THINK IT Services

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.

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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.

Anyone who has been in the networking industry for over ten years will recall when the term ‘new world service providers’ (xSPs) was coined to denote a new breed of carriers who promised to disrupt the telecommunications industry. Some of these xSPs were competitive local exchange carriers (CLECs), others were Internet service providers (ISPs) or hosting companies.

Although they emerged with plenty of fanfare and promised to deliver a broad set of powerful new data services, when the dot.com bubble burst the majority of these companies disappeared as the telecommunications industry fell into a long, dark, ‘nuclear winter’.

The recent surge in demand for web-based services has rekindled the original dreams of those xSPs who survived and is attracting a new generation of service providers hoping to capitalize on this new round of business opportunities.

Over the past six months, a series of xSPs have informed me of their intentions to deliver a combination of managed IT services and Software-as-a-Service (SaaS) solutions in response to growing customer adoption of these ‘out-tasking’ alternatives.

Two of these companies, Telus and XO Communications, are working with Jamcracker—another survivor of the dot.com era—to provide managed IT services and SaaS solutions. They are leveraging Jamcracker’s ‘aggregation’ platform which enables carriers and other channel companies to resell a widening array of on-demand services.

Verio, a division of NTT Communications, recently unveiled a portfolio of Business Solutions that includes a set of managed security and storage services, as well as SaaS customer relationship management (CRM) and collaboration solutions.

Wayport, which many know as a leading provider of internet access services in hotels and other travel locations, is also expanding its portfolio of services. It is the provider of AT&T’s private labeled WiFi service in McDonald’s outlets. It is collaborating with Wyndam Hotels to support the hospitality company’s loyalty program. It is providing other hotel chains an assortment of facilities management services via its remote service capabilities.

Each of these xSPs sees a new world of on-demand service opportunities, and are scheming and teaming to capitalize on them. Although they each face significant challenges achieving long-term success, today’s ‘perfect storm’ can propel them to more positive results than in the past.

Widely deployed broadband networks and an assortment of other enabling technologies make it easier and more cost-effective to deliver managed IT services and SaaS solutions. And, a new set of business pressures are making companies of all sizes more receptive to these services and solutions.

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.

I’ve been predicting for a couple of years that the worlds of business process outsourcing (BPO) and Software-as-a-Service (SaaS) would converge. In fact, you can also add managed services to the mix.

The reason for this prediction is that the BPO companies, especially the offshore companies, can no longer sustain their labor-intensive business models. Competition for skilled labor is intensifying, driving up operating costs and creating service continuity issues as workers jump between firms.

In response, the BPO companies must shift their operations from a labor-centric to a software enabled model. SaaS represents a natural solution for this business challenge. The BPOs will use SaaS to automate their existing processes and services, to expand their service portfolios, and to extend the reach of their operations.

The BPOs will use managed services to do the same in the IT infrastructure management arena.

The clearest example of this convergence process is Cognizant Technology Solutions Corporation, which last week announced its intention to acquire marketRx, Inc., a provider of web-based analytics and related software services to global Life Sciences companies in the pharmaceutical, biotechnology and medical devices market. This $136 million transaction follows Cognizant’s acquisition of IT infrastructure managed service provider (MSP) AimNet Solutions in September, 2006.

Although neither Cognizant nor marketRx refers to this acquisition as the coming together of SaaS and BPO, marketRX offers web-based Sales Management & Operations, Brand Marketing & Product Management and Market Research solutions which clearly complement Cognizant’s traditional services.

The acquisition also gives Cognizant deeper inroads into the Life Sciences sector by capitalizing on marketRx’s installed base of 75 customers that includes the 20 largest pharmaceutical companies and 4 of the top 5 biotech companies.

This transaction shows how the line of demarcation between SaaS and BPO is blurring. This point was also brought home in a conversation I had with the founder/CEO of a small payment processing services company last week who wasn’t sure whether to categorize itself as a SaaS or BPO company.

My answer was/is that it depends on the audience. Industry analysts and investors may be concerned about these categorizations, but most customers will see this company and larger vendors like Cognizant as business services companies.

The convergence of SaaS and BPO will enable business services companies to more economically develop and deliver their solutions. Therefore, I expect to see more SaaS acquisitions among the BPOs this year and in 2008.

I’m pleased to announce that THINKstrategies unveiled today a new set of packaged services aimed at helping Software-as-a-Service (SaaS) and Managed Service providers (MSPs) ensure that they have properly designed and can reliably deliver their web-based solutions.

Our new Readiness Assessment Services (RAS) have been developed in response to the rapid rise in demand for SaaS and Managed Service alternatives to traditional, packaged applications and network/system management (NSM) solutions among end-user organizations of all sizes. This demand is attracting a rapidly expanding array of start-ups and established vendors attempting to capitalize on this new market opportunity.

We at THINKstrategies have found that many of these companies are not fully prepared to succeed in the SaaS and managed services markets because they’ve under-estimated the organizational, operational, sales, marketing and financial requirements of these service-oriented, subscription-based businesses.

Despite the growing interest and acceptance of SaaS and managed services, many providers are still uncertain how to successfully package, price, promote, sell, deliver and support these web-based services. Improper design and delivery of these services can seriously harm customer satisfaction and lead to customer abandonment.

THINKstrategies’ new Readiness Assessment Service includes a structured scorecard to evaluate the strength of SaaS or Managed Service providers’ strategies and solutions. The multi-dimensional scorecard examines the following key indicators:

• Target Market Segmentation
• Competitive Landscape
• Corporate Management
• Functional Capabilities & Features
• Solution Packaging
• Pricing & Revenue Realization
• Service Delivery Platform & Architecture
• Security and Availability Assurance
• Service Provisioning, Billing and Testing
• Contracting, SLAs and Reporting
• Sales Strategies and Skills
• Strategic Partnering/Ecosystem Strategies
• Marketing and Positioning
• Customer Support Capabilities
• Financing and Capital Structure

The scorecard will identify SaaS and Managed Service providers’ strengths and weaknesses so that they can address important issues before they affect the provider’s ability to deliver quality solutions. THINKstrategies will recommend specific remedies to fill these gaps so the provider can achieve their corporate objectives.

THINKstrategies is also establishing a series of partnerships and alliances with a variety of third-parties to meet clients’ specific needs, including application design companies, service delivery infrastructure providers, enabling technology vendors, financial services and investment firms, and specialized consultancies.

These new consulting services are based on THINKstrategies’ extensive SaaS and Managed Services experience and indepth expertise. THINKstrategies was founded in 2001 to specifically address the unique business challenges in an increasingly services-oriented world. Since its inception, THINKstrategies has helped over 100 client companies achieve their business objectives by leveraging the power of services. THINKstrategies was the first consulting and analysis firm to identify growing interest and adoption of SaaS and managed services in 2005, among organizations of all sizes, based on its survey research in conjunction with Cutter Consortium and the MSP Alliance.

In January 2006, THINKstrategies unveiled the SaaS Showplace® (http://www.saas-showplace.com/ or http://www.thinksaas.com/) and Managed Service Showplace® (http://www.msp-showplace.com/ or http://www.thinkmsp.com/) online directories and web-based resource centers with easy-to-use listings of SaaS solutions by application and MSPs by service category, and extensive information and insight about industry best practices to help organizations fully leverage the growing array of SaaS solutions and managed services.

Today, over 500 companies have registered to be listed on the SaaS and Managed Services Showplaces, offering over 2,000 on-demand solutions, making the Showplaces the largest, vendor- independent, online directories in the on-demand services market worldwide.

Please contact me if you have any questions regarding these new consulting services.

Dell announced today it plans to acquire privately-held SilverBack Technologies, Inc., one of the original managed service providers (MSPs) who has transitioned its business to offer a service delivery platform that enables MSPs to deliver remote monitoring and management services.

This acquisition is important because it clearly shows that Dell is serious about strengthening its service delivery capabilities as part of its overall effort to regain its momentum in the market. It also adds further validation to the importance of managed services as a key component of today’s vendor and channel strategies.

I expect Dell to leverage SilverBack’s capabilities to add a new layer of managed services to its product portfolio. I believe Dell is in a unique position to capitalize on SilverBack’s capabilities because it has a strong relationship with customers as a result of its direct sales heritage. This relationship permits Dell to deliver managed services that can demonstrate a greater commitment to ensure the reliability, security and business value of its products.

However, achieving these objectives isn’t a ’slam-dunk’. Cisco Systems and Sun Microsystems, among others, have also tried to buy their way into the managed services business with limited success. (See, my 2004 and 2005 NetworkWorld commentaries.)

In addition to having the right enabling technology, being successful in the managed services business also requires an entirely different set of management skills and operational processes. Rather than reacting to customer problems as most vendors and channel partners do in the old world of tech support, managed services requires a proactive approach which reduces the risk of system failures or performance issues. Not only does this require different skills and processes, but it also forces the MSP to develop different methods of demonstrating their value.

Complicating matters for Dell is its initiative to add more channels-to-market to its direct sales approach. This effort will require Dell to segment its managed service offerings to fit its direct and indirect channel strategies. As Cisco, Sun and other vendors have learned, this is not an easy balancing act.

Leaving these challenges aside, Dell’s acquisition of SilverBack is still a significant bellweather of the changing nature of the IT market. As I’ve said many times before, we are moving away from a technology centric industry to a services driven business.

Yesterday’s announcement that SunGard intends to acquire VeriCenter clearly indicates that the competitive landscape in the hosting business is rapidly changing.

Not only is this another indication of industry consolidation and the growing role of private equity firms in the IT services sector, it is also another example of how the managed and Software-as-a-Service worlds are converging.

The first message that this transaction sends to any hosting company that hopes to be a market leader is that they can no longer depend on the simple annuity of managed server and co-location services. Instead, hosting industry leaders will need to offer a broader portfolio of managed and SaaS capabilities in order to become a strategic source for their enterprise customers.

Sungard is a perfect example of the power of private equity. On March 29, 2005 the company was acquired by a consortium of seven private equity investment firms for $11.3 billion, the largest private equity transaction at that time. The firms involved were Silver Lake Partners, Bain Capital, Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co., Providence Equity Partners, and Texas Pacific Group.

The timing of their acquisition couldn’t have been better. A growing number of corporations were turning to hosting companies to offload their server management and processing requirements. Concerns about disaster recovery and business continuity were also escalating.

Today, SunGard generates over $4 billion in revenues serving over 25,000 customers in more than 50 countries, including the 50 largest financial services companies in the world. The company has also established a strong customer base in the higher education and the public sector.

VeriCenter will be merged with SunGard’s Availability Services division. This unit boasts 3 million square feet of operations space in over 60 data centers, linked by a 25,000 mile-dedicated network, and augmented by over 50 mobile facilities. The unit’s service delivery infrastructure supports over 30 computing platforms for over 10,000 businesses and institutions across North America and Europe. Although VeriCenter has a smaller installed base of approximately 600 business customers, it offers a broader portfolio of managed services.

While many industry observers view the managed services and SaaS market as separate albeit related business opportunities, smart hosting companies are recognizing they can capitalize on both. In addition to offering the standard set of centralized server management and co-location services, hosting companies can now deliver a wider array of remote managed services aimed at helping customers administer their on-premise systems, and offload their security and storage requirements. Leading edge hosting companies are also positioning themselves as a channel to market for a rapidly expanding array of SaaS solutions.

The SunGard/VeriCenter deal also represents another example of the continuing consolidation of the hosting business. Another example was the acquisition of Data Return by Terremark Worldwide, Inc. in May.

I expect these trends to accelerate in the coming months.

This week’s NetworkWorld includes an article about SpiceWorks’ new, free, desktop management solution. The on-demand service enables IT professionals to manage up to 250 devices. The company claims the free solution includes discover, inventory, monitoring, tracking, reporting and remote hardware and software problem resolution capabilities.

Giving away free IT/network management solutions isn’t a new idea. This is the same thing a company called VitalSigns did in the application performance management space a decade ago to penetrate the market before the company I was a part of, International Network Services (INS), acquired it to enhance our network performance management service called EnterprisePRO.

More recently, Klir Technologies has been using this same strategy to penetrate the market with its on-demand network performance management solution.

The broader trend is that IT professionals are becoming increasingly receptive to Software-as-a-Service (SaaS) and managed service ‘out-tasking’ alternatives to traditional network/system management (NSM) systems. Although IT people have been resistant to SaaS and managed services in the past, they are increasingly frustrated with traditional, on-premise management platforms. They also recognize that their jobs are in jeopardy if they can’t produce better IT/network availability, security and performance.

You can find my perspectives on this topic in NetworkWorld and the June issue of Business Communications Review. You can also find a listing of the latest on-demand solutions aimed at IT professionals on THINKstrategies’ SaaS and Managed Services Showplaces.

The findings of a 2006 survey recently released by Gartner has brought renewed attention to the fundamental shortcomings of today’s major network/system management (NSM) platforms from companies such as IBM, HP, CA and BMC.

The survey found that 40% gave their NSM vendors a mediocre “C” and nearly 30% of the respondents gave their vendors a “D” because of their frustrations with the costs and hassles involved in deploying and administering the vendors’ platforms.

These frustrations aren’t news. When I was the director of strategic marketing at International Network Services (INS), we were the first company to rollout a network performance management software service on a subscription pricing basis in response to these same frustrations. Our EnterprisePRO solution was unveiled in 1996, prior to the advent of the managed service provider (MSP) and application service provider (ASP) ideas.

Unfortunately, although there were plenty of IT managers and business executives who were dissatisfied with the total cost of ownership (TCO) and return on investment (ROI) of their NSM platforms, most were unwilling to entrust their NSM responsibilities to remote services offered by unproven providers. This led INS to convert its EnterprisePRO software service into a shrink-wrap software product, incorporating the application performance management capabilities we acquired as a part of VitalSigns into our solution. This same customer resistance led to the collapse of the MSP/ASP business with the demise of the dot.com era.

Today, we are living in a different economic, business and technological climate. Most organizations would prefer to offload the hassles of day-to-day IT operations, especially if they can find someone who can do it better and cheaper. An indication of this change in attitude can be found in Gartner’s survey which found many IT managers are considering open source and software-as-a-service (SaaS) solutions. This confirms THINKstrategies’ research which has found the same attitudinal changes are fueling the growing receptivity toward managed services as well.

Click here to read my latest commentary in NetworkWorld on this topic and learn about some of the new SaaS solutions aimed at helping IT managers overcome their NSM frustrations.