Cost, reliability and security are three criteria that have traditionally influenced the network buying decisions of large enterprises.
That’s unlikely to change anytime soon.
However, as network needs of multinational companies (MNCs) get more sophisticated, recent research indicates that a new mix of factors are starting to have an impact on the provider selection process.
“Softer” issues such as flexibility, quality of service, and customer/partner relationship management are being looked at more closely by CIOs, and influencing their choice of network providers, according to market research data from two separate global consulting firms: A T Kearney Inc. (that operates in 32 countries worldwide) and London, U.K.-based ICM Research.
Key facts emerging from AT Kearney’s market surveys – and their implications – were outlined by Axel Freyberg, a vice-president with the company, during a presentation at Vanco’s 7th International MediaConference in Prague.
Based in London, U.K. Vanco Plc is a virtual network operator that owns no infrastructure of its own. It designs and manages networks of more than 200 enterprise customers worldwide using underlying infrastructure from around 300 providers in 155 countries.
Vanco says its knowledge of and relationship with such a broad range of providers, enable it to get the best prices for clients, and create network architectures using the most appropriate technology.
Besides VNOs such as Vanco, other players in the fiercely competitive worldwide ICT networking market include major global and in-country asset-based carriers, systems integrators and smaller local or regional providers.
In this increasingly competitive market, Freyberg believes criteria for network buying are changing significantly. “Market and technology shifts continue to disrupt enterprise service models of traditional operators. Broadband, IP-VPN and voice revenues are declining, along with legacy data revenues. Margins are going down.”
While the overall MNC network market is still growing, according to Freyberg that growth is mostly the result of value-added services and IT.
What is the nature of the “value add” that chief information officers (CIOs) of global enterprises are demanding from providers?
Some answers to that question may be found in the most recent (2007) ICM study.
The study was sponsored by Vanco – a fact that needs to be borne in mind – though Michael Piddock, marketing manager for Vanco assured journalists at the Prague conference that the CIOs/network managers surveyed had “no idea” Vanco had anything to do with the survey.
He said all the CIOs knew was that it was an ICM Research study.
The survey was conducted in January this year, and a total of 276 CIOs and network managers were interviewed across countries where Vanco has a major sales presence. Only CIOs of companies with a minimum network spend of around Can$380,000 per annum (Euro 250,000) – which is Vanco’s target market – were interviewed.
What CIOs want
CIOs polled by in the ICM Research survey were asked to list priorities for their networks over the next two years.
On a global basis, cost reduction emerged as the top priority for three years in succession – with 29 per cent of the result, said Piddock. “Network security solutions was at second place, and bandwidth at third.”
Those have been the top three issues year after year, according to Piddock. “There’s a certain consistency there.” (Vanco has been sponsoring such annual surveys for the past six years).
And yet, according to Piddock, this year was different in that CIOs – this time around – provided answers they had never offered in previous years.
He said on the question on the three biggest priorities for their network for the next two years, this year, for the first time, CIOs cited factors such as: flexibility, quality of service (QoS), performance, manageability, speed and ease of service, and customer/partner-relationship management. “In previous years it was mainly technical issues.”
In the ICM survey reports, while the top issues are listed separately – the rest are lumped together in “Other” category. This year, said Piddock, on the question of network priorities the “Other” category included 46 per cent of the responses. “That’s because, we saw a huge number of new answers we hadn’t typically seen before.”
The A.T. Kearney research is in line with some of these findings.
Freyberg notes that while cost continues to be important, there’s also a growing demand for effective support, both locally and for multiple sites across the world – as the industry gets more global.
Service with a SLA
The ICM study shows that concern is growing among CIOs over network availability that falls below what’s stipulated in service level agreements (SLAs). Fifty per cent more respondents cited this as an issue this year, which Piddock says “would suggest that across the market there’s a problem with providers not hitting SLAs.”
A related finding is that service capability has leapfrogged global coverage as a CIO priority.
However, in this area Piddock pointed to a difference between the European market and North American/Asian markets. “Within Europe, geographic coverage remains a higher, or at least equal priority than service capability. This suggests European companies place a higher priority on global coverage than their Asian and [North American] counterparts.”
Another rather unexpected finding is that financial stability has now fallen in the hierarchy of CIO concerns. Piddock suggests this is because enterprises have come to terms with the vagaries and volatility of the late 1990s-2001 period. “They are seeing the [providers] in place now are more stable. So they’re starting to see service capability as a priority.”
Freyberg echoed this view. “Financial viability, which was a big issue in the 2000s, is no longer such a grave concern today.”
What’s hot and what’s not
According to A.T. Kearney research, while legacy data revenues are declining globally, IP-VPNs are still growing heavily, along with everything that has to do with IT: managed security, managed connectivity, managed messaging and so on. Mobility and voice over Ethernet are also growing.
“Pure connectivity revenues are expected to decrease, as the access market is under a heavy price pressure with leased lines being substituted by DSL; likewise IP is substituting ATM frame relay.”
According to Kearney, as the pure connectivity market shrinks, there’s a shift of focus among all the providers to offering more advanced services: such as network management and security outsourcing.
Who, where, what, which, why
The questions every journalist should ask about an event are also questions MNCs will be asking about the ICT networking technologies they should use, and the service providers they should opt for. Freyberg suggests a combination of three factors will determine which providers win out in what segments.
• Reach – Regional, national or international;
• Capillarity (or density) – how many sites does a company need to connect – are they just major financial centres, or small regional sites as well?
• Criticality – How cri