In 1993 Bell Atlantic was frantically trying to figure out how to deploy television services over their network to compete with the then emerging Cable companies. They failed. In 1998 Verizon embarked on a campaign to provide television through their network starting with high rise apartments and condominium complexes in order to quicken the pace of deployment through what was then called MDU (Multi Dwelling Unit) delivery. Deals were struck with huge developers and a 50 city roll out started in 2000. They failed. In 2001 BellSouth began deploying FTTC (Fiber to the Curb) in an effort to deliver entertainment services to their subscribers through high bandwidth fiber optic cable. They failed. In 2005 Southwestern Bell Communications (SBC) announced U-verse, a Very high speed Asynchronous Digital Subscriber Line (VHDSL) based Internet Protocol (IP) television service in Texas. On December 16, 2008 SBC (now AT&T) announced it had signed its 1 millionth U-Verse customer. This is a far cry from the tens of millions of customers that the cable companies have secured, but finally shows some traction.
Why is AT&T succeeding when there has been such a long history of failure in this space? Because over the past 10 years while Telcos have been failing at providing Cable entertainment services, cable companies like Comcast have been devouring phone subscribers. In fact, Comcast just announced they are the fourth largest phone operator in the U.S. with 6.47 million subscribers. It’s a matter of business. The Telco now has to succeed at providing alternate services because they have fierce competition over their core business… namely telephony.
The moral of the story is not to sell your Telco stocks or even be dismayed by the lethargic progress of these monoliths. The moral is that whenever large corporations attempt large game changing moves, time is the only way to measure success. Secondly, the measure of technology push and consequently adoption sometimes has to do with market pressure from competition and not just increasing revenues but protecting them as well.
So what does all of this have to do with Software as a Service? Well, take for instance the fact that Microsoft (as well as others) started to deliver their software over the Internet in 2000, created ASP.net in 2002 and has been hard at it ever since. With hundreds of thousands of hosted Exchange licenses in this space it’s safe to say that Microsoft is entrenched and growing. With all of the business customers that Telcos like AT&T have, why aren’t they also growing this (SaaS) business? The answer is simple. It has not yet begun to encroach on the core telephony business. Or has it? The enterprise space is usually the place that large telephony companies start new services. One only has to look at Voice over IP (VoIP) implementations to see this. Adoption of VoIP in the Telco subscription base has grown dramatically over the past few years. And even though the growth has slowed in this economy, there is an extending strategy emerging for mobile use of VoIP. This is the first entry of IP delivery services to business from the Telco showing traction.
Will the big Telcos or Service Providers be competition or partners for applications hosting providers?
All of this creates opportunity for existing Tier 2 Hosting/Managed Service Providers. Why? Large service providers do not set the pace for early adoption. The iPhone is one exception but even then it was actually Apple who set the pace and not AT&T. As more businesses adopt SaaS and the market share grows, Tier 1 service providers will be forced to reckon with the delivery of applications over their networks.
Since brand is the number one asset among these service providers they will be looking to purchase “white label” offerings which have a proven track record in services, especially those that scale. These will be the Tier 2 applications hosting companies who show promise in their subscription growth, but more importantly have adopted a strategy for growth of their data centers which adds scale and flexibility. Since Xen is used prolifically today in large service implementations XenServer would be a likely choice for HA (High Availability) and management. And since XenApp is the most prolific application delivery platform on the planet and has the highest utilization capacity on XenServer of any hypervisor/SBC combination, it would make sense to use it in a hosting environment for scale.
If you want to grow your current hosting business beyond Microsoft Exchange, you need to look at what a long term strategy is for servicing millions of subscribers, not just a few thousand. Sure, in this economy you will need to pay the light bills with your core business and not throw money (CapEx and OpEx) to the wind. But you better have a plan for sustained growth or you will be eaten alive by those companies who see the storm on the horizon for mass market application delivery. If you don’t believe me all you have to do is look to what happened last year at GE. Even Google Apps won’t compete in this market when there is an alternative that scales better like Zoho.
This is not to say you should dump all of your Windows apps… quite the opposite, for the Tier 1 service provider to pick up your service in mass, the applications will have to be in the main stream. Launch what SMBs want and need, do it cost effectively and form a strategy for growth… that’s the road to the big leagues.
If you want to learn more about a holistic approach that scales, check out the podcast that Doug Brown did a few weeks ago entitled, “Citrix Cloud Computing“.
“What this power is, I cannot say. All I know is that it exists…and it becomes available only when you are in that state of mind in which you know exactly what you want…and are fully determined not to quit until you get it.” – Alexander Graham Bell (Kind of ironic don’t you think?)