Public Network Managed Services Extend Into the LAN in North America(ExecutiveSummary) Executive Summary

Transcription

1 Public Network Managed Services Extend Into the LAN in North America(ExecutiveSummary) Executive Summary Publication Date: 15 April 2003

2 Author Charles Carr This document has been published to the following Marketplace codes: TELC-WW-EX-0578 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice

3 Public Network Managed Services Extend Into the LAN in North America (Executive Summary) ThefutureisclearinNorthAmerica publicnetworkmanagedserviceshave extended down into the LAN and across every business size. The question then becomes, how deep will the penetration be, and how fast will it develop? In a volatileeconomyandrapidlyincreasingnetworkcomplexity,managed services offer opportunities to services providers and business clients. Businesses are demanding more cost-effective voice and data services and applications to stay competitive forcing more complexity into telecommunications products and driving development of next-generation networks. At the same time, businesses realize that they must concentrate on theircorebusinesstobecompetitiveandlessontacticalissuessurrounding network operations/communications that are outside their core competencies; however, businesses must understand that a lack of attention here still has a direct impact their bottom line. For the service providers, managed services offer a more substantial customer relationship and better insight of their future needs, leading to greater inside sales opportunities. Searching for higher margins, carriers, service providers and technology vendors have been more than willing to hype managed services, particularly IP-VPNs, and the promise of risk sharing with business, significant network cost savings and operational efficiencies. However, effective marketing strategies cannot be developed on hype but must be based on solid end-user service trend information, specific to their key business segments what do businesseswantandwhatistheperceivedvalueoftheseservices?tothisend, Gartner Dataquest's recent survey of the North American (United States and Canada) business market aids product planning with insight into current midsize businesses' telecommunication service needs, strategies and preferences through This survey covered a variety of managed services (or outsourced) telecom services that are offered by telecom carriers or through systems integrators; consequently, outsourced and managed telecom services are used interchangeably. The key preferences and market trends in managed services were highly consistent between Canada and the United States, which is not entirely unexpected considering the core similarities of the two North American business and telecom markets, which are highlighted as follows: Spending trends Among midsize companies using some form of managed service, incremental carrier-managed/outsourced services spending for 2003 is flat in Canada and the United States. On the surface, this sounds inconsistent with all the recent managed services interest and hype from businesses, service providers and vendors. It is not entirely unexpected when considering the swift initial penetration of these services in the midsize business community during recent years picking off the "low-hanging fruit." Other contributing factors to slow incremental spending and resisting deeper service penetration include: Naturally longer sales cycles in larger businesses A tendency of initial sales being non-enterprise-wide solutions, such as proof of concept or entry level pilots offering less sophisticated, less comprehensive features A lack of a proven cost-reduction track record A nondemonstrable price and cost advantage over existing data services Convoluted and nonintuitive price structures, particularly for large networks. Thus, revenue from inside sales for service upgrade and system expansion will be a slow growth component of telecom budgets in the coming year, as midtier companies walk with caution in a tight budget environment Gartner, Inc. and/or its Affiliates. All Rights Reserved. 1

4 2 Public Network Managed Services Extend Into the LAN in North America (Executive Summary) Penetration trends Relative penetration of the midsize business market by any form of managed service is already high and will be significantly higher by the end of 2003 in the United States (38 percent) and Canada (46 percent) the midsize business market is definitely interested in carrier-based and outsourced services as a risk-reduction solution for the future. Current managed service stars in the United States are managed WAN-MAN in the smaller business group and managed IP-VPNs and managedlansinthelargermidsizebusinessmarket,withip-vpns showing the greatest potential for new subscribers during the next year. As legacy technologies are retired during the next several years, Ethernet and IP are the preferred technologies for new managed WAN-MAN and network services in the United States. Canadian managed service leaders are managed IP-VPNs, followed by managed WAN-MAN, across the midsize business market. IP-VPNs show the greatest growth potential for new subscribers through Smaller Canadianmidsizebusinessescontinuetoimplementnewerpacket technologies (IP and Ethernet) when selecting managed WAN-MAN and network services likely because of less legacy infrastructure and greater potential cost benefits. The larger midsize businesses are, however, staying with the legacy packet technologies (FR and ATM) for managed WAN-MAN and network services. Churn Therateatwhichbusinessesdroptheirmanagedserviceischurn, and indirectly, this is an indicator of business' dissatisfaction with the results and,thus,thisservice.overall,4percentofu.s.midsizebusinessesare planning to drop their current managed services, while 11 percent of Canadian midsize companies with this service (but none in the larger midsize business group) will do so during Intuitively, these churn rates seem higher than would be expected for a mature service on the surface, but not when fully considering lack of preplanning by early adopters, the inherent complexity of these solutions, immaturity of IP-VPN services (standards issues), trends supporting initial pilot demonstration of managed and outsourced services, and current economic conditions delaying company expansion. These numbers are also offset by a relatively strong upward migration to more sophisticated managed services and new growth trends. The top reason among respondents for dropping a service in the United States and Canada is the pricing/net savings issue specifically the failure to achieve expected cost savings. Key selection criteria for service providers The most important characteristics used in the the evaluation and selection of a service provider by midsize businesses in North American midsize business markets are: service quality-network reliability and competitive price points, followed by customer support as experience has shown is a key source of implementation and ongoing operations dissatisfaction. Least important attribute in North America for midsize businesses is service reach international coverage Gartner, Inc. and/or its Affiliates. All Rights Reserved. 15 April 2003

5 Public Network Managed Services Extend Into the LAN in North America (Executive Summary) 3 Customer service a key differentiator Past experience and surveys have shown customer service to be a hot button issue, consistently rated by business near the top evaluation criteria of service providers. Considering the dissatisfaction regarding managed service implementation, this introductoryphaseofacustomerservicerelationshipisclearlythekindof opportunity for a service provider to set itself apart from its competition by stressing the importance of pre- and post-installation business systems and network requirements analysis and joint planning and setting clearly defined responsibilities and communication processes customizing the customer support and problem notification processes. The ultimate goal is to move from simple network responsibility and account management toward a true risk-sharing, partnering relationship with the customer that promotes the best solution, even if that solution does not directly benefit the service provider. Compelling customer service means clear accountability and single point of contact, comprehensive, proactive and intuitive reporting and billing, fully enforceable SLAs with automatic compensation, and adapting to unexpected customer business needs as they develop. While problems will always exist in any service or relationship, how the service provider deals with them and the customer is the test of great customer service are problems noticeable to the customer requiring their direct action, or essentially transparent? Key managed services drivers Connecting companies with multiple sites to a managed network is complex and costly, but for most businesses this is a mission-critical task. Managed services are the most efficient and quickest way to provide the requisite resources and expertise while minimizing the inherent technology, operational and financial risks, particularly to growing midsize companies with limited internal resources. With minor variations in the level of importance by business size, the core drivers and top goals of midsize businesses in North America for using managed and outsourced services deal, not surprisingly, with network operations first-tier goals to increase network security, reliability and operating efficiency. A second-tier group of interest includes better network flexibility and scalability (reduction and expansion) quick provisioning and bandwidth upgrades and improving disaster control and recovery. Interestingly, these drivers were generally consistent with past business surveys and research, with the exception of reduced operations cost savings and reduced staffing being absent from the first tier while still showing strong ratings. Cost-benefit uncertainty The initial challenge for businesses and service providers is quantifying cost factors, tangible and direct (hardware, software and staff head count) and intangible and indirect (risk reduction, lost opportunity because of internal tasks such as trouble shooting and network management, and job security for the telecom manager) both pre-andpost implementation, to determine a TCO. Most companies have focused principally on only the easily quantifiable direct costs to date, and as this survey shows, this is not very compelling in itself, offering only a slight benefit on average. The intangible benefits are becoming the deciding factors pushing managed and outsourced data services. Overall, 50 percent of U.S. midsize businesses experienced no net cost change by implementing managed data services, with the remainder of survey respondents in approximately equal numbers saying their overall net costs increased or decreased. However, when the actual percentage cost change for all respondents are averaged, this survey showed a slight net cost savings of 3.4 percent credited to implementation managed services for midsize businesses Gartner, Inc. and/or its Affiliates. All Rights Reserved. 15 April 2003

6 4 Public Network Managed Services Extend Into the LAN in North America (Executive Summary) About one-quarter of Canadian midsize businesses experienced no net cost change by implementing managed data services, but of the remaining respondents, more indicated that they experienced a net increase in overall related costs in the smaller midsize business group, while a larger number experienced a net decrease in costs among larger midsize businesses. When the actual percentage net cost change for all respondents are averaged, this survey showed a net cost savings of 6 percent because of implementation of these managed and outsourced telecom services. Business needs assessment (current and future) What is the reason for the uncertainty surrounding cost benefits and how to lessen the risk of actually experiencing increased costs? Flat or increased network costs are most likely because of flawed, incomplete or poor implementation planning on the part of the business and unrealistic expectations based on hyped performance promises during the sales cycle. Businesses must realistically evaluate their current and future needs and determine which internal telecommunication operations and functions have the greatest potential for generating savings or operational efficiencies. Network assessments are a critical first step to planningbecausenotallnetworksarethesame.theclient'sneedsarerarely identical, even in the same industry sector every business has unique requirements and only the business, with the help of the service provider, can fully determine them (such as critical network availability or increased SLAs for specific locations or traffic types). An effective solution cannot be developed or implemented without first knowing and understanding the goals, expectations and problems to be addressed. For the full report, see the Gartner Dataquest Focus Report, "Public Network Managed Services Extend Into the LAN in North America" (TCPS-WW-FR-0155) Gartner, Inc. and/or its Affiliates. All Rights Reserved. 15 April 2003