexibility.

2. Everyone’s Going Virtual: Most industry pundits and participants view virtualization as a technology trend, but it is also a business trend. Employees are increasingly working outside the four walls of a traditional office. Gen Y workers are always on the move and online. Traditional, on-premise applications and centralized servers sitting behind a firewall can’t effectively serve today’s mobile workers. SaaS and managed services are perfectly suited for these new, virtual business requirements.

3. Amazon, IBM and Google Bet on Utility Computing. After experimenting with its Elastic Compute Cloud (EC2) for the past year, Amazon has found plenty of demand for its computing power on-demand platform from startups, as well as established companies seeking a ‘sandbox’ for their new initiatives. Amazon is now confident it can deliver its computing power in a reliable and cost-effective fashion to a broader market of business users. So, expect more aggressive PR and marketing efforts to promote and sell this powerful utility computing service.

IBM Blue Tune: IBM originated the term on-demand and then walked away from the utility computing market seeking new opportunities among the avatars. When Amazon proved that the utility computing concept could become a reality, IBM repackaged its autonomous computing ideas in the form of a new ‘blue cloud’ initiative. Big Blue will push the idea hard in 2008.

The GooglePlex Makes It Move. Google is tired of sitting on the sidelines while Amazon’s success and IBM’s new ‘blue cloud’ initiative, Google has initiated a PR campaign to promote its ‘cloud’ computing capabilities and strategies. The GooglePlex has long been considered the prototype for a new large-scale computing architecture. Now Google’s incredibly scalable and economical computing engine is getting the attention of business pubs like BusinessWeek, the Wall Street Journal and other mainstream pubs.

4. Nick Carr Returns: In truth, he never left us. It was Carr who gave utility computing a major push with his seminal article in the Harvard Business Review and follow-on book questioning whether IT mattered. Despite venomous criticisms from many IT pubs and professionals, Carr became a popular speaker at corporate events because his message resonated with business executives and end-users. Now, he is putting the finishing touches on his second book, The Big Switch: Rewiring the World, from Edison to Google, which will be published on January 7, 2008. Although IT folks love to hate him, Carr has never lost his luster among corporate executives and end-users who agree with his basic premise that IT is a needless hassle and should be as easy as electricity and as reliable as a utility.

5. SaaS Solves SOX: A year ago, most publicly traded companies and other large-scale enterprises rejected the idea of SaaS because they thought they needed to take greater responsibility for their own compliance requirements. Now, they view the process controls, auditability and offsite hosting features common in most SaaS applications as a perfect solution for their Sarbanes-Oxley (SOX) needs. As a result, enterprise adoption of SaaS will accelerate.

6. Managed Services 3.0, Unified Communications Services and Service Automation: In the 80s, managed services were really outsourcing agreements offered by carriers to their largest corporate customers. In the 90s, a new generation of standalone MSPs promised managed services for SMBs. Neither model succeeded.

Today, we are entering a new age of managed services. Managed Services 3.0 combines the experience of the past with powerful new technologies to respond to growing customer demand. Cisco Systems will be pushing its IP communications and WebEx capabilities hard, while Microsoft promotes the virtues of its various “software plus services” solutions. The two are on a collision course in the unified messaging and communications market, but that will mean that they will each spend plenty on market education and channel sales programs.

At the same time, Dell will be leveraging its SilverBack Technologies and Everdream acquisitions to deliver a new set of automated, remote desktop and server management capabilities through channel partners and direct support services. Expect to hear more from HP and others.

7. Carriers and Channel Companies Find Success With New Services: Carriers have been perplexed about how to package, price and promote profitable managed services. VARs have been afraid that SaaS would ‘dis-intermediate’ them by eliminating their consulting and custom application development business. Carriers now see an opportunity to deliver an integrated package of IT managed services and SaaS business solutions to add value to their commoditized dial-tone services. Channel companies are also discovering that there are still consulting and customization opportunities in the SaaS market. As a result, carriers and channel companies will lend their marketing and sales support to managed services and SaaS.

8. Failure Doesn’t Matter: NaviSite suffered an extended outage in November and the on-demand services movement didn’t miss a beat. The trade press is now looking for horror stories rather than success stories regarding SaaS and managed services, but the vast majority of stories have been positive. In fact, my third annual SaaS survey in conjunction with Cutter Consortium found 100% satisfaction among the companies currently using on-demand software services. The upcoming SaaScon conference will highlight some of these customer success stories. THINKstrategies will also spotlight these stories throughout 2008.

9. IT Discovers Services are the Solution: In the past, the IT department was the biggest barrier to managed services and SaaS adoption. Many IT professionals were afraid these on-demand solutions would eliminate their jobs. Now, a growing proportion of IT people see managed services and SaaS as a way to out-task mundane work or overcome complex application/technology deployment and maintenance responsibilities. As they learn to take advantage of these on-demand solutions, IT departments will finally be able to put their daily firefights aside and focus on addressing the strategic needs of their business users.

10. Wall Street Buys Into Services: Some of the most successful IPOs of 2007 were in the SaaS market. Wall Street loves the predictability of subscription services and now that it has a solid set of market ‘comps’ to measure business success in the services market, it will be encouraging more privately held companies to go through the IPO door. At the same time, private equity funds will be encouraging publicly traded software companies to go private to enable them to shift to a SaaS model without the public market pressures. And, the investment bankers will be pushing a wide array of M&A activity. Expect the offshore IT/business process outsourcers (IT/BPO) and business services companies to buy SaaS vendors. Look for more consolidation in the managed services market.

Bonus Driver of Services Growth in 2008: THINKstrategies will be expanding its consulting and marketing programs aimed at educating IT/business decision-makers about the benefits of on-demand services, and continuing to help software and technology providers develop and deliver successful service solutions. Stay tuned to the SaaS and Managed Services Showplaces for more information and insight about these new programs and features.

IBM’s acquisition of Arsenal Digital Solutions is the latest transaction driven by the growing concern among businesses of all sizes that they have to do more to protect their electronic files in order to safeguard against natural disasters and satisfy escalating regulations.

What makes this trend even more interesting is that it has brought greater attention to the fundamental advantages of using a “hosted”, managed service to respond to these business concerns. This has made a widening array of storage, e-discovery and other managed service providers (MSPs) very attractive acquisition targets for an expanding assortment of potential buyers.

Here are a few of the acquisitions which preceeded IBM’s announcement,

• Seagate $185 million purchase of EVault
• EMC’s $76 million acquisition of Berkeley Data Systems Inc.’s Mozy storage service
• Autonomy’s $375 million acquisition of email archiving service provider Zantaz Inc.
• A series of acquisitions by Iron Mountain, including the $158 million purchase of Stratify, Inc., an e-discovery services firm.

Even Google’s acquisition of Postini was driven, in part, by the need to provide greater archiving capabilities within Gmail if it is to be accepted by mid- to large-scale businesses.

The explosion of digital files, ranging from email to patients’ records, is forcing businesses of all sizes to reevaluate their storage strategies and archival systems. Intense media coverage of the latest natural disasters has made everyone more sensitive to the risks associated with failing to properly back-up and store valuable computer files.

What began as a simple consumer craze with services like Flickr to handle personal pictures, has quickly morphed into a potentially lucrative managed service opportunity.

As consumers move from personal worlds into their professional workplaces, they are becoming equally aware of the need to better protect their corporate documents and records. And having enjoyed the ease-of-use and economic advantages of a back-up and retrieval service for their personal needs, they are seeking a similar solution for their business requirements.

So, it shouldn’t be surprising that storage vendors like Seagate, EMC and now IBM are adding these services to their corporate portfolios via acquisitions. Telcos, ISPs and hosting companies are already leveraging their communications infrastructure and server facilities to offer similar managed storage, back-up and disaster recovery services. Even Microsoft and Dell are offering inexpensive storage services to their customers. Expect HP and others to follow suit.

This trend represents a challenge and opportunity for traditional business continuity and disaster recovery service providers, such as Sungard. The challenge is that they must rearchitect their services to compete with the more focused and less expensive managed services of today. The opportunity is that if they succeed in their restructuring efforts, they will have a far larger market opportunity to attack.

Last week, Dell made its second acquisition of a remote management services company in less than six months. After buying into the remote server management business with its acquisition of SilverBack Technologies in June, Dell expanded its remote management capabilities to encompass the desktop and mobile devices with last week’s acquisition of Everdream.

(A recent THINKstrategies whitepaper sponsored by Everdream gives some indication of how Dell will leverage the Everdream acquisition.)

Both transactions are a part of Dell’s larger strategy to expand its product and service portfolio with a variety of automated solutions. The biggest of Dell’s recent acquisitions with this goal in mind was its EqualLogic purchase for $1.4 billion in cash, which will give Dell automated iSCSI storage area network (SAN) solutions optimized for virtualization environments.

While the EqualLogic acquisition dwarfs the SilverBack and Everdream buys, and has garnered far more press attention, the latter two have generated plenty of concern among channel organizations. I think there are even broader implications.

Both SilverBack and Everdream are former managed service providers (MSPs) who shifted away from providing direct services to end-user organizations in favor of offering automated remote IT management capabilities to resellers and other aspiring MSPs. Both also recognized the virtues of a multi-tenant, Software-as-a-Service (SaaS) model to deliver their services.

While they were both making some headway in their efforts to build a channel program, neither was blowing the doors down because they both faced an uphill battle educating channel companies about the benefits of managed services and helping them transform their businesses to capitalize on this opportunity.

SilverBack was one of the first enabling technology companies in the managed services market to recognize this challenge and established a ‘franchise’ strategy to help its partners with their business needs. Everdream was in the midst of developing a similar channel education and support program when Dell made its move.

Some VARs are suspicious that Dell may be building a direct support capability at the same time that it is trying to expand its channels to market to jumpstart its recent slump in sales. Dell has made a point of stating that the SilverBack and Everdream acquisitions are aimed at enhancing its channel strategy.

Dell claims that SilverBack and Everdream will help channel partners deliver a new level of remote management services, i.e. managed services, which can better position them in a world where product differentiation is fading, particularly among mid-size businesses.

Although I tend to agree with Dell’s view that the SilverBack and Everdream functionalities can strengthen channel companies’ service delivery capabilities and tighten their bond with their customers, I think Dell has broader ambitions with these acquisitions.

The company has acknowledged that it must also strengthen its position among large-scale enterprise customers where it plans to continue to sell direct, and it also must automate its support capabilities for small businesses to remain profitable. During a briefing with Dell and Everdream representatives, they pointed out that the Everdream and SilverBack functionality can scale up to meet the needs of enterprise customers, and down to support small businesses as well. But, these representatives stopped short of revealing Dell’s service strategies aimed at these two segments of the market.

While I think Dell has a sincere interest in making a new generation of automated, remote management services available to its channel partners, don’t be surprised to also see a set of direct remote management services from Dell aimed at large enterprises and small businesses in the near future.

You should also consider Dell’s latest acquisition as an important endorsement of SaaS aimed at the IT management environment which will be copied by other major hardware and software vendors.

This week I had an opportunity to attend Iron Mountain’s Analyst Day focused on its digital services strategies and offerings. The event convinced me that Storage-as-a-Service is well on its way to becoming a mainstream movement on par with Software-as-a-Service (SaaS), if not greater. It also showed me how a company can build a rational hybrid services model to capitalize on a market opportunity.

The Storage-as-a-Service opportunity may seem obvious given the proliferation of data and multiplying number of consumer-oriented online storage services geared toward consumers looking for a convenient place to place their digital photos and other valuable files. But, the consumer-oriented storage services have also helped to encourage the corporate sector to take advantage of the rapidly growing array of inexpensive back-up services, such as Carbonite and Mozy, to protect their computer records and files.

The explosion of data and emergence of new regulations has been a boon for storage vendors and hosting companies. It has also forced many business executives to rethink how they handle the rising tide of corporate records.

In the same way that many organizations are recognizing the economic and ease-of-use benefits of SaaS business applications, they are also being attracted to the business benefits of on-demand storage services to meet their compliance needs.

For instance, Info-Tech Research Group market research has found only 20% of businesses currently have an e-mail archiving solution in place, but predicts adoption will grow almost 70% in two years.

The Storage-as-a-Service market is attracting a plethora of players. Symantec launched its Protection Network SaaS business with a Storage-as-a-Service solution rather than lead with its strong suit in security. EMC made news earlier this month by acquiring Mozy’s parent company, Berkeley Data Systems. Google and Microsoft are offering storage services. I even received an automated voice message last week from Dell promoting its new online storage services.

(The emergence of the Storage-as-a-Service market raises the question: how do we distinguish it from Software-as-a-Service in the acronym lexicon?)

However, what sets Storage-as-a-Service apart from SaaS is that organizations must contend with a combination of physical and digital records. Many have grown accustomed to using off-site storage services for their paper, disk and tape-oriented files. Now, they have to select the right source for their digital storage needs.

Iron Mountain is well-positioned to capitalize on this opportunity.

It has strong brand recognition based on its years of experience, huge installed base of customers of all sizes, and the prominence of its vast fleet of trucks which cart off the physical records. It has also acquired two pioneers in the online storage and archiving services market, Connected and LiveVault respectively.

But most importantly, Iron Mountain is a services company that understands the economics and operational requirements of a services business. Although there are unique technical challenges to a digital services business, the other aspects are basically the same.

This week’s analyst event was a coming out party for the Iron Mountain Digital unit which will lead the company’s on-demand services efforts. Company and Digital unit executives demonstrated a keen understanding of the straightforward business needs they are addressing, and articulated a compelling, albeit no-nonsense strategy to satisfy these needs.

They outlined their initial set of on-demand services and provided a roadmap for the near-term future. They were not interested in blowing away a typically cynical audience of analysts with grandiose visions or bold technology innovations. Instead, they emphasized their long history in the records management business, focused on their deep understanding of the service business fundamentals, and showcased their track record of success by including testimonial presentations by representatives of Lehman Brothers and Intel.

The company’s practical approach has led it to intentionally pass on many ancillary business opportunities in the past, such as analytics and benchmarking services. As it journeys down the digital services path, it will encounter additional opportunities to become a player in the on-demand content, document and knowledge management services markets.

Unlike legacy application vendors who are concerned about product cannibalization by SaaS, Iron Mountain’s executives are hopeful that its new generation of digital services can replace some of their more costly document transport services.

Adding digital services to their portfolio does have its challenges. The company executives I talked with admitted they are still fine-tuning their go-to-market tactics and support processes to ensure Iron Mountain can properly coordinate their sales and service delivery efforts across the traditional and digital business units to ensure customer satisfaction, maximize account penetration; and optimize revenue and profit opportunities.

My guess is that Iron Mountain will figure this out and become an important player in this market, even if it isn’t the sexiest.