Competition, cost pressures, and the demand for services and applications anytime, anywhere, and on any device are forcing telecom service providers to consider alternative delivery models to acquire and deliver IT services demanded by their customers. Service providers regard their networks as a strategic asset capable of driving incremental revenue and increased profitability, but how do they extract maximum value from that asset?
Service providers can insert themselves into the value chain by redefining their roles to expand beyond connectivity.
ACG Consulting Group
This is where a cloud computing services model has an advantage for service providers over their current enterprise IT models. With a cloud computing services model, service providers can insert themselves into the value chain by redefining their roles to expand beyond connectivity and provide Web-based application delivery services.
Here are five reasons why service providers should capitalize on cloud computing for their business and for their customers:
The value proposition of cloud computing
Cloud computing has the potential to affect service providers' total operational costs by reducing the hardware and software requirements of their current networks and platforms. Network architectures that build on optimization and consolidation are a key interest -- also, increasingly, a requirement -- for all service providers. Cloud computing platforms also enable enterprises to provision an infrastructure and add computing capacity on demand. This elasticity promotes rapid deployment of solutions and allows service providers to scale their infrastructure based on demand and consequently to improve time to market for new services.
Web-based applications promote IT independence
With more employees scattered in global offices or telecommuting, Web-based services and applications are perfect for the rapidly changing enterprise workplace. Service providers can increase their revenue and market share and capitalize on Web-based application services by communicating and promoting the tangible business benefits to their customers. Mobile communication, accelerated developments in broadband networking, open source technologies, and Web 2.0 have made on-demand services more reliable and affordable. Using cloud-based services, businesses can store more data than on private computer systems, allowing them to save on the processing power and hard disk space required for desktop software while giving them access to an unlimited number of applications. Additional benefits for businesses -- and selling points for service providers -- include lower costs, improved system performance, reduced software cost, instant software updates, data reliability, universal data access, and hardware/device independence.
Growing cloud-based managed services market produces revenue
The managed services market is one of the fastest growing segments in the IT industry, and service providers are uniquely positioned to capitalize on it. Cloud computing offers service providers an ideal model for developing managed services because they already have the scalable engine to build scalable services. By assuming an end-to-end position (application to end user) in the cloud computing value chain, the service provider can improve and add significant quality of service to user-to-application experiences. This network-based approach to service assurance can position service providers to capitalize on the software revenue market related to the use of the applications -- a market that network providers have yet to fully explore and utilize.
Increasing carriers' data center efficiency and operations
With typical data center costs running approximately 25% of total IT budgets, service providers are under pressure to find cost-efficient business solutions and models to operate their data centers. A cloud computing data center model enables rapid innovation, scalability and support of core enterprise functions, resulting in significant economies of scale. OpEx and CapEx savings are realized through the standardization of systems and software components. A cloud computing data center reduces the need for additional hardware, software and facilities, as well as automation of server, network, storage, operating systems and middleware provisioning, and security issues, all of which are costly and time-consuming functions.
A cloud computing platform also increases the utilization of servers, which can range from 20% to 70%, resulting in a decrease in required infrastructure. This hardware reduction translates to a dramatic drop in some associated operations expenditures: rack space, real estate, power and cooling. And let's not forget the cost savings associated with continuity and data center longevity. The average life expectancy of a large data center is 12 years. With the cost of developing a data center at approximately $500 million, cloud computing becomes both a business and operational value.
Differentiating service providers from the pack
The current economic climate has forced service providers to take a hard look at their business models and how they differentiate themselves from their competitors. The old business model was about cost-per-bit, but in the new paradigm, service providers realize they have to focus on what makes them stand out. Delivering cloud-based consumer and business-critical applications with solid service-level agreements (SLAs) will not only allow service providers to differentiate themselves but will maximize the value of the network while promoting a new business model.
Moving to a cloud-based platform poses challenges and concerns for service providers. Dealing with standards, security, performance, data compliance aligned with procedures and operations, and availability issues are just a few of the organizational and technical challenges they'll have to address to make cloud computing a true value proposition. Service providers can leverage their reputations and solid performances to offer reliable, comprehensive and secure cloud services.
Most importantly, service providers can show value by strongly emphasizing that cloud computing allows enterprises to focus on other aspects of their businesses without having to concentrate resources on IT, server updates, and maintenance issues -- a win-win service offering for both service providers and their customers. And last but certainly not least, by ensuring the value of services delivered via cloud computing, service providers not only deliver business value to their users but increase and extend their sustainability.
About the author: Dr. Ray Mota, managing partner at ACG Research, has more than 25 years of experience in the telecommunications industry, with his expertise centered on networking issues, specializing in design, implementation and troubleshooting, as well as maximizing organizational efficiency. Mota is a board member at the Telecom Executive Exchange, Cool-Trade, Robotic/Artificial Intelligence and the National Energy and Sustainability Institute. Prior to ACG, he worked at Aberdeen Group, ManageAll, Micros-To-Mainframes, Advanced Technology Group, and Eastman Kodak.
ACG Research focuses on providing market analysis and consulting to help service providers, enterprises and vendors monetize their existing infrastructures and increase operational efficiency and profitability. To contact Dr. Ray Mota, click here.
This was first published in February 2010