Service Provider Insider

I Guess It's Time For An Update?

2011-07-20T15:55:45-04:00

Mortified, I recently realized that I hadn't updated this blog in a l-o-n-g time.

I don't have a good reason. There's been plenty of interesting developments, to be sure. And lots of stories to tell, perspectives to share, etc. And I'm still as much interested (and engaged) in this topic as ever.

So, maybe it would be a good idea to simply share with you what's going on -- at least from my perspective?

The Back Story

If you think back to the starting point, this all started for me when I woke up in a cold sweat one night a few years back, and realized that -- yes -- there was going to be a fundamental shift to enterprises consuming IT as a service.

And, as a result, there would likely be an entirely new, thriving and incredibly strategic category of partners that we'd want to work with: IT service providers. The "cold sweat" part came from the realization -- at the time -- we probably weren't as prepared as we could be for this seismic shift.

I spent most of 2010 working with like-minded people here at EMC (and VCE) evangelizing, arguing, debating, provoking, etc. to get enough critical mass going to have us invest the time to understand the phenomenon in enough detail, and to start coordinating our efforts around the needs of this new route-to-market.

This effort took a big step forward when Dennis Hoffman (who I respect greatly) agreed to take a key leadership role in formalizing various initiatives. He -- as well as the extended team working in this area -- have made phenomenal progress over the last year. More to do, but a promising start.

As I look at the situation now, I'm generally pleased -- there is general article-of-faith belief that:

over time, more and more IT will be consumed as a service vs. through traditional enterprise IT models
an entirely new category will be formed -- the ITaaS service provider -- that will be increasingly important over time
that EMC's opportunity will not only be to build great and purpose-built technology for these people, but to become a business and marketing partner as well.

As a proof point, at EMC's quarterly employee meeting, our CEO Joe Tucci put up a list of four "big bets" we were making, and SPs showed up on that very short list.

Not a guarantee of success, to be sure, but a far cry from where the internal discussion started :)

Where We're Making Progress -- Products

For starters, there's the product and technology side. There is no, one, large and homogeneous product group at EMC -- we've got all sorts of product groups who do different things to serve their respective audiences.

If you've ever worked in a product management or development role, there's usually an uneasy balance between investing for your current customers, and investing to get entirely new ones. In this case, building products and solutions targeted for SP use cases represents the latter.

The good news?

There's now a broad pattern where the leadership of these various groups now understand the opportunity starting to form, and how SPs look at the world differently than traditional enterprise IT customers.

That awareness translates differently depending on the individual situation. At one end of the spectrum, we're starting to see products primarly targeted at SP use cases. More common are products adapted or extended for this requirement.

And, in a handful of cases, we've got product groups who realize they have an interesting challenge to overcome :)

There are also a handful of very cool technologies we've got that represent potentially amazing opportunities in the right SP's hands: for me, that list would include VPLEX, Atmos, DPA, RecoverPoint, RSA just to name a few.

Where We're Making Progress -- Solutions

When you use the term "solutions" at EMC, there's actually a fairly precise definition: integrations of multiple technologies and processes around particular use cases that accelerate time-to-value and reduce implementation risks.

For years, we've had a healthy investment in this function, but -- over the last few months -- it's gotten much, much bigger and more capable. New leadership, new structure, consolidating multiple functions, more resources, etc. etc. -- it's a bit breathtaking to consider everything that's there -- almost like a separate product group at EMC.

And, yes, a big part of their mandate and thinking is creating marketable solutions for our SP partners that -- yes -- accelerate time-to-value and reduce risk. Of course, when we're talking SP solutions, we need to think a bit farther around market sizing, positioning, pricing, etc. -- after all, SPs are in this to build their business vs. solve some sort of internal IT challenge.

Where We're Making Progress -- Doing Business

One of the more daunting parts of become an SP-friendly technology vendor is the stark realization that 100% of your business practices and processes are designed around enterprise IT consumers. And that doesn't change overnight.

That being said, we are starting to chip away at the problem. For starters, there's a general awareness that (a) SPs prefer different business relationships than enterprise IT customers, (b) it's really important, and (c) we have a lot of work to do.

What's different? Oh, how about linear consumption models vs. big bundles of technology. Or easy-to-manage licensing mechanisms. The list goes on and on. We'll be busy here for a long while indeed.

Where We're Making Progress -- Services and Support

We believe that successful SPs will need to deliver high-quality IT services that are at least as good -- if not markedly better -- than traditional enterprise IT groups do. That means that there's a strong agenda for high-quality consulting, professional and support services to achieve precisely that goal.

The great news here is that doing this sort of thing is nothing new to EMC -- we've got the proven DNA to do this across a dizzying wide range of disciplines. We do, however, have to extend our model in a few areas to extend our value proposition to the SP's customer rather than just the SP itself.

There's also good opportunity for targeted consulting. Many SPs want to target enterprise IT opportunities. Well, that's a space we know pretty darn well. Bringing our expertise to an SP (usually in the form of a consulting engagement) goes a long way to creating crisply positioned IT services that enterprise consumers will inherently find appealing.

Where We're Making Progress -- Leveraging Our Account Relationships

Let's face it -- EMC has a substantial customer footprint, either through our formidably direct sales force, or in conjunction with our reselling and integration partners.

We understood early on that any SP who was targeting enterprise IT consumers might benefit from that typically deep account presence. But how best to leverage our brand, marketing and -- ultimately -- our relationships?

The result was the new EMC Service Provider program. Like any partner program, it has a tiered approach: more investment equals more benefits. At lower tiers, it's mostly joint marketing that's in play.

But at higher tiers, there's a fascinating mechanism to compensate EMC reps for helping SPs make a sale, especially in larger enterprises. Indeed, in some circumstances, a rep can make more money by working with a qualified SP vs. trying to sell stuff directly to enterprise IT.

To say that it's been popular is sort of an understatement :)

That being said, it's still early days for the program. Like any new program, it needs more resource and more time to mature before it's as compelling as it could be.

I'm not aware of any specific plans, but I think there's also a strong interest in having regular cadence of business-oriented SP partner events, much like we do with our direct customers and our Velocity resale partners.

We know how useful frequent interaction and communication can be.

Where We're Making Progress -- Organizing Around SPs

Service providers are different animals than traditional enterprise IT organizations, and they need to be covered and supported by people who understand what makes them different.

In each of our three theaters -- Americas, EMEA and APJ -- we now have dedicated account teams (sales, pre-sales, etc.) that focus on IT service providers. They're backed up by a small-but-effective program office.

It sounds like a small thing, but actually it turns out to be a big thing indeed.

Yes, There Are Vblocks Involved

Keep in mind, this is strictly anecdotal, but I am told that about half of all Vblocks (pre-integrated cloud infrastructure) is going to service providers. And there are an awful lot of Vblocks in play these days.

In retrospect, I don't think there's any way we could have come up with a better general-purpose infrastructure solution for IT-as-a-service SPs. While not perfect, consider the following:

Advanced, multi-tenant virtualized platform w/consolidated management model
Complete transparency on cost-to-serve
A single Vblock can support any number of different or similar service offerings
Streamlined config, ordering, installation and support processes -- night and day
Technology that has brand-name recongnition with discerning enterprise IT orgs
And, in many cases, largely compatible with what the customer is already running

While it's early days in the pre-fab-integrated-infrastructure-for-service-providers marketplace, it is blatantly obvious that we're off to an exceptionally strong start, and there is no equivalent competitive alternative that we're seeing.

However, from a more critical perspective, there is a *long* list of things that everyone wants to do with the Vblock approach to make it even *more* tailored for use by SPs in generating all sorts of IT services.

Put differently, I think the best is yet to come :)

Good Initial Success

I know it sounds obvious, but when you focus on something, you get results. EMC is now starting to see the benefits of focusing on IT service providers. And, not surprisingly, the response has been very positive indeed.

Not every SP wants to drop what they're doing, and come work with us, but -- for those that do -- we're finding that there's a lot of opportunity we can go after together. Most importantly, we're looking at this as a business partnership, and not an opportunity to make a quick sale.

We're in this for the long haul -- as are our SP partners.

And There's More ...

I meant for this to be a quick update, but I guess it's gotten rather long :)

Many of the ideas and concepts I discussed earlier in this blog have started to come to fruition.

For example, there's ever-more-willingness by enterprise IT types to seriously consider a compatible external service providers for reasons other than "it's cheaper". Or how the model I sketched out around the IT service delivery supply chain is more accurate than it had any right to be. Or how SPs could play a key role in meeting new IT requirements vs. simply re-hosting legacy workloads.

I take no small pleasure in getting a few things right at the outset. But there's still a lot to talk about -- things continue to move fast.

I just hope it isn't many months before I blog again here :)

Service Providers And Helping IT Break The Stockholm Syndrome

2011-04-07T11:06:38-04:00

I work with enterprise IT organizations. And, over the last few years, I've increasingly started to work with enterprise-focused IT service providers. The similarities can be amazing.

On my other blog, I often discuss a topic that matters to *both* audiences. And this is just such an example.

If you're thinking about how to best position yourself as a trusted partner to enterprise IT leadership, it's worth a read.

Why APTs Should Matter To Service Providers

2011-04-04T12:20:15-04:00

A few things in the news today that ought to serve as food for thought for any SP targeting enterprise IT workloads.

For starters, I'd encourage you to read up on advanced persistent threats (APTs). These are organized attacks using a combination of social engineering and traditional hacking techniques.

In a scarily prescient post, I talked a bit about APTs during the run-up to the recent RSA Conference. Then the unthinkable happened: EMC's RSA division got hit pretty hard.

How they did it is no longer a mystery. Who did it, and why they did it, is currently a matter of an ongoing investigation, so not much will be said about that for the time being.

If you think it's isolated cases, feel free to scan the headlines on any given day, and you'll hear about the most recent breach. This morning, it was Epslion's service that got dinged.

In related news, EMC's RSA division announced the acquisition of NetWitness, a key technology player in this space.

So, how does this apply to service providers?

Concentration Of Economic Value

These APT gangs are cleary targeting specific, high-value information. Specific, individual companies can house this sort of attractive digital wealth.

So can an SP aggregator -- across a wide range of SP models, if you think about it.

Concentration of value means concentration of risk. Ultimately, SPs have to be better at preventing, detecting and responding to APT attacks than the clients they serve.

Where Standard Secure Multi-tenancy Models Can Go Wrong

A while back, one of EMC's competitors announced their "secure multitenancy solution" for service providers. Of course, I was curious, but about ten minutes into the reading, I spotted the key flaw in their thinking -- almost fatal, in retrospect.

100% of their effort was focused on protecting tenants from each other. One could argue as to how well they achieved that result (still very debatable to this day), but my argument was very different -- how do you protect tenants from the SP?

In that particular solution, the proposed architecture was pretty clear that the SP system administrator had potentially complete visibility and access to all tenant information -- whether primary data or ancillary metadata.

Imagine this unpleasant scenario: an APT gang realizes that a service provider has a high-value information target: either through one of its tenants, or a collection of tenants, or -- perhaps -- in providing a supporting service to tenants (think backup, or security as a service, or collaboration as a service as examples).

APT gang uses social engineering techniques to penetrate the SP's defenses, and can basically operate freely as a trusted insider within the SP organization. Perhaps masquerading as a system administrator, for example.

APT gang now has unfettered access to all the SP's client's information. Or, more scary, a secure and trusted access path into the client's IT organization.

Could that be actually happening today? Perhaps yes, perhaps no.

Problems Are Opportunities In Disguise

I've long argued that -- ultimately -- SP organizations have to be better at what they do than the clients they serve. So, in that respect, any "challenge" can also be viewed as an opportunity.

When it comes to APTs, it's pretty clear from where I sit. It's the new threat, and requires a different response model than all threats that have preceded it. Enterprise IT organizations will be targets, as well as the SPs that serve them.

At a minimum, many of the SPs I work with will have to understand the new style of threat, and make the required investment to sustain their business operations. One bad day can put you out of business when it comes to APTs.

A few SPs may go further, and recognize -- like other IT disciplines -- that getting really good at APTs is actually a highly differentiated service that others will want to consume: not only enterprise IT organizations, but the SPs that serve them.

The Evolving Enterprise SP Supply Chain

2011-04-01T12:49:45-04:00

It's now happened about a dozen times, maybe more.

In the meeting, we're hip-deep into discussions around SP business models (especially those that want to target enterprise IT organizations). I start getting into differentiation and specialization, which inevitably leads to a core question: where and how do you want to play in the supply chain?

Supply chain? Puzzled looks all around.

OK, back up the train. Draw a big picture on the whiteboard, start filling in boxes, where do you see yourself?

Since it takes so long to draw these pictures, I've decided to whip up a sample slide for two reasons.

One, I'm essentially lazy at heart.

And, two, there are about a dozen or more meaty SP strategy discussions I can drive off of this single chart.

Notions Of Supply Chain

We all consume stuff.

If you track back all the different companies and specialists that were responsible for your meal, your car, your house, your iPad, your electric power, etc. -- you'll see at least a dozen or more specialized entities involved, sometimes many more.

That, in a nutshell, will get you thinking about a supply chain in a useful way.

No one -- and I mean no one -- owns the end-to-end picture. To try and do so is economic suicide.

Instead, each player focuses on one or more roles in the supply chain, creates their unique and defendable value, and passes on their value-add to the next player in the chain.

And there is no logical reason to believe that delivering IT services over a wire will be any different than any of the other bazillion supply chain ecosystem models in our world today.

The Definitive Answer?

If you're looking for the authoritative version of IT SP supply chain models, I don't think it exists yet.

For one thing, the market is moving way too fast for things to settle down -- legacy SP models are quickly being replaced by newer forms.

That being said, even my lame attempt to represent the components and how they might interact in useful ways is better than nothing. So far, it's been helpful with the SPs I work with.

Let's Begin Our Tour, Shall We?

The way I'm going to do this is simple.

I'm going to build up the model, from right to left, filling in quick descriptions of the key components as I personally see them.

I will not do a single one of these topics or entities any justice in this pass; each is worthy of an extended discussion individually.

Here's the starting point with nothing filled in.

We have pictures of people on the right, giving way to abstract boxes in some logical arrangement.

Creating a productive SP business model involves being incredibly descriptive about each entity here: do you care, will you differentiate, or will you simply partner to get what you need?

The more you think about this, the better the discussion becomes.

The Two Buyers

There are two broad classes of buyers who are in the market for IT services.

One is the "IT buyer". He or she is responsible for aggregating IT services (whether sourced internally or externally), and delivering these services back to business (or organizational) users.

I know a lot about these folks, since EMC has built a very large and successful business in selling to IT buyers of all sizes, shapes and flavors. Their job is not the easist one in the world. More here soon.

The other important buyer is the "business buyer". This is someone who needs to get something done, and needs some IT stuff to do it.

They may either work with their IT organization to get what they need, or -- with increasing frequency -- go directly to a service provider of their choosing.

Do not assume that the interests of business buyer and IT buyer are always aligned. Indeed, Salesforce.com built a spectacular SaaS model by targeting the business buyer, and completely bypassing the IT buyer -- and pissing off more than one IT director in the process.

This is not to mean that you have to choose one or the other. Indeed, the most powerful SP value propositions are when there's something in it for both parties -- the classic "win-win".

The Trust Agents

It needs to be said again -- people buy from people they trust.

So many IT vendors (products, services, etc.) don't really understand this simple and fundamental truth.

Becoming a "trusted advisor" to either an IT buyer or business buyer is not quick, easy or cheap.

Good marketing strategies identify who is likely to have this trust relationship already established with your target buyer.

That might be a consultant, a trusted vendor or integrator, a member of their professional community, and so on. Become trusted by the trust agents, and it becomes far easier to get your value proposition consumed by your target buyer.

So many people try to do it the hard way -- hiring expensive talent that has to work long and hard to establish that essential trust relationship. Some business models demand doing this, others are better served by partnering for this key role in the supply chain.

The Domain Experts

Whether I'm a business buyer or an IT buyer, I'm not just buying a service, I'm buying domain expertise.

Think about it: I expect my taxi driver to know where I'm going, even if I don't. That's part of what it means to offer a taxi service.

The same is true for any and all SP offerings -- as a buyer, I'm expecting expertise that I (a) need, (b) value, (c) trust and (d) have a hard time getting any other way.

If I'm an IT buyer, I'm looking for relevant IT expertise. If I'm a business (or organizational) buyer, I'm looking for relevant business expertise. And so on.

Domain experts can often be trust agents as well (or can support the role of a trust agent).

Indeed, I see so many SP value propositions that bias excessively towards cost savings, when -- in reality -- they have killer expertise that isn't being properly promoted.

If you think about your personal life, you probably consume services from people with unique expertise: doctors, lawyers, plumbers, etc. Sure, you want a fair price, but you're buying the services of someone who is better at what they do than you could ever be.

Not all SP business models require unique or specialized domain expertise that is customer-visible. But -- somewhere in the supply chain between what you the SP does and what the final buyer wants -- it's a useful exercise to figure out where that expertise will come from.

User Visible Applications

Now we cross the line from people and roles, to pure service abstractions -- at least, in the model I'm using here.

The first stop in our journey is "stuff that people see", often called applications -- although that description can be painfully imprecise. "User-visible applications", if you must. Or "business process applications".

This can further broken down into horizontal applications (stuff that just about everyone uses) like email, calendaring, word processing, social management, etc. and vertical applications (things that appeal greatly to people with specialized roles and/or tasks at hand).

Just to be precise, there are bazillions of internal business processes implemented by groups of applications that -- technically speaking -- users don't interact with much. But the "stuff that people see" abstraction keeps our attention focused on the bits people care about vs. all the supporting players.

Hint: our bet here is that the market for undifferentiated horizontal application services will rapidly commoditize even further. However, there are still opportunities for differentiation by doing things that other providers can't.

For example, not all email and collaboration providers can offer high levels of security, advanced spam control, integrated collaboration modes,compliant archiving, superior availability, etc.

And, if you're a heavy email user in a regulated industry, those things can be very appealing to both the business buyer and the IT buyer :)

But, generally speaking, I encourage SPs not to invest in creating these horizontal and undifferentiated offerings. They can be part of your broader offering, but I would recommend leaving them to someone who, er, specializes in creating unspecialized offerings ...

Instead, the winning formula seems to be partnering with targeted application software vendors who'd like to make their offerings easier to consume.

Think about the problem from their perspective: in order for application software vendor to have a happy customer, they're depending on an IT organization to acquire and stand up infrastructure, and not mess it up in any way.

I have some friends who are in the enterprise application software business, and they continually moan about how when the customer's IT organization does something wrong, it's somehow their problem to go fix.

Not only that, being able to stand up a killer app on-demand using a servicce provider's resources greatly accelerates their sales cycle.

It should also be pointed out that partnering with application software vendors also gives you access to both domain expertise and trust agents, as mentioned above. A very attractive go-to-market indeed.

Application Platforms

This is basically the stuff you need to create the stuff that users see.

Here we'll find a confusing menagerie of databases, middleware, development platforms, etc. etc.

Indeed, the whole activity of building new applications -- whether you're a small developer, or work for a Fortune 1000 company -- is one of those gotta-consider-it opportunities for SPs thinking about targeting enterprise IT organizations.

Not only are enterprises usually willing to externalize their software development platforms via SPs, but -- done right -- your SP model will have first crack at moving them through alpha, beta, pilot and ultimately production, and that's where the real money lies.

On the other side of the equation, just about every software vendor in this space is absolutely motivated to make their value proposition easier to consume via an SP model -- although not all of them have done much about it.

The expertise associated with making all this software platform stuff sing and dance is rather scarce and difficult to access to the vast majority of people who want to use it. If you were looking to acquire (or perhaps partner) with critical, scarce talent -- you'll find many opportunities in this segment.

Managed Infrastructure

All that software goodness needs to run somewhere. Enter discussions of cloud and fully virtualized infrastructure.

This isn't just variable compute, network and storage -- it's also the higher level services like security, data protection, performance management, configuration management.

Go beyond the simple components, and really dig into all the workflows and processes required to run all this IT stuff to get a full appreciation of what's going on here.

The trap here is focus on the cost of the ingredients vs. how good the meal was.

Not everyone wants the cheapest meal available. Better ingredients can certainly help produce a better restaurant experience, but -- as anyone can attest to -- there's more involved than just that.

One of the reasons that pre-integrated converged infrastucture is becoming so popular here (think VCE Vblock) is that most of the heavy lifting is already done and ready to consume by the SP.

As a result, any resources at the SP can now be focused on differentiation and customer-focused customizations vs. simply doing the usual chores around the data center.

Value-Added Control Planes For The IT Buyer

Going back to our original IT buyer, they can outsource the work, but never can give up accountability or responsibility. When the phone rings, it's usually their problem to resolve.

This means that *any* IT buyer is strongly attracted to any service that lets them either monitor -- or preferably control -- how that service is delivered.

Indeed, one of the more attractive R+D investment themes at EMC (and VMware, and RSA, and now Cisco) is externalizing these control planes from service provider on down the supply chain: either to another service provider, or -- ultimately -- the IT buyer.

Examples abound everywhere. Security and GRC. Data protection and availability. Service delivery monitoring. Granular resource consumption and governing by sub-tenant. Configuration management. Yadda, yadda, yadda.

Put simply, if it's a control process that enterprise IT organizations are willing to invest in for their own use, it makes sense for SPs to invest in those exact same control processes.

Indeed, I work with SPs who've taken this to an art. They walk into an IT buyer and say something like "security is important, you probably suck at it, we can do this far better than you ever can".

OK, maybe not so directly, but you get the idea.

Value-Added Communities For The Business Buyer

Going to the other side of the equation, the corresponding value-add is the notion of a community: people like me with interests like mine.

If I'm an accounting professional, I'd like to have access to a community of other accounting professionals like me. If I'm a radiologist, ditto.

One powerful differentiator that I've noticed in some SP models is that they use the fact that they generally serve the same sorts of customers to create a professional community. Think about it: a thriving and relevant community that I can engage with online -- or perhaps travel for a meet-up -- is a powerful and compelling value proposition to many.

The art of forming and growing a community is not entirely obvious to many, though.

Indeed, we worked at that particualr skill long and hard here at EMC (I was intimately involved), and -- frankly speaking -- there's still more work to do, although I'm pleased with our progress.

Even if you aren't going to invest in a business-focused community, identifying and joining existing ones can help with the trust agent and domain expertise roles raised above.

And, yes, the art of joining an existing professional community is an art in itself :)

Infrastructure Ingredients

I'm not going to spend a lot of time here today, simply because each of these requries more than a few words to do each subtopic justice.

In a nutshell, delivering "managed infrastructure" (as described above) requires specific disciplines that, in turn, lead to SP specialization, especially in a supply-chain world view.

Of all the fundamental ingredients (network, compute, storage), the network-focused discussion leads the parade.

Any serious use of IT as a service requires a purpose-built set of network services that aren't your usual fixed-pipe, fixed SLA variety.

Indeed, I'm meeting with network-focused SPs who are starting to realize that cloud, IT-as-a-service, whatever -- means that there's a brand-new opportunity forming for specialization, differentiation and partnering.

Of course, if you're going to do this, it makes sense to get a good understanding of the new requirements emerging upstream from you ...

Compute as a service (without integrated storage and/or network capabilities) is a niche market at best.

There are pockets here and there to attack in selected industries, but it's essentially a highly verticalized play.

Storage as a service (without integrated compute and/or network capabilities) is likewise rather specialized -- think large repositories that are infrequently accessed, consumer-oriented offerings and the like.

Indeed, the vast majority of IT workloads sort of demand that compute and storage be co-located.

These combinations of ingredients, in turn, usually reside in data centers, which as we all know, is supporting a thriving market of people who build and rent data center facilities -- but little else.

The skills and processes required to build, provision, monitor and support managed infrastructure are available -- yes -- as a service.

A nice, focused market is showing up here -- either specialized remote management offerings, or full suites that involve just about every IT management discipline.

For more interesting examples, think "backup-as-service", but targeted at other service providers, instead of ultimate end-users. Configuration management as a service.

Or security as a service, for that matter.

Sort of a "service provider for service providers" model.

On top of that, we're seeing newer players that are focusing on metering, rating and billing of resources and services consumed -- as a service.

Whether they're doing this directly to the end consumer, or -- more frequently -- downstream to another entity -- it's turning out to be a fast-growth area of service provider specialization.

Just like in the phone or airline industry, the ability to flexibly price and broker capacity makes a market, and I wouldn't be surprised to see more growth in this area before long.

At EMC, we're betting that -- over time -- another specialized service will be required here as well, and that's the "trust authority" -- the impartial third party that vouches and verifies security and compliance.

And I'm sure that's not the end of the story ...

Where Does That Leave Us?

No easy or simple answers here for service providers trying to target traditional IT organizations.

It's shaping up to be a complex and fast-moving ecosystem that's forming rapidly.

Certainly, there will be mega-players that attempt to build out the complete model end-to-end. If you've got the money and the patience, it can be attempted.

But I don't think this will be the dominant model going forward -- for many the same reasons we don't see this in other supply-chain based models.

Instead, I have every reason to believe that the winners will be those who decide where to specialize, and where to partner.

Those boundaries can -- and will - change over time.

That's how supply chains evolve.

And that's how businesses evolve.

I hope you found all of this useful.

Fair warning: I'll be coming back to this description frequently over the next few months.

The Rapid Segmentation Of The SP Industry

2011-03-28T17:52:05-04:00

Sorry if I haven't been keeping this blog as updated as I should.

Yes, there's a lot to talk about. No, there's never enough time in the day to write it all down :)

I suppose the first observation is obvious: the "IT as a service" service provider industry in in full swing. Many new players, many new plays.

A while back, I offered up some thoughts as to how the industry might segment itself along predictable lines.

Turns out I was both right and wrong. It's happening, but much faster than I would have predicted.

The Basics

At EMC, one of our core beliefs is that -- over time -- more and more IT services will be delivered externally by specialists, and less using traditional in-house enterprise IT approaches.

Call it "cloud", call it "workload rightsizing" (or anything else that works for you), but it's happening, and with amazing ferocity.

You likely won't see this if you meet with IT rank-and file. You will see this if you spend time with senior IT leadership, and -- especially -- the folks who are footing the bills.

Another one of our core beliefs is that our role at EMC should be to enable service provider business models, and not compete with them. This approach is dramatically different than IBM, HP, Dell, Microsoft, Oracle et. al. who all intend to deliver IT services directly to end users.

Enablement can be described as back-end and front-end. In addition to providing technologies and solutions that are aimed at SPs, we believe there's a lot we can do on the front-end to help SPs grow their business, especially if they're targeting enterprise IT markets which we (ahem) have a certain familiarity.

This means that we do more than just product pitches -- we invest the time to understand how our SP partners' business models are evolving, and what we can do to help out.

Segmentation Matters

If you look at the world of IT vendors, they're all subtlely different and specialized. Take a look at their traditional partners (resellers, OEMs, integrators, etc.) and you'll see the same thing. So it's no surprise that the new IT channel (IT service providers) will progress along the same lines.

I don't know which marketing guru said it, but the most useful phrase here is "segment until it hurts". I take that to mean not only segmenting at the front end (who are your customers, what is your unique value proposition, how do you reach them effectively, etc.) but at the back end as well (e.g. which bits do you do yourself, and which areas do you partner or outsource?)

And it's this back-end segmentation of SP models that I'm starting to find extremely fascinating.

An Early Preview

Way back when, I was peripherally involved in one of our first large-scale SP deals.

About halfway through, they said something interesting: can you deliver our storage as a managed service? We were a bit taken aback -- we were presuming that any service provider operating at their size and scale would want to acquire and deliver storage services themselves.

Their logic was unassailable. They weren't storage experts, and didn't want to invest in becoming storage experts. They wanted the ability to quickly dial storage services up, or perhaps down, as the case might be. They wanted access to smart storage expertise as they envisioned new services and new architectures.

In a nutshell, storage wasn't their core competency, delivering IT services was. And the more they could invest in what made them unique (and less in what was simply table stakes), the better off they'd be from a business model perspective.

Although EMC *does* deliver storage as a service when requested (especially when the requestor is a ginormous cusotmer), it's not a mainstream business for us. But the early example made an impression on me, and I presumed at the time we'd see more of that before long.

And it's started to happen, albeit on a modest scale.

Consider The Specialized IT Service Provider

I've now met more of these SPs than I can count.

What makes them "specialized" is that each has a unique angle that sets them apart. It might be an application domain (e.g. SAP or collaboration), or a industry vertical (e.g. healthcare, financial serivces, etc.) or maybe a particular IT discipline (e.g. security as a service, etc.).

They recognize that the easist way out of the commodity trap is to be really good at what you do, and -- presumably -- better than the IT organization you're calling on.

All of them use infrastructure to deliver their unique specialization. Few of them really want to invest in being world-class infrastructure specialists.

So, the logical thing for them to do is to partner with a "SP for SPs" -- someone who can deliver the required infrastructure services -- as a service -- to the SP who's focused on something more specialized and differentiated.

And we're starting to meet more than a few "behind the scenes" SPs who are doing exactly that :)

The Road Ahead

Stepping outside of IT for a moment, there is a vast cornucopia of business models that are all about aggregating services, adding a bit of unique value-add, and then distributing those services through multiple channels.

Manufacturing, distribution, healthcare, consulting, etc. -- it's quite a long list, and a very familiar industry structure.

I suppose -- in retrospect -- what's happening now is rather obvious -- we've seen this movie before, haven't we?

Live From London: The EMC EMEA SP Summit

2011-03-21T15:37:39-04:00

It was a good week last week. I was fortunate enough to help out at EMC's first-ever EMEA service provider summit. Many thanks to Richard Bradbury and his team for a wonderful event.

For those of you who are interested in the whole IT-as-a-service provider thing, I wanted to recap a few key learnings for those who couldn't attend.

To Begin With

I suppose the most logical starting place is our conviction that -- over time -- less and less IT will be delivered using traditional data center models, and more and more will be delivered via external service providers.

The implication is clear: every IT vendor is going to have to figure out how they want to play with this growingly strategic segment of service provider partners.

I have no data to back up this assertion, but my impression is that the move to external service providers is moving far faster outside the US and other mature economies vs. the rest of the world.

Put differently, if you use the United States as your proxy for understanding IT SP trends, you'll miss the boat on this one.

Thus the rationale for establishing a non-US-centric SP perspective is clear: that's where things are moving the fastest, hence my strong personal interest in this EMEA-focused SP event.

That being said, the notion of "EMEA" (Europe, Middle East and Africa) is something of a meaningless abstraction that we IT vendors use. Drill down a bit, and you'll find incredibly diversity in various sub-markets which in turn lead to unique and sometimes surprising perspectives.

It's one thing if you're an IT service provider in the UK, and something entirely different if you hail from, say, Egypt.

Although, as we'll see in a moment, it *is* possible to establish some common ground if the target opportunity is roughly similar, e.g. targeting enterprise IT spend vs. consumer or more specialized SP offerings.

Dennis And Me

For those of you who might believe I'm an entertaining presenter in the EMC pantheon, the only other person who has earned perhaps a better reputation is Dennis Hoffman. Over the years, Dennis has been at the helm of a number of EMC strategic initiatives; most recently, he's running cross-organizational point for our overall approach and capabilities to service providers.

He's great to watch as well -- a very effective presenter and engager. And I am no easy grader.

My role at the event was to share what we'd learned in selling to enterprises, and how that could benefit an SP's approach to the marketplace. There aren't a lot of IT vendors who have been as successful as EMC in selling to some of the most demanding enterprises in the world, and far fewer IT vendors who are willing to share that knowledge with their SP partners.

Dennis' role was to preview the "1.0" version of our new SP program. As you'll see in a moment, it's not your average partner program.

Dennis Shares The Tenets of The New EMC SP Partner Program

I think Dennis did a very smart thing -- he spent a significant amount of his stage time sharing the reasons why we were doing what we were doing, rather than digging into the nuts and bolts of the program.

In a nutshell, his rationale boiled down to a few key points:

The industry was changing quickly to a preference where IT is consumed as an external service vs. delivered using traditional in-house mechanisms.

EMC, as a company, recognized this early, and had to decide what to do about it.

We saw a world where the "pure plays" were disruptive not only to us as EMC, but our customers and partners. When a workload goes to Amazon, or Google, or perhaps Azure, that's not a good thing for any of us.

We also noted that a number of large vendors had made the strategic decision to offer cloud services directly to end users, and deciding to compete directly with service providers. IBM and HP were clearly in that camp; we presumed that Oracle/Sun and Dell would move in that same direction.

EMC (along with VMware and Cisco) had decided to enable service providers, and not compete with them. That core decision has many implications, including a massive investment to enable a healthy ecosystem of compatible service provider partners.

Taking HP's recent strategic announcement to offer cloud services as a very relevant example, I think it's fair to point out that these large IT vendors have to do what they have to do. HP, for example, is getting their collective lunch eaten by Google, Amazon as well as Apple and Microsoft to a certain extent. Their approach to SPs could probably best be thought of as "collateral damage when faced with difficult choices".

However, if you're a service provider, you've gotta do what you gotta do as well.

Rather than getting into the (somewhat confidential) details of EMC's SP Partner program, it basically boils down to "the more you invest in us, the more we invest in you". Just hitting the highlights of the program offerings took a lot of time -- there's a lot there to go consider.

In particular, there was detailed discussion of compensation mechanisms we were going to put in place to incentivize EMC's several-thousand-strong direct sales force to promote compatible SP services to EMC enterprise customers.

That bit got a *lot* of attention, as it should :)

Chuck Shares His Deep Dark "Selling To Enterprise IT" Secrets

Many SPs want to target traditional IT organizations with their services. But precious few have practical experience in actually doing this. So anything EMC can do to share that knowledge I believe is helpful.

My credentials as part of EMC aren't bad -- every year, I get to meet with literally dozens and dozens of enterprise IT organizations, usually at a reasonably senior level.

Indeed, I've been doing it so long, I sometimes forget how hard this must look to others.

So I do everything I can to make it look easy :)

I started with a few slides to help the SPs in the audience understand what's usually going on in the minds of senior IT leaders (using the CIO simply as an example).

And it's not what most people usually think.

Like other senior executives, they're usually thinking about three things.

First, how do I as senior IT leader (and my organization) become more relevant to the executive team?

I don't mean this in a brown-nosing sort of way, it's more of a direct admission that relevancy matters in your career. Being relevant is a good thing.

And targeting the most senior leaders in a mission to establish greater levels of relevancy is good advice for both IT leaders and non-IT leaders alike.

Second, how do I increase the level of relevancy with my other organization peers? The leaders of, say, sales or finance or marketing etc.? Again, good advice for any functional leader, and not just IT leaders.

And, finally, how do I as IT leader do the right thing for my organization -- and make them more relevant to the business, and -- in the process -- help their careers? Any good leader realizes that it's their organization that consumes the vast majority of their focus.

If you're trying to sell an IT leader (or any leader) on some sort of proposition, you'd better be fairly clear on how your offering does one, two or all three things. Not all that complicated when you think about it.

Targeting Your Message To IT Leadership

I then shared some of the value propositions that I saw vendors and SPs making in the marketplace, and put it along a "good-better-best" continuum.

So many propositions are around saving money. Now, there's nothing wrong with saving money, and -- depending on circumstances -- that might make you extremely relevant to one of the audiences above -- but (comparatively) I see that as weak sauce indeed.

A better set of propositions are around IT agility -- being able to react more flexibly to new things that come down the road.

Make no mistake, agility is a usually a really big deal to other functional leaders in the business. Most functional projects involve some aspect of IT, and making IT agile is what the functional business leaders (and senior executives) really want at the end of the day -- once they've got past the cost savings thing.

I would argue the very best value propositions are the ones focused on IT creating new value for the business.

Whether it's (a) service provider takes on a function so IT staff can do things that they're uniquely qualified for, or (b) service provider offers compelling specialization that brings value to the business -- in essences, these sorts of value propositons tend to address all three constituencies.

I also shared how we (and our partners) were taking our customers to a private cloud model -- one where they start to look more like internal service providers.

Not only is this activity reflective of the messaging goals stated above, but I was very clear as to how along each step of the journey, market demand dramatically increased for compatible external services.

In effect, EMC is trying to make customers more receptive (and more desirous) of high-quality, compatible external IT services.

I invited the attendees to go review their marketing materials, and see how well they stacked up against this goal. I had reviewed several of them already, and I offered up the polite observation that there was still some work to be done :)

Understanding The Concerns

Assuming you've crafted a compelling value proposition along those lines, what are the obstacles you'll have to overcome?

Circumstances vary, but -- based on my hundreds of interactions with IT leaders -- there are some patterns you'll likely need to be prepared for.

The first challenge is what I call "making the case" -- showing how doing things in a new way will create benefits, and that all risks and external costs are understood.

We're not talking simplistic ROIs here, we're usually talking more sophisticated consulting engagements that go beyond easy-to-understand costs.

I did point out to the SP audience that (a) we thought these engagements were essential, based on our experience, and (b) we were investing in our own consulting capabilities to do this, as well as with our partners.

If you're an SP, you'll either need to be able to do this yourself, or partner with someone who can. Many IT organizations are woefully unprepared to do this sort of business-level consulting analysis, and -- without it -- progress is provably difficult.

The second challenge is what I call "sorting the basket" -- essentially helping the IT customer create a lightweight governance model to figure out what sorts of workloads need to stay in-house (and why!) and which ones are candidates to move to a qualified IT service provider.

Simply broach the idea of workloads moving outside of traditional IT boundaries, and anxieties can surge. There's the fear of the unknown. Sometimes these concerns are justified, often they're not. And that's the real goal of these sorts of engagements -- to create a logical and unemotional framework across multiple IT service offerings, and not just the one you're proposing :)

If your SP strategy is to create a portfolio of service offerings, presumably targeted at the same sorts of customers, you'll find that -- rather than fighting each battle individually -- it makes sense to invest in a "services buying framework", which is essentially what I'm discussing here.

Again, EMC is investing in creating its own consulting capability around these sorts of our engagements, and we're also investing in enabling our partners to do the same. Whether you as an SP can do this yourself, or you partner with someone to do it on your behalf, you'll probably recognize the need before too long.

The final concern area is "control planes" that enterprise IT will need to get their jobs done. IT people can outsource the work, but they can't outsource responsibility and accountability.

Whether it's security, compliance, availability, data protection, etc. there's no getting around the need for enterprise IT people to at least monitor and preferrably control aspects of IT service delivery -- regardless of whether those services are provided using internal resources or external SP resources.

Without getting in to too much detail, I did share how EMC offered some of these "control plane" capabilities today (security, compliance, data protection, resource configuration, etc.) and how we were investing in creating even more.

The message is simple: put your customer in control, and you'll find that not only are your services easier to sell, but you can most likely charge a premium for them as compared to services that don't do this :)

The Big Challenge -- Establishing Trust

Spend any time selling IT products and services, and you'll inevitably hear about the "trusted relationship" between a vendor and a customer.

When it comes to enterprise IT, there are big piles of money and associated careers at stake here.

And without some sort of trusted relationship, nobody is going to commit to anything big or meaningful.

At EMC, we've spend many years fostering these trusted relationships with our customers. Conversely, if we aren't able to build that sort of relationship, we're forced to simply respond to commodity-oriented RFPs from the purchasing department.

The same is largely true for most vendors -- and service providers.

But creating these trusted relationships take considerable time and money. It's not simple, and it's not easy.

I believe that every SP targeting the traditional IT space will need a clear strategy for establishing trust with their prospects.

Failing to do so will severely limit not only your target market, but your profitability as well.

The good news?

Every traditional IT organization usually has several trusted relationships already in place with vendors, integrators, resellers and consultants. Partner with those people (and gain their trust) and you'll find it far easier to be seriously considered.

Indeed, we believe that's one of the things that EMC (and our partners) can frequently bring to the table.

Differentiation -- And Expansion

In any crowded, noisy market, differentiation (as a result of segmentation) is incredibly important.

It makes it easier to find your ideal customers -- and them to find you. It allows you to compete effectively, as well as charge a premium for your unique services. And it enables you to focus your investments in a smaller number of focused areas vs. trying to compete with the world at large.

Most SPs I speak with get a differentiated starting point simply by acknowledging their roots. Most everyone is coming from somewhere: network operator, hosting provider, system integrator et. al. Those roots create differentiation, and usually make an excellent starting point.

But I'm noticing that what served to adequately diffentiate last year isn't working so well this year. More market entrants, more maturity -- yesterday's compelling differentiator quickly becomes today's table stakes.

The implication is clear -- I believe that successful SPs will have a formal differentiation strategy where sustained investment creates successively progressive waves of specialization and differentiation.

Done well, I believe that a sustained differentiation program can lead to market expansion for SPs. Every new differentiation vector (or improvement in an existing differentiated area) can lead to new customers you couldn't reach before.

A good starting point is differentiating around functionality offered, and that in itself is a pretty broad discussion.

Rather than dive deep into a detailed "what functionality do enterprise customers want?" discussion (please reserve at least six hours for that one!), I used my limited time to emphasize that there were additional differentiation and expansion vectors available to most SPs.

For example, it's often the case that capabilities that work well in one industry segment can be exported to others, e.g. from health care to insurance. A service targeted to larger customers can often be scaled down to attract smaller ones. These market adjacenies are a fun discussion in their own right -- we spend a lot of time at EMC thinking about these sorts of things.

Location is another important differentiation and expansion vector.

People want to work with providers they trust, and there's nothing like the local connection -- and being part of the local business community -- to foster trust. This is somewhat true in the United States, but painfully obvious for service providers internationally who are looking to expand beyond their borders.

Finally, there's the channel discussion -- taking your SP services, and setting up more traditional reseller and system integration partners to sell SP services on your behalf. Doing this successfully is neither simple nor easy, but -- done right -- usually results in both market expansion (more people selling your service) as well as differentiation (being offered by an existing trusted provider to the enterprise).

A couple of notes around these thoughts.

First, we are adamant that -- to the greatest extent possible -- SPs should try and standardize on a single industrialized platform to deliver their range of services. Not surprisingly, we position VCE Vblocks as our preferred choice for the majority of SP models we encounter.

Not only is it good business sense, but it gives the SP yet another advantage over traditional IT organizations who can't easily get to that idealized state.

Second, as we truly get to understand the very proficient and differentiated service providers, they'd much rather spend their investments on getting closer to their customers vs. tying up capital in infrastructure and operations.

We've seen a few very proficient SPs start to request "infrastructure-as-a-service" from outside providers. It makes a lot of sense if you think about it.

Maybe we'll see a "SP for SPs" business model before long?

Cool Enabling Technologies

Hey, I work for an IT vendor, so there was no way I was getting off the stage without talking about just a few cool enabling technologies that were just over the horizon, each of which created substantial new opportunity for SPs.

But, since that involved a certain amount of NDA, I can't really share all the details here. Rest assured, though, that one of the payoffs for any SP investing in EMC will be a continual conveyor belt of cool enabling technologies that are directly applicable to SP opportunity expansion.

Final Thoughts

If I think back to late 2009, we hadn't really woken up -- as a company -- to the enormous strategic potential of the new crop of IT service providers. That's changed, and in a big hurry.

During 2010, we spent an enormous amount of time and energy getting to know these new partners, and tailoring our strategy and offerings to meet their business needs.

As we enter 2011, we've made enormous progress, but in many regards our journey has just begun. The IT-as-a-service SP market is moving fast and furiously, which means -- inevitably -- EMC has to do so as well.

So consider this a status report for Q1 2011. It'll be interesting to look back a year later, and see how far we and our SP partners have come during that time.

Interesting times indeed.

And I'm certainly looking forward to seeing everyone at future SP-oriented events!

Of Cloud Trust Authorities and Service Providers

2011-02-18T11:41:23-05:00

Yes, I have been neglectful in keeping this blog updated. It's not for any lack of potential content, it's just the usual blogger excuse of busy, busy, busy.

EMC's recent announcement of the new RSA Cloud Trust Authority, though, is potentially impactful enough to SPs that it's worthy of making some time.

For some, I think it's going to be a big deal.

The Basics

It's pretty much an article of faith here at EMC that -- over time -- more and more IT services will be delivered by specialzed IT service providers, and less and less will be delivered in the traditional way by enterprise IT organizations.

But if that's the big rosy picture of the future, the battles are currently being fought out in the trenches. Enterprise IT organizations are notoriously reluctant to hand over important workloads to service providers.

Not surprisingly, it's not really about the facts. Generally speaking, SP specialists can do a better job than more enterprise IT groups: faster, better, cheaper, more responsive, etc. It's not hard to make those cases.

No, it's turning out to really be about "trust = visibility + control".

If I, the enterprise IT buyer, can have independent visibility and control into your SP environment, it'll be easier for me to trust you, the service provider.

The News

In case you missed it, as part of the recent RSA Conference, EMC (through RSA) announced their intention to offer "trust services" to enterprise IT buyers as they consider external SP IT services.

Ideall, you'd go read a recent post I did on it, but if you're busy, here it is in a nutshell: RSA will offer a growing suite of paid-for services, purchased by enterprise IT, than gives them visibility and control into the SP environment.

The SP Angle

Just about every SP I talk to that's trying to address enterprise IT requirements says the same thing: overcoming the "trust barrier" is currently one of the major obstacles that's holding the market back.

The current de-facto approach is to invest considerable time and effort during the sales cycle in establishing a basis for trust, usually through forming personal relationships.

That's an expensive proposition for any SP business model. If you think about it, it's also very expensive for the enterprise IT teams, who frequently want to use multiple SPs.

Quite frankly, I think this state of affairs is holding the market back. And, if you think about, no amount of personal relationship forming will address the concerns of truly important (hence valuable) workloads -- strong IT governance processes will see to that.

A Familiar Model

It doesn't take more than a few minutes of consideration that non-cloud trust authorities are already a fact of life. Here in Massachussets, when you buy a house, you use a specialized lawyer that gives you specific advice and offers certain protections. You use a certified home inspector that you pay for with your own money.

Financial departments use exernal auditors. Banks issue letters of credit between parties that don't know each other. The need for an independent third party who will -- for a fee -- provide specific trust mechanisms (mostly around visibility and control) are everywhere.

Keep in mind, though, this is very different than insurance against bad things potentially happening. That's a very different business altogether, and not being directly addressed by this sort of service.

Although, you'll have to admit, anyone considering writing a policy in this area will certainly be interested in this sort of trust authority service :)

The Expectation

We've convinced ourselves that there's an existing and fast-growing market for these "trust services". Before long, we won't be only one offering these sorts of services.

We also think that service providers who can use these services to overcome the "trust barrier" will enjoy very specific and substantial competitive advantages: lower cost of sales, lower costs of service delivery, strong differentiation vs. SPs that don't support at least one trust authority service, a lower risk profile as part of their business model, and so on.

The more I think about it from an SP perspective, the more I really like the idea.

The Reality

The first set of envisioned trust services are important, but necessarily somewhat limited. And there's going to be some initial up-front work to partner with SPs who want to support the service. Like with any new thing, it's going to be a bit bumpy to get things going by the middle of this year.

And, of course, there's going to be a lot of "splaining" to do with enterprise IT customers who haven't seen anything like this before: I expect all sorts of important hard-nosed questions around exactly what the services do, and what they don't do.

Although you can do some pre-selling ahead of actual service availability, that process really doesn't get into full swing until the service is stood up, a few SPs support it, and there's something to go touch.

Since it's very likely that RSA won't be the only vendor going after this opportunity, it's fair to expect others to jump in feet-first with a lot of noise and subsequent confusion. That's inevitable, but has the unfortunate side effect of partially delaying widepsread adoption while paying customers try to sort out the landscape.

Confused customers don't buy stuff, they wait.

That Being Said

All in all, I think this is a pretty important announcement as far as such tnings go. The more I talk with enterprise IT groups and SPs who want their business, the more it makes plain and obvious sense.

Already, we've had more than a few queries from SPs who want to know more. I don't think it'll be too long before we have our first early adopters out in the market.

So, I'd be interested in your opinion -- do you think that independent "trust services" will make a key difference for IT service providers?

Verizon To Acquire Terremark -- You Shouldn't Be Surprised

2011-01-27T17:47:14-05:00

Today's news is relatively straightforward: the ever-astute Verizon announced its intent to acquire SP vanguard Terrmark for $1.4 billion, a nice 35% premium over current trading levels.

Transactions of this sort shouldn't be a surprise to anyone who's following this space. Undoubtedly, there are many more like them to come.

And here's why ...

The Basics

If you believe in the secular trend that -- over time -- more IT will be delivered as a service vs. consumed in a traditional fashion, you quickly realize that telcos can have a compelling position.

They've got lots and lots of pipe. They know how to deliver a related form of service -- communications. They know how to price their offerings and bill for them.

Their strategic motivations are usually clear as well. More ordinary network services are quickly becoming commoditized. There's only so much content you can sell people. And, before long, you go looking for the next big market to attack.

Indeed, early on, many people thought that IT-as-a-service would go to the telco carriers, and that would be that.

Problems Arose

It's hard for big, successful companies to get into new markets. Delivering IT services is a decidedly different game than delivering networking and communication services. Sure, one needs the other, but it's not the same: you're talking to different people who are looking for different things.

And just because you're good at delivering, say, a nice MPLS service doesn't mean that someone is going to trust you to run their SAP instance.

At its heart, you need a rare breed of people who know how to define, build, sell and deliver attractive IT services for the enterprise IT crowd.

The business models can look unattractive as well: selling IT services is a high-touch proposition (think sales and pre-sales people). There's enormous up-front costs to build an organization with enough critical mass and brand recognition to make a go of it.

Some telco organizations have created relatively separate business units to do this. This is motivated by the recognition that -- yes -- selling enterprise-grade IT services is a different proposition than selling communication and networking services. It requires a different skill set and a different business model.

Two EMC partners come to mind: Alphawest and Orange Business Services (OBS). Both have successful telcos as parents. Both have created relatively independent subsidiaries to address this fast-moving marketplace. And both are enjoying considerable success.

And There's The Acquisition Option

But there's a third approach: acquisition.

If you remember your IT history, during the first major wave of the internet, ISPs were popping up everywhere. They learned the space, and built healthy business models in the process.

Many of them were later gobbled up by the larger telcos who recognized the opportunities. As just one example, USI formed the nucleus of a large and successful business unit at AT&T.

These telcos weren't just buying a balance sheet, they were buying people who understood the space.

As one example in our space, our global partner Dimension Data was recently acquired by NTT. Yes, DiData has a great business, but -- from NTT's perspective -- they have expertise in many IT-related disciplines that will inevitably be successful as NTT starts to attack the IT-as-a-service space.

Not to gossip, but there's a *lot* of activity and discussion in this space right now around these themes.

Congratulations To Terremark -- And To Verizon

Good job to the Terremark folks -- you built a great business around unique value propositions.

You enjoyed considerable success, and now -- as part of Verizon -- you've got the potential for scale and reach that you couldn't have dreamed of otherwise. Sure, there will be some bumpy spots at first -- true when any large company acquires a smaller company -- but things should sort themselves out before long.

And, of course, congratulations to the Verizon team for making a strategic acquisition before all the good ones were snapped up. I offer up those thoughts given EMC's string of acquisitions over the last few years -- set the strategy, make your play, pay what you have to -- and do it before anyone else does!

And The Lessons For All Of Us

You still don't believe in the secular shift of the industry to an IT-as-a-service model? This latest transaction should show you that large telcos see this inevitable shift starting, and are willing to let their M&A dollars do the talking.

Now for the fun part -- what do the next three transactions look like?

DPA For Service Providers

2010-12-21T12:50:24-05:00

Lots of great stuff in the EMC portfolio for service providers -- almost too much to talk about today, with more goodness coming along every day!

In this post, I'd like to stretch out a bit, and share how EMC's DPA -- Data Protection Advisor -- is creating an interesting cluster of new opportunities for a wide swath of service providers.

Regardless of your SP model, there's probably something here that's worth a moment of your attention.

The Basics

If you're offering any flavor of IT as a service, you'll probably need to deal with data protection, commonly called backup. Fail to pay attention to this topic, and it's only a matter of time before you'll have a really bad day -- or, more precisely, your clients will.

There's no need to belabor the point -- losing a bunch of valuable data and not being able to recover it quickly is about as bad as it gets in the IT world.

The real question -- is backup just another irritant to deal with -- or, in fact, is it a wonderful opportunity for SPs to differentiate themselves and create valuable new revenue streams?

Not surprisingly, I would strongly argue the latter case:

The amount of data that need to be protected is growing substantially year-over-year -- so the "market opportunity" is automatically and predictably getting larger just with the passage of time.
For most enterprises, doing backup using internal resources doesn't really create any strategic value for the IT function, it's a "hygiene" function that simply has to be done and done well -- hence attractive to hand over to an SP professional.
The general state of affairs regarding backup is usually quite poor in most enterprise IT environments -- it's not hard to be better than what they're doing today.
Backup technology is undergoing a radical shift from tape to disk-based deduplication, meaning that IT customers will need to either invest big in refreshing their backup approach before long, or -- preferably -- contract with a service provider who has already done so.
The costs associated with backup in an enterprise IT environment are usually pretty easy to get to, making it easy to present an economic case that's quite compelling.
And -- let's be honest -- it ain't the sexiest thing going on in the IT world these days -- although a very nice business.

Billions and billions of dollars of backup technology are sold each and every year -- it's a wonderfully growing business for EMC and our partners. More on that here.

What You Need To Know About Backup

It's actually quite simple.

First, people need continual assurance that their data is protected, and can be recovered per agreement when needed. "Protected" in this sense also means that it remains secure, compliant, etc.

Second, you need to be able to deliver that service at a competitive cost: capex and opex. Both are undergoing dramatic year-over-year drops due to better technology and better management software. Again, this creates an opportunity for an SP to profit from steadily declining costs-to-serve.

DPA absolutely nails the first requirement, and helps to accelerate the second one. It's that simple.

A Focus On Reporting

You don't get credit for what you can't prove.

That was true back when I was a student, and it's certainly true today in the business world.

DPA is the data protection management software that "proves" data is protected, whether directly accessed by your clients, or used to run your internal SP operations.

There's strong evidence starting to accumulate that SPs are increasingly measured on their ability to report back on what they're doing.

Consider this survey from our friends at ESG.

Lots to consider here -- it's worth a close stare -- but notice the #1 priority on management and reporting.

Backup Is A Major Pain For Most Enterprises

You don't know how truly nasty enterprise-scale backup can be until you've had to run it yourself.

Thankfully, I haven't had to do that, but I meet plenty of people who do.

Rarely, if ever, are these environments architected. Instead, they tend to grow up willy-nilly as different applications, products and technologies come wandering into the data center.

Applications change in importance, get combined with other applications in new ways, and -- sooner or later -- it becomes impossible to answer the core questions: am I adequately protected, and can I prove it?

EMC has a major business diving into these environments, untangling the spaghetti, making recommendations, and basically setting everything right. In the process of doing so, we've continually been struck by the growing interest in using external service providers to help out in some way.

EMC Data Protection Advisor

The DPA pitch is really very simple: there's all this "stuff" that's involved in data protection -- servers, applications, backup software and services, replication, various storage devices, all sorts of networks -- backup touches just about everything.

DPA creates a management abstraction that (a) assures you that your stuff is adequately being protected, and (b) tells you what has to be changed if for some reason that's not the case.

It does this for a breathtakingly wide range of technologies: EMC and non-EMC. And it's a proven and mature technology that's been continually enhanced for many years now. Not much in the way of head-to-head competition that we've seen so far.

Why Should SPs Care?

Two reasons: save money and make money.

The "save money" case is rather predictable -- as an SP, you'll probably have to provide some flavor of data protection behind your own services, and you'll want to do so as reliably and cost-effectively as possible. Basically, the same pitch we make to enterprise IT organizations.

The "make money" case is far more interesting.

Take backup-as-a-service, for example. The service provider has a natural advantage -- they're based in a remote facility -- hence separated by distance. That's appealing, and very costly for an IT organization to do themselves, especially if they're a smaller one.

The more sophisticated flavor is replication-as-a-service. Rather than periodic backups and potentially lengthy restores, the customer is looking for lightweight DR so they can run in your data center if they end up having a really bad day. Once again, VMware has made providing this sort of service far more attractive than the old days.

Finally, there's an interesting opportunity to provide solely the monitoring services for data protection activities being done by the enterprise IT group -- one that's growingly popular.

Here's The Big Idea

Our SP partners have found that -- using DPA -- they can put their tenants directly in control. Customers can see exactly what's being done, and how protected they are.

That means that SPs can either choose to differentiate vs. all the other folks offering similar data protection services (but limited visibility or control), or charge more for the service.

One very enterprising SP told me a story about how they used DPA to price their data protection services at a premium. The customer then asked "how much will you charge me to have someone watch the reports for me?". I loved it!

Here's the other angle to consider: with one investment in technology and associated operational processes, you basically have FOUR distinct business models to pursue if you choose:

Offer normal hosting-type services, but with a customer-visible control plane for data protection
Offer remote backup as a service to enterprise IT applications, again with a tenant-in-control upsell option
Offer remote replication as a service to enterprise IT applications, again with a tenant-in-control upsell options
Offer remote monitoring of existing backup and/or replication environments.

In particular, that last use case -- monitoring customers' environments on their behalf -- shows every sign of explosive growth going forward, so let's dive into that.

Overcoming Fear Of SPs

If you've ever tried to sell various flavors of IT as a service, you've realized that very often your competition isn't other SPs, it's the internal IT function itself.

You're essentially proposing a change in their roles and responsibilities. Some will see this as a positive thing; many will not.

Let's face it -- data protection is one of those "core functions" that IT people are trained to own and love and protect. They won't give it up easily unless there is a compelling reason to do so.

More than a few SPs have discovered that proposing remote monitoring services is a practical "baby step" in a larger play: the backup assets and processes remain firmly under control of the enterprise IT organization -- it's only the monitoring and reporting aspects that are externalized to the SP.

Needless to say, the SP has access to all the same reports that the enterprise customer is seeing, and notices that things aren't getting done well, assets are poorly utilized, there's poor compliance, etc. -- essentially gathering evidence for the next offer in the sequence.

Now that we've explored this unique aspect of DPA, let's get into the product itself for a moment.

Digging Into The Details

Lots to talk about "how it works", but let's start with what customers see: the reports and displays.

Not only are there a wealth of standardized reports and screens, but everything is very customizable.

There's an interesting quirk in human nature here that's exploitable -- any time you put data in front of someone, the first thing they usually ask for is "more data".

Indeed, many SPs targeting larger enterprise IT organizations have done a nice bit of business extensively customizing outputs (with more data!) for different organizational requirements.

Of course, there's support for chargeback models -- but also more advanced compliance reports, hardware and software utilization reports -- just about anything you'd be interested in. Or not -- as the case might be.

Pushing Assets Harder

Many enterprise IT organizations can afford to have extra capacity and bandwidth lying around for those big surprises or peak workloads.

Well, most SPs have to run far more efficiently -- they can't afford to have a bunch of underutilized capacity sitting around and not earning its keep.

The harder you push assets, the more you need to understand how they're being used, and -- more importantly -- quickly identify areas where you might have pushed things a bit too much and need to back off a bit.

In addition to the usual "is the service level being met?" sort of stuff, administrators can drill down and figure out network utilization, backup server utilization, storage device utilization -- all the infrastructure components that go into delivering the data protection service.

Having this visibility + quick ability to spot problems = higher asset utilization rates.

Scale? We Got Scale!

Since DPA isn't really doing any of the data protection work -- but simply reporting on effectiveness, utilization, etc. -- it scales quite nicely and doesn't require much of an infrastructure footprint.

A modest instance of DPA running in a VM can support tens of thousands of data protection clients and hundreds of administrative users -- a very large environment indeed.

Scaling beyond that simply means more instances of DPA. It's not unusually resource intensive -- CPU, memory, storage, network, etc. It sort of does what it does without taxing the infrastructure.

And, of course, everything is inherently and flexibly multi-tenant. Customers see what they want to, and nothing more.

Partnership Opportunities?

Sure, we can simply sell you the software in a traditional sense, and be done with it.

And, indeed, we've got a fair number of SPs who've found the existing offer enticing, and are in the market today with various flavors of these services.

But we think there's more we can do.

We're trying to figure out various variable consumption models where EMC gets paid when the SP gets paid. Not 100% worked out yet, so we'd appreciate your input on these issues if you're interested.

The second thing we're working on is how best to help generate demand for SPs who are offering these services. We talk to an awful lot of IT users and resellers about data protection topics, and many of them are very interested in consuming this stuff as a service vs. doing it the traditional way. Again, we'd welcome your thoughts on this.

Bottom Line?

Data protection -- backup, replication, etc. -- is a growing headache for IT, and it's not going away any time soon. As we talk with enterprise IT users, they're becoming more and more interested in using an external service provider vs. doing it themselves, and for all the right reasons.

As such, we remain convinced that more and more enterprising SPs will make the required strategic investment before long, and start offering data protection as a service to organizations large and small.

We'd like to help them do that :-)

Marketing Predictions For SPs in 2011

2010-12-16T17:12:37-05:00

As I work with various IT-oriented service providers, I now am trying to assess the size and scope of their marketing function.

Why? I think that marketing-related disciplines may hold the key to success for a great number of SP business strategies in the coming year.

And I don't want my SP partners getting caught by surprise :-)

Marketing Can Get A Bad Rap

Most people's perception of marketing is limited to advertising, events, email solicitations and the like. Like a glacier, there's usually far more below the waterline. It's more than sending out invitations and bringing the refreshments :-)

For example:

Segmenting the market, and figuring out how you'll play over time.

Deciding how you'll position yourself, and how you'll differentiate from your competition.

Formulating your unique value proposition, and aligning it with what your prospects want to hear.

Communicating your message through a variety of channels and mechanisms.

Engaging with customers, prospects, partners, etc. and figuring out what they'll want next from you.

Establishing an identity and a brand for your organization in the broader marketplace.

Providing a rich source of qualified leads for your sales force.

The list can go on, and on, and on. Marketing -- done well -- can not only be very intellectually stimulating, but an effective strategic asset -- despite all the less-than-good marketing we're all routinely exposed to.

And I'm not just saying that because I do a fair amount of marketing-related stuff here at EMC :-)

Marketing At SPs -- The Early Game

Most marketing functions I meet these days at SPs tend to be "narrow-casting" functions: focus on a few target markets (or customers) and provide supporting materials and events for the sales team to get the job done.

This is fully understandable and entirely logical: during early periods of growth, it's all about getting the first critical mass of paying customers in the door -- and keeping them happy!

But I can make a strong case that the IT-as-a-service SP game is going to be very, very different next year.

Less Customer Resistance To SP-Provided IT Services

At the beginning of the year, I found noticable resistance from enterprise customers in considering the idea of partnering with IT-oriented service providers. As the year has progressed, the mood has visibly changed.

It's not a question of "if", it's more of a question of "how", "where" and "when".

The implication for the SP marketing function is clear: less focus on overcoming resistance, more focus on precisely targeting the areas where customers are likely to be more responsive to handing over a workload or function to a growing SP.

Many More Players

If recent activity is any indication, there will be literally hundreds of new IT-oriented SPs in the market during the next year, joining the hundreds that are already out there.

As just one example, consider the several dozen SPs who've announced services built on VCE Vblocks. And that party is just getting started.

More players, more noise, more choice for customers == more need to get your crisp, tailored and honed message to the right ears, and make it stick.

A quick review of much of the current SP marketing material I see won't make the grade next year, as far as I can tell. The trick will be to stake out your unique position, and defend it against all comers.

A Growing Sophisticated Buying Agenda

As more sophisticated IT buyers start looking around for SP-provided services, the SP marketing function will have to step up its game significantly. Mere buzzwords and platitudes don't work with this mature (and profitable) IT crowd -- they're expecting an intelligent discussion.

I work with this enterprise IT crowd each and every day here at EMC. Take my word for it -- they know what to look for, and they want to get to the punchline fast. They don't have time for a long game of hide-and-seek, we'll-get-back-to-you or anything else.

Honing your pitch, supporting materials, engagement cycle -- well, that's a marketing function.

You'll Want To Create Awareness

People tend to buy from companies they've heard about. Getting talked about -- and heard -- is essentially a marketing function. Fortunately, the social media world has made doing so far easier and less expensive than before, but -- still -- it takes some dedicated effort and focus.

Again, I'm expecting 2011 to be a very noisy year indeed as hundreds of players -- large and small -- pile into this IT-as-a-service space.

Plan ahead.

Go-To-Market Will Matter

Typically, the most expensive part of the IT SP business model is acquiring new customers, and getting them on board. Only so much money will be available in the business plan to do this; maximizing the return on this investment will be strategically significant as the market shows every sign of moving very fast indeed during 2011.

Once a prospective customer signs up on a competing SP service -- and they're reasonably happy -- it will be very difficult indeed to convince them to move to yours.

Enter the world of alliances, partnerships, resellers, white-labels, co-branding, etc. -- all the things that let an SP draft off of someone else's sales and marketing investment. And figuring out how to do that -- and making it work -- is essentially a marketing function.

Vendors Will Want To Help

EMC, for example, is gearing up a sizable effort to help targeted SPs acquire more customers during this fast-growth period. We've put a lot of thought into how we can help in a variety of dimensions, and I look forward to rolling it out when it's ready.

One of my worry-bubbles in all of this is that our efforts have to mate nicely with those of the SP. If we come to the table with a relatively sophisticated approach to market segmentation, offer definition, positioning, lead generation, co-marketing, joint pursuits, etc. -- well, we're going to need some place within the SP to plug in to.

And, well, that's usually the marketing function -- if there's one we can plug in to, that is.

I don't believe that EMC will be the only large vendor wanting to do this with SPs. Collectively, we'll bring a lot to the table, but there's going to have to be someone to work with.

And You'll Want To Celebrate Success

Nothing succeeds like success, they say. You'll want to invest in promoting your happy customers who say glowing things about you and your services -- they're absolutely the best marketing in the business.

But doing this on a repeatable and predictable basis takes some work and investment -- another marketing function to consider.

There's More, But I Think You've Got The Picture

It's one thing to do marketing when things are stable and predictable; it's another thing entirely during times of great changes and fast-moving markets.

My forecast is that 2011 will be a blur for the growing roster of IT-oriented service providers. And I'm hoping they've got a few good marketing people in the mix to help maximize on the new opportunities that are coming fast and furiously.