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SPs Combat Cloud HypeSPs Combat Cloud Hype

Cloud services represent a business gold mine for service providers, but only if they can keep marketing messages clear

July 15, 2010

4 Min Read
SPs Combat Cloud Hype

Even as telecom service providers roll out cloud-based services with increasing sophistication, they are aware that all the current hype around anything with the word "cloud" attached is a mixed blessing that could serve to confuse and delay sales of strategically crucial services.

Because cloud-based offerings represent the next generation of data services, and the best chance yet for moving up the value chain and generating new revenue, service providers say they are working hard to help enterprise customers understand exactly what is meant by a cloud-based offering -- even if it means avoiding the word "cloud" altogether.

"I hate using the word 'cloud' -- the term is ill-defined or over-defined or over-hyped to the point where people don't know what it is," says Kerry Bailey, CMO and head of strategy for Verizon Enterprise Solutions , which has announced a series of cloud-based services. "To a lot of people, 'cloud' means Amazon-type services. But for us, it is really a new IT delivery model and we believe it will have a profound impact on the industry." (See Verizon Launches Health Information Exchange, Cloud Formation at Verizon Business, and Verizon Touts Cloud IP Services.)

It is important to differentiate "cloud" offerings from managed or hosted services, which telecom service providers have been offering for years, in order to drive home the fundamental change that cloud services represent, says Stephen Elop, president of Microsoft Corp. (Nasdaq: MSFT)'s Business Division. (See Microsoft Courting SPs as Cloudmates.)

Cloud-based services are "highly scalable and very standardized infrastructure, and the reason I emphasize that is that the cost of the services is driven down because of the economies of scale," Elop says.

By contrast, hosted or traditional outsourced services, which involve carrier management of data centers or of equipment based on a customer's premises or in the carrier network, offer more limited economies of scale and aren't designed for the on-demand, pay-as-you-go model that true cloud-based services can provide.

"We are talking about very large-scale virtualization and scaling," Elop says.

Because cloud services are true utility IT offerings, customers also need to understand that they have access to their data at any time -- another key difference from a hosted offering.

"Traditionally, when we had an ASP environment, we gave them access to secure screens and reports," says Larry Foster, vice president and general manager of Paetec Communications Inc. (Nasdaq: PAET)'s Software unit. "Now, we have embedded a spreadsheet directly into a Web browser so they can do their own data mining. We want to make sure that is true utility and they can export their data any time they want to."

It is the ability to turn up and turn down IT resources on a massive scale that has great appeal, Bailey adds. Businesses like being able to pay for what they use and to rapidly add or subtract services as needed.

"We have finally hit this Holy Grail of being able to offer applications or services like dial tone," he says. "We haven't been able to do that in the past -- the traditional IT delivery market is still hard to provision. But now we can do a pay-for-what-you-use model, and have it be very agile to your business."

Interestingly, small businesses are among the first customers to pick up on the value of cloud-based IT offering, even as deployment of apps and services in the cloud make it easier for large telecom service providers to reach this market.

"We had never ventured into the SMB space, because it was a market with high demand and low margins," Foster says. "Now we can offer things in a software-as-a-service engagement, and we are able to provide a much more cost-effective solution to those customers. We can leverage Paetec's network sales force -- 600 strong -- and make this just another product on their network portfolio."

Small businesses have the same IT needs as large businesses without the resources to buy servers and software and hire staff to run them, says Paul Rowe, VP of enterprise marketing for BCE Inc. (Bell Canada) (NYSE/Toronto: BCE), which this week announced new cloud offerings of Microsoft business applications. So SMBs represent the strongest early market for cloud offerings.

"They are already familiar with hosted Exchange services and many of them are familiar with Microsoft Office Communicator," Rowe says. "SharePoint and Live Meeting may not be as widely adopted, but making it simple for them and letting them only pay for what you use will make it easier for them to adopt these services also."

Larger enterprises represent a longer sales cycle and have concerns, such as security and access to data, that have to be addressed, usually on a one-by-one basis. (See Cloud Computing's Security Problem.)

"We have to educate the customer; let them see that with a cloud service, I can show you where your data sits, how secure it is. I can show you it is on private network that no one else connects to," says Verizon's Bailey.

"There's no question security is part of the conversation," Elop says. "What we can show them is that the security we are providing is far beyond anything they could provide themselves."

— Carol Wilson, Chief Editor, Events, Light Reading

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