IP services - commercial opportunities

IP services will provide the communication platform for the converged future. However, the successful adoption of these services...

IP services will provide the communication platform for the converged future. However, the successful adoption of these services requires a dramatic shift in the way service providers focus on their customers. Simon Forbes uses independent Ovum research, commissioned by Netscalibur, to examine the factors driving migration towards IP-based solutions and create a picture of the commercial opportunities realised by medium-sized, web-centric organisations today.

Growth of IP adoption
Although service providers are not getting the sales they expected from IP services, recent research from Ovum reveals that many organisations are quickly realising the benefits of adopting IP services and are already making significant economic savings. This research (of senior IT executives in medium-sized enterprises) also suggests an expected increase in usage and investment by an average of 17% over the next 12 months.

Examples of IP services implemented by users include:
  • broadband access servicesIP VPNs
    web hosting
    enterprise e-mail
    CRM applications
    instant messaging
    unified messaging
    storefront services
    Lotus Notes
    Microsoft Exchange.

These services are all being carried on IP networks over a unified IP backbone, and each type of traffic can be carried at an appropriate level of quality and class-of-service.

Nearly all of the organisations surveyed are using at least one IP service. Ninety-six percent of companies have implemented IP services in-house and 61% of companies have outsourced at least one IP service.

Market drivers stimulating growth
With business increasingly being conducted online, organisations are looking for reliable, cost-effective and flexible ways of optimising their communications and IT strategies. Recent research suggests that the two biggest factors driving an organisation's IT/communications strategy are developing business revenues and
"Organisations need simple and flexible ways to control access to communications and information-based resources from a range of locations"
Source: Ovum
improving customer relationships.

Revenue generation and cost saving
As organisations constantly seek ways to improve efficiency, cost savings will be the initial driver for IP-based services - suppliers are already claiming that IP service infrastructure costs 70% lower than equivalent networks. Furthermore, the development and evolution of services will provide other technology-led opportunities for cost reduction and productivity improvement. Ovum research carried out on medium-sized
"Research provides clear evidence that organisations are implementing IP services with both service and financial justification for doing so"
Source: Ovum
organisations revealed that 75% of organisations reported cost savings (on their IT/communications budget) as a direct result of adopting IP services. As a proportion of annual IT spend, the average saving was 12%.

The savings arise come from:
  • lower prices compared with previous technologies, therefore lowering the cost of ownership

    less time required to set up and deploy the new services where these are provided in-house

    less time spent problem solving by IT staff, reducing the need for additional IT resources

    less management overhead.

Penetration of IP services will also increase as prices decline. This will largely be driven by the volume effects of infrastructure suppliers reducing their prices to service providers in order to achieve widespread deployment on a sufficient scale.

Improving communication - internal and external
Organisations increasingly need simple and flexible ways to control access to communications and information-based resources, from a range of locations. By adopting IP-based services, organisations will be able to meet the increasing needs of:
  • mobile workers
    homeworkers and 'hot deskers'
    organisations that use large numbers of contract staff alongside permanent employees
    organisations with more flexible structures operating virtual (often transient) teams.

In addition to this, by interacting with customers in a more personal way, organisations will be able to produce and sell their goods and services more cheaply and effectively with greater reach into their markets. To do this, they will need to adopt new IP-based services that enable open information exchange, provide more efficient transactions and provide reliable mechanisms for security, billing and auditing.

While growth in the usage of basic IP services and cost effectiveness are currently the main drivers for IP services, organisations will inevitably increase their usage and adopt increasingly sophisticated, higher value IP services such as web hosting and customer relationship management applications.

Constraints on adoption
The benefits of adopting IP services are undeniable, but several constraints are holding back take-up of IP-based services on a wider scale.

Expertise and resource
Organisations report a lack of inhouse skills and expertise as being the main constraint to a more rapid take-up, especially for more sophisticated services such as complex web hosting. IP services are largely bought by telecoms managers whose real expertise lies in managing transmission networks rather than applications. This inevitably has an impact on other areas, including the management overhead required, response times and the quality of customer service. Organisations report spending as much as 50% of IT staff time resolving problems with their IP services, which reduces the amount of time they can spend on implementing new services. A possible consequence of this lack of application knowledge is that organisations will use IP services in the same way as PSTN services and the true benefits and cost savings of IP will never come to fruition.

Broadband access
The availability (or lack of) broadband access also affects the potential take-up of IP services. Adoption will be faster where organisations can readily obtain fast, cost-effective broadband links.

Customer apathy
Where current PSTN networks already provide robust and dedicated communications solutions, it seems that organisations are not yet sure of how to get the most out of IP services, such as IP VPNs and unified messaging. Furthermore, in many instances, services such as frame relay and ATM networks are still within contract periods and are meeting customer requirements. In addition to these issues, current economic conditions and reduced IT/communications budgets ensure that any investment requires an in-depth evaluation and a quantifiable return on investment.

Incentives for outsourcing
Most enterprises host and manage their own IT applications, from the data centre to the desktop. However, Ovum's research into IP services has shown a clear growth in adoption of outsourcing solutions. Outsourcing of IP services can take away the problems of management overheads and inefficiency, but still provide the organisation with the competitive functionality it requires. Ovum's research reveals that one in three organisations claim a lack of inhouse resources as the main incentive for outsourcing one or more of their IP services. Of those organisations currently outsourcing, a 27% improvement was reported on the time taken for problem solving compared with services provided inhouse.

By outsourcing, an IT/communications department can also increase its focus on its main business, keep costs predictable and more controllable, and avoid the problems of keeping increasingly complex systems up-to-date.

Act now or miss out
Although Ovum research indicates that the growth in outsourcing IP services will be substantial, the increasingly rapid speed-to-market of solution providers could have an adverse effect on the hosted voice strategies of service providers.

Equipment vendors such as Siemens, Ericsson and Lucent already have extensive IP PBX solutions, which offer resource-saving capabilities such as extension portability and web-based centralised management. IP service providers hoping to benefit from the growth in outsourcing will have to catch-up before enterprises invest heavily in these in-house technologies.

Winning service providers - the changing landscape
There are several reasons why service providers are finding it hard to convince enterprises to switch to IP services. However, Ovum research provides clear evidence that organisations are implementing IP services with both service and financial justification for doing so.

As the convergence of communications technologies dramatically changes the supplier market, service providers face the challenge of educating customers to think not in terms of networks, but in terms of application performance. The winning service providers will firstly educate customers about the benefits of application-based SLAs and secondly, listen to the requirements of customers. The winning service providers will not be focusing on how good their network infrastructure is, but selling the messages of operational capability, customer service excellence and benefits from application management on behalf of the business user.

Service providers that decide to focus on the benefits of outsourcing should not forget the importance of building and managing relationships with customers. Successful service providers will be those who develop trusted advisers, as well as trusted suppliers. Successful providers of IP services will be horizontally focused and capable of conveying clear and simple marketing messages about the benefits of IP services as solutions to business problems.

This research is taken from the Ovum Advisory Service: [email protected] For more information email: [email protected] or visit www.ovum.com .

Read more on IT for small and medium-sized enterprises (SME)