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The Cloud & Technology Transformation Alliance is a joint initiative of Channel Partners and The 2112 Group. CTTA's mission is to be a forum through which all members of the technology value chain – IT vendors, service providers, distributors, resellers, agents and end users ‒ can discuss the issues of next-generation technology and systems, define the value of technology in business context, create best practices for adoption and application, and provide guidance for the business community on what comes next. This blog covers some of CTTA's work. More information is at http://cttalliance.com.

Cloud Convergence Council Blog: Cloud Is Warping ‘Service Provider’ Definition

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By Lawrence M. Walsh, CEO and President, The 2112 Group

Utter the term “service provider" to 10 people in the channel 10 years ago and you probably would have received concurrence in definition: a carrier or telecommunications company such as AT&T or Verizon that provides connectivity and bandwidth services. Today that definition is balkanized, first by the shift to managed services and now by the evolution of cloud computing.

In its first meetings last week, the Channel Partners Cloud Convergence Council took up the issue of what defines a service provider in a world where every business delivering technology is providing a “service" on some level. Is a small telecom agent or a regional IT managed service provider (MSP) any less of a “service provider" than a carrier like Qwest or hosting company such as Rackspace?

The traditional lines segmenting different tiers of service providers are converging as the market demands more products and services from fewer sources. Once-small VARs that made the bulk of their business through the resale of hardware and software are now embarking on building infrastructure to deliver their own cloud services, or tying up with a larger service provider – such as CBeyond or Microsoft – to deliver telephony and software services.

The shifting notion of what it means to be a service provider has significant implications for vendors and partners alike in the cloud-computing era.

Many vendors are adopting a “sell to" the cloud go-to-market strategy to capitalize on market aggregation trends. As carriers adopt more cloud-based services, they will become a one-stop shop for businesses to collect their cloud-based services. Vendors are looking at the service providers as a consolidated marketplace of a few players with insatiable appetites for switches, servers, storage, security and of course, software. Carriers already are proving quite formidable in delivering cloud services to large enterprises and small businesses. This “sell to" strategy is a boon for vendors, since they will avoid expensive direct and indirect sales costs trying to sell their goods to tens of thousands of smaller businesses.

At the same time, many midmarket and small VARs, telecom agents and managed service providers are taking on the flavors of service providers: They’re aggregating cloud services for delivery to their customers – particularly in the midmarket; they’re building or leasing infrastructure to develop their own cloud offerings; and they’re bundling their own “value-add" services such as on-site service support, remote monitoring and management, and professional staffing augmentation.

Simply expanding the scope of what it means to be a service provider is messy. Many hardware and software vendors don’t just differentiate service providers based on what they do, but how big they are. A multinational, multibillion-dollar service provider has different needs, capacity, capability and clout than a pure but smaller regional carrier. Including managed services and professional services companies – many of which are very small with limited capabilities – would create an ill-fitting “one-size-fits-all" definition.

Complicating the issue further is the impact of business-process outsourcers in their increasing involvement in cloud services. Hewlett-Packard recently announced the expansion of its data center services (formerly operated by EDS) to compete with the likes of Amazon Web Services and Rackspace. Dell bought Perot Systems in a bid to enter the BPO market. And Xerox – through its acquisition of Affiliated Computer Services – wants to break out of its traditional box of printers and document management to include a variety of enterprise and midmarket IT services.

There’s no easy answer to the service provider question, and it will likely perplex channel strategies and cloud-computing prognosticators for the next several years. The Cloud Convergence Council, a joint venture of Channel Partners Magazine and The 2112 Group, considers the resolution of this issue integral to the maturation of cloud services and the convergence of the IT and telephony channels. The Council seeks the ideas and suggestions of solution providers and vendors on this issue as it continues to deliberate options for resolving this thorny problem. Send your thoughts to lmwalsh@the2112group.com.

Lawrence M. Walsh is CEO and president of The 2112 Group, a technology business advisory service that specializes in optimizing indirect channels and partner relationships, and principle blogger at Channelnomics . He’s also the executive director of the Channel Vanguard Council and moderator of the Channel Partners Cloud Conference Council. He is the former publisher of Channel Insider and editor of VARBusiness Magazine. You can reach him at lmwalsh@the2112group.com.

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