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the-survive-and-thrive-strategy-for-next-gen-service-providers

The Survive and Thrive Strategy for Next Gen Service Providers

26 Jun 2015 by Howard M Cohen

When IBM introduced the Personal Computer (PC) in August 1981, it faced a dilemma. IBM’s policy was that “nobody but IBM sells IBM.” Yet they had a product meant to be sold to the masses through retail stores. To maintain their policy, they came up with the name “reseller” to describe the large retail chains that would buy the PCs from IBM, and distribute them to retail outlets that would re-sell them to their customers. This path was called the “reseller channel.”

The first resellers competed fiercely because the profit margins evaporated almost overnight. As the opportunity to generate margin from re-selling the PC disappeared, some of the resellers saw an opportunity to generate better revenue by servicing the machines.

The IT channel resellers of the 1990s and early 2000s faced a difficult but necessary transition from being “boxmovers,” focused on squeezing profit out of selling products, to become the solution providers and IT service providers of today. Early IT service providers focused initially on product-attached services such as installation and repair. As they climbed the sophistication food chain, they expanded into network services focused on servers, storage, the network communications infrastructure, security and more.

The core and the edge

Network integrators eventually developed servicing and security strategies, and teams focused on what they referred to as the “core” and the “edge” of the network. The core represented all the primary systems, including servers, storage, and related power conditioning and network communications equipment. The edge stood for the users and their various access devices, including desktop and laptop computers, tablets and smartphones.

Enter the cloud

Resellers were initially dismayed by the arrival of cloud computing powered by the economies of scale that could be realized by using virtualized servers and virtualized storage to share resources among many customers. With each customer paying only a fraction of the cost of cloud infrastructure, their total IT spend was dramatically reduced. Resellers feared seeing their product sales and related product-attached services disappear, replaced by these much lower cloud service fees. How would they make enough money?

Network integrators faced a new challenge, too. Customers could pick and choose cloud services from various vendors, combining the best of breed in each category into a superior cloud solution. In this new scenario, there were multiple network “cores” at each of the cloud providers’ data centers, and the “edge” included the entire global Internet. How would they get all of that to work well together?

Welcome to tomorrow

A recent Hewlett-Packard (HP) whitepaper, Survive the Market Storm, reports that “11 out of the top 25 fastest-growing technology companies are service providers,” but also that “market consolidation will displace up to 25% of the top 100 IT service providers,” by the end of this year. 

This whitepaper suggests three key ways to improve your chances of being one of the IT service providers who survive and thrive through the changes we’re going through already. They suggest that by creating strong differentiation, optimizing company culture and positioning for growth, todays IT service providers improve their odds.

Beyond infrastructure

In 2011, then Microsoft Product Manager for Dynamics CRM Bill Patterson introduced the new version for online service before releasing it for on-premises use. This was a first. He commented that we would soon witness “An evolution of solution,” explaining that when solutions providers used the word “solution,” what they really meant was “infrastructure.” They would throw more infrastructure at the problem to create their solution. Soon, explained Patterson, customers would no longer accept that. They would demand “solutions” that were far more business-relevant.

In 2014, new Microsoft CEO Satya Nadella announced that Microsoft, at its core, would be “the productivity and platform company for the cloud-first, mobile-first world.” Interpret “productivity” to refer to Office 365 and “platform” to mean “Microsoft Azure.”

Microsoft WorldWide Channel Chief Phil Sorgen wrapped these together by saying that “Microsoft’s only job is to provide the platform on which partners can be successful selling and running their solutions.” This presupposed that partners had solutions, business-relevant solutions, to sell and run.

Life after infrastructure

With the economies of Infrastructure-as-a-Service (IaaS) making it hard to resist moving workloads from on-premises infrastructure to cloud services such as Azure, AWS and others, IT service providers who are focused on servicing IT infrastructure will see their business opportunities dwindle.

The service providers that survive and thrive will do so by creating their own intellectual property (IP), their own business-relevant solutions to sell to customers’ questions. How will they create this IP?

Today's business-relevant solutions

Application software — Today’s Independent Software Vendors (ISVs) are best suited to become the ideal channel partners of tomorrow as they are already in the IP business. Other service providers should consider gaining the skills to do the same.

Modular programming Modular platforms are emerging, which allow for the creation of customized workflows using an intuitive graphical interface. Some service providers will build and offer pre-fabricated integrations of modules to form the foundation of key applications.

Data integration — Service providers that integrate databases between various core applications such as ERP, CRM, MA and others will leverage what they learn about their customers’ data architecture to sell back to that customer and others in their industry.

Methodologies Service providers will compete based on the efficiency of the methodologies they create to achieve various integrations and implementations.

Cloud architects/orchestrators — Specialists will become more adept at getting cloud services from disparate providers and the protocols that run them to work well together.

The Internet of Things — We will need a bigger, broader Internet to accommodate the addition of tens of billions of new devices, each requiring new addresses and more sophistication to manage. It’s a big opportunity for service providers.

Already, the last unique Internet Protocol (the other IP) addresses have been distributed, and the clever tricks we play, such as Network Address Translation (NAT), can only be stretched so far. The Internet Engineering Task Force (IETF) projected that the entire Internet would be moved from the original addressing scheme, IPv4 with 4.3 billion addresses to the new IPv6 scheme with 340 undecillion (followed by 32 zeroes) addresses by 2011. 

When this becomes an emergency, service providers will have two very lucrative project opportunities: moving customers to a hybrid of IPv4 and IPv6, and then another to ultimately move them completely over to IPv6. The target customer is the entire Internet. The world.

Data Scientists — Big Data is requiring an entirely new skill set from someone called a data scientist. Claire Cain Miller of the New York Times described them as “… the magicians of the Big Data era. They crunch the data, use mathematical models to analyze it, and create narratives or visualizations to explain it, then suggest how to use the information to make decisions.”

Gain Insight

Legendary sales motivator Zig Ziglar said, “If you’re doing what you’ve always done, you’re probably getting what you’ve always gotten.” For the next generation of IT service providers, this will no longer be an option.  The HP white paper recalls the words of Charles Darwin, who said, “It is not the strongest or the most intelligent who will survive but those who can best manage change.” 

Insight’s response to the changing marketplace is embodied in our commitment to serve the service provider community. Talk to us about how we can help you change and adapt to survive and thrive in the new and changing IT world.