“Enterprises now realize they don’t need to build dedicated networks or own their own corporate data centres,” says Steven Blumenthal, CTO of Genuity Inc., a Woburn, Mass.-based MSP (managed services provider).
Yet investing in such facilities remains the lifeblood of most service providers, which rely on robust networks to deliver services to corporate customers. Analyst company IDC and others have lately invoked the term xSP to describe this varying field of new-breed service providers. The label covers companies aiming to deliver externally managed services via a network.
To improve network-based enterprise offerings as well as their bottom lines, CTOs of these network outsourcers are forging ahead on several fronts. Along the way, they are arguably setting the pace in both long-standing and cutting-edge technologies. “This is our business, and because of that, we probably do provide a model,” notes Glenn Ricart, CTO of CenterBeam Inc., an MSP in Santa Clara, Calif., and a member of the InfoWorld CTO Advisory Council.
For instance, some network outsourcer CTOs are pursuing progressive last-mile solutions; others report keen interest in emerging areas such as wireless technology surrounding the 802.11b standard. VOIP (voice over IP), optical networking, and traffic routing advances – such as the MPLS (multi-protocol label switching) standard – also make the technology development lists of networking service provider CTOs. On less sexy fronts, many CTOs at xSPs are combing through advances in network monitoring and traffic management solutions for enterprise customers.
Validating such pursuits are recent industry forecasts that indicate outsourcing is on the rise. Stamford, Conn.-based Gartner, for example, predicts that despite the recession – or perhaps because of it – IT outsourcing will sustain a healthy annual growth rate of 11.2 percent during the next few years, spiking to US$160 billion by 2005, up from $101.6 billion reported in 2001. According to Gartner Inc., this growth in overall outsourcing is good news for networking outsourcers.
Likely market winners will be MSPs that offload network monitoring and management duties from the enterprise, says Eric Goodness, an analyst at Gartner.”Both managed services and management services are among the hottest spaces in IT services,” Goodness claims.
Jumping into the network outsourcer market as well is outsourcing power players such as IBM Corp. and EDS. Both giants have exuded interest lately in the market by scrambling to either partner or acquire the skills and technology they need to gain entry. Because these mega-outsourcers have a history with enterprise customers, service providers now more than ever may be under the gun to forge new technical ground to hang on to their lead, according to industry observers.
While facing these changes in the competitive landscape, xSPs have meanwhile been buoyed by industry forecasts and firsthand indications that network outsourcing is taking hold in the enterprise. And xSP CTOs claim they are dashing ahead in the technology realm, where enterprise CTOs might not have the budgets to go.
All the while, any network management solution development by these xSPs factors in the end-user. “We are guaranteeing for ourselves that technologies are ready for prime time, and then [we are] taking them to our customers,” offers CTO Trey Smith of London-based Cable & Wireless (C&W).
To hone its managed services edge, C&W purchased one-time giant Exodus earlier this month in a deal valued at $750 million. In May 2001, the provider acquired hosting company Digital Island, hoping to add to its content distribution know-how.
Smith points to Web services as an area in which service providers tread more easily and quickly than others. In fact, he fires off a warning to enterprises eager to chase the networking promise of standards such as SOAP (Simple Object Access Protocol) and UDDI (Universal Description, Discovery, and Integration). “I want to sound a cautionary note here,” Smith says. “Web services can become powerful, but these are early days [for enterprise IT shops].” C&W is in a position to explore Web services to create “a very rich suite of managed services.”
The idea is to use Web services standards to pack complex network capabilities behind simple browser interfaces. Ultimately, the fruits of this exercise will be targeted at enterprise customers. “Our approach right now is to take simple services first and test them internally,” Smith adds.
Using disruptive technologies in-house
The notion of quickly absorbing a new technology internally and then spinning it out as a managed offering emerges as a common theme among service provider CTOs. For instance, VOIP is an area Smith and others say they are steadily exploring and incorporating in-house.
Perhaps to the envy of many corporate chief technologists, C&W’s Smith had a hand recently in shaping an IP call center constructed for internal use. Smith specifically helped oversee the outfitting of technologies such as IP PBXs and IP LANs.
Few enterprises, says Smith, would be in a position now to duplicate the effort and tear down existing call centers. Nor do many corporations seem inclined to perform wholesale call center upgrades any time soon. “However, when enterprises are ready for an upgrade or when their infrastructure reaches the end of its life, we can walk them through the changes,” he says.
In fact, some networking service provider CTOs say that, as long as their own often-cramped budgets will allow, they consider their position a license to experiment with hot new technologies that fall outside the mainstream.
Consider New York-based Exenet CTO Sam Negahbani’s foray into free-space optics, a nascent technology that uses lasers to send optical signals through the air. Although it surely retains a high intrigue factor, the technology is likely far down the wish list of most enterprise CTOs. “There is still a little bit of work that must be done to make this a solid solution,” Negahbani acknowledges.
Yet free-space optics technology has a place – albeit a limited one – in Exenet’s cadre of last-mile connectivity options necessary to extend services to its corporate customers. “If a company wants a T1 or T3 line, that can take four [months] to five months to take place. What we have done to solve the problem is to have a portion of our network running over metro fiber, part of it leased-line, and part of it free-space optics,” Negahbani says.
According to many industry observers, juggling myriad relationships with staple last-mile providers – while congruently exploring alternative connections – may not have a whole lot of appeal to enterprise CTOs right now. Yet that is what many service providers are doing. “We are trying to be innovative and use alternative carriers where available,” CenterBeam’s Ricart says.
Ricart details recent agreements with vendors for fixed wireless services based on LMDS (Local Multipoint Distribution Service) technology. LMDS uses a portion of the wireless spectrum to broadcast multipoint signals for voice, video, and data transmission.
Although the fixed wireless technology has yet to make the inroads originally predicted, Ricart is actively working with remaining vendors in the space, in part out of necessity. “We want to have redundant last-mile technology so we can offer services to any office made up of more than just a few folks,” he says.
Ricart is also exploring solutions emerging in the unlicensed, UWB (ultrawideband) spectrum. UWB technology makes use of a broad patch of spectrum to power wireless data networks. Tracking this technology is an exercise that undoubtedly takes patience because the spectrum’s future is now tangled in regulatory issues.
Perhaps closer to practical deployment is wireless LAN technology, particularly offerings geared toward 802.11b. And several CTOs claim they are mining this space as well.
“I do think the technology will see its day this year,” says CTO Terry Milholland of advancing standard 802.11b. Milholland hails from Plano, Texas-based outsourcing power player EDS, which made clear designs on the space last month by partnering with ASP Mi8.
Yet even with the 802.11b standard gaining momentum and a spate of products expected to hit the market this year, many enterprise decision-makers may be in no mood or position to track the technology.
“I’ve had conversations, especially at the executive level, where officials see something like 802.11b written up in The Wall Street Journal, and they are wondering, ‘Am I supposed to know what that means?’ ” Milholland says.
Those conversations likely reflect the fact that 802.11b devices are emerging slowly yet steadily, especially within campus-style companies, where employees roam with laptops from one area to another.
Optical technology is another area that networking service provider CTOs are exploring. For instance, C&W’s Smith predicts that after lagging lately, the optical industry soon will see a renewed surge, especially in demand for equipment such as optical Ethernet and datacenter solutions.
Furthermore, Smith says he is focusing on C&W’s IP VPN offerings, which he expects will get a boost from advancing MPLS efforts. The MPLS protocol is gaining notice because it promises to speed up and simplify traffic flow by eliminating the need for a router to look up the IP address of each data packet.
Influencing today’s technologies
Perhaps even more than just tracking technologies making headlines, service providers are in the trenches working to stay apprised of network monitoring and management tools that will allow them to attract more enterprise accounts. “Surveys and discussions indicate that users are looking to outsource network management. Not only QoS [quality of service] of their carrier networks but management of infrastructure beyond the edge,” Gartner analyst Goodness notes.
Basic services also on the rise include managed security and disaster-recovery offerings, in part driven by the events of Sept. 11. In such areas, service provider CTOs are eager to prove their worth.
For instance, Genuity’s Blumenthal argues that his company is able to “take a leadership position” by dedicating the time and resources needed to chart the development of security-related standards in areas such as PKI (public key infrastructure) and digital signatures. Blumenthal is also watching standards such as IPsec now in play at the Internet Engineering Task Force.
However, following new technology and standards on behalf of enterprise clients is only half the battle, according to Tim Howes, CTO of Sunnyvale, Calif.-based Loudcloud. “It’s not as much about fancy new technology as it is about finding a way to apply practices across an organization,” he says. Howes offers the fact that during the course of just one year Microsoft and Sun together can generate more than 500 patches that enterprise managers are theoretically supposed to mind.
For Loudcloud to argue that it is in a position to take on deployment of those patches for the enterprise, Howes and staff must diligently watch advances in areas such as network management, firewalls, and load balancers. “There is a constant stream of new technology and new functionalities we need to watch to support our customers,” Howes says.
Dedicating resources needed to track the variety of tools pouring out of network management and monitoring sectors can now overwhelm an enterprise, Genuity’s Blumenthal adds. “It takes a fair amount to get those tools to work well and to customize them. Out of the box, they don’t just do what you want them to.”
In addition to licensing fees, corporations must bear the integration time – or the expense of outside help – to stay abreast of the technology. “We’ve made those investments, and we can spread them out over many customers,” Blumenthal says.
Likewise, service provider CTOs must stay on top of networking tools that will let them offer managed services related to disaster recovery or business continuity. To hone services heavily reliant on storage and backup technology, Exenet’s Negahbani says he spends time sharpening relationships with vendors such as Brocade and Veritas.
“We have a high level of partnership with vendors,” Negahbani says. “You really have to be part of their consortium of development companies. Without that, you really can’t get unless you are a Fortune 10 company.”
Genuity’s Blumenthal notes that these are relationships that have been building for sometime. “We’ve always had a very close relationship with key suppliers and have influenced them quite a bit over the years,” he says, pointing to Cisco’s work on VOIP gear as an example.
But Negahbani goes on to predict that service provider influence may soon surpass the industry’s hand in the development of just the latest switch or router. “We are starting to get more support from software vendors such as Microsoft, Oracle, and the other big boys. What will happen is that these vendors will realize that much of their software will be provided through an outsourced means,” he says.
Yet even as the mark of the networking service provider CTO becomes clearer, enterprise users will ultimately chart their own course, argues Philip Thompson, CIO of Armonk, N.Y-based IBM, which has emerged as the largest networking outsourcer in many recent surveys.
“I agree [that] companies that provide network outsourcing services will have a significant influence on enterprise network strategies [in the] long term. But customers of networking services are in the driver’s seat,” Thompson notes.
In the end, the future of enterprise networking comes down to the brutal question, “What is the best way to maximize value for the investments?” Thompson proffers.
It is a question each CTO must answer, Thompson adds. Indeed. And as enterprise CTOs struggle to answer that all-important question, they’ll surely be watching closely as the service provider sector continues to mature largely under the guidance of the networking outsourcer CTO.
Steven H. Blumenthal, Genuity
* Job title: CTO and senior vice president
* Market: Genuity offers managed services including broadband access, Web hosting, and security.
* Networking outsourcing revenues: No comment
* Corporate customers: Bose, Cisco, H&R Block, and AXA Financial
* Technologies using: VOIP, IP DWDM (Dense Wave Division Multiplexing) to eliminate the SONet (Synchronous Optical Network) layer of backbone network
* Technologies watching: Advanced VOIP features, including combination of VOIP and speech recognition; also integrating small, portable IP devices and sensors into infrastructure
Glenn Ricart, CenterBeam
* Job title: CTO and executive vice president
* Market: CenterBeam manages end-user computing for distributed organizations.
* Networking outsourcing revenues: No comment; financial backing from Microsoft, Intel, Dell, and EDS
* Corporate customers: No comment
* Technologies using: Advanced desktop backup and healing, Microsoft Operations Manager and Systems Management Server, 802.11b wireless networking, MPLS wide area networking, RADIUS (Remote Authentication Dial-In User Service) and Active Directory authentication and access control, and Windows XP desktop
* Technologies watching: 802.11a wireless networking, biometric and proximity-based authentication, converged voice and data networks, Microsoft .Net3
Tim Howes, Loudcloud
* Job title: CTO, executive vice president of development, and co-founder
* Market: Loudcloud offers application management services such as monitoring, reporting, risk management and application, and database services.
* Networking outsourcing revenues: $4.6 million in the third quarter of 2000 to $14.3 million in the third quarter of 2001
* Corporate customers: Blockbuster, Britannica, Cablevision, Fannie Mae, Ford, Knight Ridder, The News Corporation, Nike, Univision, and USA Today
* Technologies using: Proprietary automation software used to deploy, manage, and grow Internet infrastructure
* Technologies watching: Microsoft .Net and blade technology
Trey Smith, Cable & Wireless
* Job title: CTO
* Market: Cable & Wireless offers advanced IP networks and value-added services. It closed a $750 million deal acquiring Exodus earlier this month.
* Networking outsourcing revenues: Thirty percent per annum growth of network outsourcing business through 2005 (company projection)
* Corporate customers: Accenture, Financial Times, Heinz, Marks & Spencer, Merrill Lynch, Microsoft, Shell, and Toshiba
* Technologies using: IP VPN, VOIP, IP LAN, MPLS for global IP network traffic engineering
* Technologies watching: Wireless LAN
Sam Negahbani, Exenet Technologies
* Job title: CTO and co-founder
* Market: Exenet Technologies offers network and system monitoring and management; data availability services (remote storage and business continuity); and managed, enterprisewide directory technology.
* Networking outsourcing revenues: 125 percent growth from 2000 to 2001
* Corporate customers: Sotheby’s, Ogilvy & Mather, Baruch College, and Financial Security Assurance
* Technologies using: Wireless data access, VOIP, video over IP, Internet security, and VPNs
* Technologies watching: IP 6, FSO (free space optics), storage virtualization