We recently completed our Frost & Sullivan 2010 North American Enterprise Telephony Equipment and Implementation and Management Services Markets update. The study found out that, in 2009, that market generated about $4.35 Billion in revenues from the delivery of telephony customer premises equipment (CPE) services, which represented a decline of about 10.7% from 2008. The global recession was the single most powerful factor causing the revenue decline.
While implementation services, closely correlated with telephony equipment shipments, were severely impacted by CAPEX reduction policies, budget constraints were, in fact, one of factors driving demand for managed services. Alaa Saayed, the lead analyst on this project, observed: “Some of the main drivers for managed CPE services adoption include the ability to select the management of specific ongoing administrative tasks (modularity) rather than outsourcing the entire operation, the advantage of cost savings and profitability because of performance optimization, the benefits of problem prevention through the use of proactive remote management tools, and the ability to monitor and manage different systems and networks throughout a multi-vendor, multi-site environment.”
An increasing number of enterprises report utilization of managed services. A 2009 Frost & Sullivan survey, that interviewed 102 U.S. C-Level executives, revealed that companies had either maintained or increased their use of managed services within the previous 12 months.
The same survey reported that only 7 percent of the respondents were planning to decrease the usage of managed services within the following 12 months. Overall, C-Level executives were planning to continue their current use of hosted or managed services, or even increase their utilization within the next 12 months. This is not too surprising since managed services play an important role in addressing the IT and telecom management needs of an organization in the time of a recession. As organizations cut costs to stay afloat or improve their competitive positioning, they typically seek to compensate for reduced internal resources and improve network and overall organizational efficiency by partnering with an experienced managed services provider.
Demand for managed services varies by the size and type of business. Small enterprises are more likely to utilize contractual maintenance, hosted solutions or economical managed CPE alternatives. Medium enterprises, on the other hand, are more likely to employ a piecemeal approach to network management outsourcing, whereby large companies may either opt to manage their telecom and IT infrastructure in-house, or outsource management to ensure a more uniform approach to their multi-vendor, multi-sited environment.
Similar factors seem to trigger the acquisition of managed services across different company sizes and verticals. As managed services are primarily adopted by those looking to reduce labor costs, customers tend to first resort to the lowest-common-denominator package – some remote monitoring and alarms, backup & restore, limited help desk, basic software updates (no major upgrades), a package of MACs, and so on. They could, eventually, move up the ladder based on their individual needs and demands.
The CPE services market is becoming more fragmented over time – with few service providers possessing all the required skills to manage all aspects of a customer’s ICT infrastructure. In fact, Alaa states that there is some confusion about who’s offering what: “Customers are finding it hard to understand where to look for CPE telephony services. They find the relationships among telcos, value-added resellers, system integrators, manufacturers and their channel partners confusing. When searching for managed or professional services, they often run into an overlap of solutions and responsibilities. Single point of contact is becoming key to avoid these multiple and confusing relationships.”
Here is what the competitive structure in this market looks like:
In terms of revenue, traditional equipment manufacturers have the largest market shares with stable or flat growth prospects. Telecom operators and system integrators are experiencing an increasing demand for services as they can offer economies of scale and competitive managed services packages. VARs, on the other hand, seem to serve specific markets where either local presence or some technical specialization is required.
In terms of brand name recognition, the leaders of the pack include established vendors market participants such as Avaya, Cisco, Mitel, NEC and Siemens among telecom equipment manufacturers; Black Box, Shared Technologies and Dimension Data among telecom VARs; major systems integrators such as IBM and HP; and AT&T, Verizon, Bell Canada and Telus among telcos.
While some traditional equipment vendors directly compete with their channel partners, others prefer to delegate most telephony CPE services to channel partners. Channel-centric vendors acknowledge the fact that dealers and other partners are turned off when vendors compete against them and take away the best deals. Therefore, such vendors choose to ensure the support of their channel partners in growing product revenues at the expense of services revenues, which they leave entirely to the partners.
We asked the channel what they expected from their vendors and here is what they told us:
Also, the channel commented on the overall level of support they received from their vendors over the past couple of years:
For businesses looking to outsource SPE services and managed services more specifically, we recommend they select their partners based on:
- Financial viability
- Product and services roadmap (including SIP expertise and ability to support next-gen SIP and SOA-based architectures)
- Multi-vendor technology support capabilities and ability to consolidate multiple vendor relationships through a single contract
- Customer service and attention to specific customer requirements
- Flexibility to provide modular capabilities and price services based on application complexity rather than total number of users
- SLAs covering resolution and not just response times. One of the biggest pitfalls in managed services is the inability of certain vendors to guarantee the latter in spite of their commitments to the former.
- Managed services vendor staff training and experience. Staff turnover is one of the industry’s major challenges and service providers that invest heavily in staff training and job satisfaction can deliver the greatest value to their customers.
- Find your best match! For a global organization, a large, global SI may be best, but for a small business, a local partner is more likely to provide greater attention and a customized approach.