THINK IT Services

The extraordinary success of Amazon Web Services’ (AWS) Infrastructure-as-a-Service (IaaS) solutions has prompted nearly every major hardware and software vendor to offer their own IaaS, Software-as-a-Service (SaaS) or Platform-as-a-Service (PaaS) solutions as well. This has put tremendous pressure on traditional hosting companies, communications service providers (CSPs), and Value-Added Resellers (VARs) to respond with their own offerings in this increasingly competitive marketplace.

This week, I had the opportunity to participate in a full-day analyst briefing and attend the kickoff session of Parallels’ 2011 Partner Summit. [Disclosure: Parallels paid my travel expenses to attend the event.] This year’s Summit built on the momentum of last year’s conference by unveiling numerous enhancements to its portfolio of Cloud enablement solutions, including:

• Parallels Automation for Cloud Infrastructure
• Hosted PBX
• Microsoft System Center Hyper-V Cloud
• Microsoft Office 365 Syndication

Parallels also promised to make an increased investment in its Application Packaging Standardization (APS) Program to permit greater portability of Cloud services.

What I especially liked about this year’s event was the way Parallels’ management team attempted to alleviate some of the anxieties among its partners and potential customers about the increasingly competitive Cloud marketplace by emphasizing the tremendous opportunities in the SMB segment and identifying industry best practices that can win hosters, CSPs and VARs success.

While the Cloud Computing market is evolving quickly, mainstream adoption of Cloud services among small- and mid-sized businesses (SMBs) is still embryonic. Parallels is attempting to accelerate the growth of this segement of the market, and help hosting companies, CSPs and VARs capitalize on this tremendous market opportunity with its Cloud enablement products and channel support programs. It is also expanding its role as a Cloud “broker” by recruiting  more Software-as-a-Service (SaaS) to participate in its service catalog.

The company also announced a leadership change with  Birger Steen assuming the CEO position and the company’s founder, Serguei Beloussov, retaining his positions of Executive Chairman of the Board and Chief Architect. Steen brings extensive business experience and strong Microsoft relationships which the company hopes will help it grow from approximately $100 million in revenue to $1 billion over the next five years.

An acquisition by Microsoft might come before it reaches this milestone. The company’s concerted efforts to align itself with Microsoft include many of this year’s product enhancements; moving its headquarters to Renton, WA; and adding other former Microsoft executives to its leadership team such as John Zanni, Vice President of Marketing and Alliances, who was formerly GM of Microsoft’s Worldwide Software + Services Industry, Communications Sector business unit.

A clear measure of Parallels’ growing presence in the Cloud enablement business was the larger number of attendees and sponsors it was able to attract to this year’s Summit. The energy and enthusiasm at the event also demonstrated the strong allegiance which Parallels’ partners feel toward the company.

With few vendors able to offer a comparable portfolio of Cloud enablement tools to hosting companies, CSPs and VARs, Parallels has an opportunity to grow quickly as its partners attempt to keep pace with the tremendous growth of the Cloud Computing marketplace.

A friend at AT&T, Joe Weinman, continues to pump out thoughtful blog posts regarding the rapid evolution of the cloud computing industry. His latest post on GigaOm entitled, “6 Half-Truths About the Cloud”, includes a link to a previous post which offers “10 Reasons Why Telcos Will Dominate Enterprise Cloud Computing “.

I was drawn to his previous post because Joe added a link in today’s post for his definition of “CLOUD” – Common, Location-independent, Online Utility provisioned on-Demand.

But, I was also compelled to respond to Joe’s suggestion that the telcos are in the best position to capitalize on the growing demand among enterprises for cloud computing services.

I was originally attracted to the technology industry in 1982 not because I was a geeky engineer but because I was a MBA student looking for a hot new market opportunity and saw the impending divestiture of AT&T as my opportunity.  I joined IDC in 1983 to help launch its communications research program to track the transformation the telecommunications industry in particular, and the technology industry as a whole.

The AT&T divestiture produced a new generation of Regional Bell Operating Companies (RBOCs) promising a new era of competition and innovation. Over the subsequent years, they made numerous efforts to expand beyond communications into the data center with a variety of computer hardware sales and systems integration services initiatives with limited success.

Twenty years of infighting led to a new round of consolidation which has left only two major U.S. telecom giants still standing–AT&T and Verizon–along with Qwest and a wide array of seconday players. AT&T, Verizon and Qwest have succeeded in becoming important hosting companies, but they are by no means leading the market from a thought-leadership or innovation standpoint. Instead, they are delivering dependable ‘dialtone’ for companies seeking simple, straightforward hosting services.

While there is nothing wrong with delivering reliable services, in today’s rapidly evolving cloud computing environment reliability is quickly becoming table-stakes as businesses of all sizes seek cloud computing services which can give them greater agility, better economies and added functionality to reduce their operating costs and strengthen their competitive positions. These are not attributes which people associate with telcos.

In the past, we could attribute the failure of telcos to penetrate the data center as an outgrowth of the internal feuds between voice and data communications engineers within most mid- and large-scale organizations. Those internal battles have subsided as many organizations consolidated their inhouse staffs. But, the telcos continue to sell ‘dialtone’ and have been unable to demonstrate any real value-add in the data center.

In fact, even responding to new ideas and business models in their core communications business continues to be a struggle for the telcos. They watched landline revenues dry up as wireless services exploded. They watched traditional transport services give way to Internet services. Now, Skype is the largest international long-distance carrier.

Telcos are still struggling to figure out managed services, which have been around for over a decade, as a new wave of Software-as-a-Service (SaaS) and cloud computing services become mainstream.

I contributed a series of commentaries to the Web Hosting Industry Review (WHIR) from 2004-2007 that discussed the tremendous potential of the telcos in the hosting, SaaS and utility (now, ‘cloud’) computing arena which have yet to be fully realized.

Of course, telcos are not alone in their struggles with today’s disruptive technologies and rapidly changing customer preferences. Today’s issue of the Boston Globe includes a fascinating story about its own myopia which led to it missing a perfect opportunity over a decade ago to acquire a major share of Monster.com, which eventually became one of the major catalysts of the current decline of the newspaper industry.

As my friend Joe Weinman correctly states, the telcos are in a perfect position to dominate the enterprise cloud computing market. They have the technical resources, channels to market and brand equity. But, can they overcome their history, culture and other internal barriers to success?