Are Carriers Contenders for the Cloud Services Channel?

Cloud services is probably the most-hyped technology space today, even while providers and customers struggle to grasp just what the term really means. In the absence of a commonly-agreed upon definition, cloud services has become all things to all people, raising tremendous market FUD (fear, uncertainty and doubt). Meanwhile network managers desperately try to come to grips with The Next Big Thing. And its clear cloud services is indeed big. Last year, Gartner Inc. pegged cloud services to hit $150.1 billion by 2013, from an estimated $46.4 billion in 2009.

Whats unclear is who will get a piece of that cloud service pie. Among the contenders are the countrys largest carriers AT&T Inc., Verizon BusinessSprint Nextel Corp. and Qwest Communications International Inc. These players are of special importance in the cloud services space because they provide the networking piece of the puzzle (as well as the servers and storage) required to run these services from a provider, customer or third-party data center. Although each will need to partner with app developers, systems integrators and solution providers to assemble a complete cloud services package, they deliver the crucial infrastructure for these hosted and managed services.

In contrast, most other hosted service providers simply cant deliver the same blend of national/international networking and IT assets, market clout, solution set and customer support across so many of the elements that make up cloud computing. Even premier solution providers like HP and IBM cant match the full scope of these carriers, although their managed service and application integration expertise are critical parts of any cloud service implementation. Think of the carriers then, as critical partners to the IBMs or other professional services firms of the world. Neither group is complete without the other.

But despite their key role, that doesnt mean carriers know how to sell services from the cloud. AT&T and Verizon Businesss cloud initiatives indicate that theyre prepared to play a role where cloud services make business sense, but I dont think either company believes you can go out and sell cloud services to enterprises at this point, said Tom Nolle, principal at Cimi Corp.

With that in mind, how will these key players market and sell their cloud service solutions to the business customer? And what will the role of their channel partners be in driving growth? What follows is a snapshot of each carriers basic cloud service offerings and market strategy, as well as their thoughts on the channel.

But first, a quick working definition of that most ephemeral of terms: cloud services. For our purposes, the simplest definition comes from Current Analysis, which described it as a superset of managed solutions that leverage a Web delivery model with multitenant, pay-per-use software-as-a-service (SaaS), infrastructure-as-a-service (IaaS) or platform-as-a-service (PaaS).

Carriers Cloud Service Offerings

Its impossible to rate these providers offerings without accounting for customer requirements, so we wont try, but we can draw some comparisons and conclusions. As you might expect, the two largest carriers in terms of network footprint and reach, depth of portfolio and market clout generally lead the pack, offering the fullest solution set for IaaS, SaaS and PaaS services. Both AT&T and Verizon Business leverage their core competencies in network footprint and their extensive data center buildout to stand out from their competitors. As the only two carriers with comparable reach and IT assets around the world, both carriers can compete head-to-head for the large enterprise and smaller businesses.

Much as size matters here, its not enough. Verizon is positioning itself as more of an IT player than a purveyor of dumb pipes, but both are partnering extensively with systems integrators and solution providers to establish greater credibility with their enterprise clients, who are already familiar with big names like Accenture, CSC, HP and IBM. In addition to its global reach and more than 200 data centers worldwide, Verizon can cite a strong multilayer security focus, courtesy of its CyberTrust acquisition and ongoing co-development relationships with key security vendors such as McAfee and Novell, and is particularly strong in identity management and authentication.  But the carrier can suffer from a general market perception that it lacks expertise in business applications, as well as professional services in general, according to Amy DeCarlo, principal analyst at Current Analysis.

Not so for AT&T, which has deep expertise in application and server hosting after its acquisition of USinternetworking (one of the former leading ASPs) and boasts a robust menu of managed application services, including on-demand computing and storage services from 38 data centers distributed around the world. The biggest brand in telecom also is investing heavily in a content delivery network overlay to better support faster cloud-based service delivery. But its strong pedigree in voice can overshadow its abilities in managed application services, and the provider can sometimes be seen as a generalist without the necessary specialized know-how required to make all the pieces fit in a cloud solution, DeCarlo observed.

Both are still struggling to hit their sales stride in the early going. Both AT&T and Verizon are building up solid customer bases for their IaaS offers but at this point, neither has achieved critical mass, said DeCarlo, pointing to the economy as a prime factor for such slow growth. Both are adding customers on a weekly basis but neither is dominating.

This may be due in part to a general reliance on direct sales for their IaaS services, working primarily with select integrator partners; but that could change as the carriers look further down market.

AT&T. AT&T was first of the large carriers to enter what we now  think of as the cloud services market. In 2008, the carrier unleashed their Synaptic line of cloud services, including AT&T Synaptic Hosting, Snyaptic Compute As a Service (CaaS) and Synaptic Storage As a Service (StaaS). Synaptic is a global utility computing platform that includes provisioning, storage, connectivity, load-balancing, firewall services and other user-defined network resources that can be provisioned on the fly through a customer portal. Business apps supported include SAP, Oracle and Siebel as well as a wide array of collaboration apps from Microsoft. AT&T rolled out a storage-on-demand service through its partnership with EMC the following year, as well as an on-demand disaster recovery service.


AT&Ts ability to meld together a coherent service combining utility computing with real-time voice, data and video communications will be a capability that can only be  delivered by a few competitors worldwide, DeCarlo wrote in a recent company assessment report. Even today AT&Ts applications management service stands on its own based on solid operations, security and continuity credentials.

In terms of market focus, AT&T emphasizes its hosting, cloud computing and storage solutions along with its high-performance, secure IP MPLS network (having also built up an advanced multilayer security strategy through acquisitions like VeriSign). Our broad range of public and private networking options differentiate our service offerings, along with the foundations (network, data centers, investments in automation and security, SLAs and operational expertise), to make [our cloud services] truly enterprise-class, said Chris Costello, assistant vice president, AT&T Hosting and Cloud Services.

Costello also reported sales success across all industries and markets from startups looking for quick, easy access to compute and storage resources to help them grow their business without big capital expenses to multinationals looking to re-engineer their backup or archive operations to replace aging, capacity-constrained tape environments with scalable cloud storage. She added that the company is seeing strong demand from even from the most security-conscious industries, like financial services, health care and government clients.

Verizon Business. AT&T’s chief rival Verizon Businesss cloud services portfolio hits some of the same notes, but is somewhat more expansive. Since introducing its flagship cloud services programs over the last year to six months, the carrier has used the extra time to articulate a more refined and nuanced marketing message.

Basically, Verizon breaks down its core solutions by market. Its Mass Business segment, aimed at businesses with 20 employees or less, offers online backup and sharing, Web hosting and business communications and collaboration services, including Web conferencing, shared workspaces with integrated files, calendar and contacts systems.

At the mid-market level, Verizon ratchets up its offerings from more traditional hosted services to next-gen cloud services, through its Computing as a Service (CaaS) solution as well as SaaS solutions. These software service solutions tend to focus on security (antivirus, antispam) as well as unified communications and collaboration. The carrier reports its strongest growth areas for the medium-sized business are in hosted VoIP, outsourced security and CaaS.

CaaS is also the cornerstone of Verizons cloud service solutions for large enterprises, but these higher-end customers are also the beneficiary of the carriers Cloud Computing Program (also available to medium-sized businesses). Billed as an extensive suite of consulting services and managed services to help large business and government customers better assess, design, migrate to, manage and secure their cloud environments, the program is one of the most comprehensive of its kind.

With Verizons Cloud Computing Program, customers can manage, monitor and maintain their cloud application environments, whether delivered from the data center of the end user, provider or a third-party such as Amazon EC2. And extending this hybrid approach another step, Verizon allows customers to activate a physical server on the fly, in case that business requires a dedicated server to reside in a specific geographic region to satisfy regulatory requirements or to add redundancy in a particular area.

Verizon is differentiating on several feature fronts here. First, the program differs from rival offers in that it targets customers ranging from midsized businesses to large enterprises with a complete set of services that span the entire online IT services life cycle, from initial assessment and design through migration and ongoing management, said Current Analysis DeCarlo. She also cites the ability to support any combination of private, pubic and hybrid cloud deployments as a key enabler, along with its strong focus on prepackaged templates for major vertical markets that stress security and a simplified user portal for setting policies and reconfiguring services.

If Verizon can bolster its application development and professional services portfolio both in-house and beyond existing partners such as Accenture, Cisco and Microsoft, it might just be the carrier to beat in this space. But as DeCarlo points out, AT&T also is particularly strong in application services and has its own compelling security story to tell, especially in e-commerce where the VeriSign acquisition greatly strengthened the carriers PCI solutions. And lest we forget, AT&T does offer some data center-agnostic solutions, such as its Remote Infrastructure Management service.

Sprint Nextel. Having scaled back its operations over the last few years, Sprint is focusing its cloud services on the transport side (as opposed to hosting) to better leverage its core assets a nationwide IP MPLS backbone, its wireless presence and expertise in fixed mobile convergence and one of the best security solution sets around (Sprint continues to win high-level government contracts that carry stringent privacy and security requirements).

Sprints hosted services menu is heavily concentrated on secure connectivity and includes DDoS Prevention/Mitigation (the IP Defender line), e-mail filtering, archiving, encryption, continuity (Sprint Secure Message Protection) content filtering, IM control, anti-virus (Sprint Secure Web Protection), firewall, IPSec-based enterprise extension and remote access (MPLS VAS).

Steve Parrott, senior convergence product manager for Sprint, believes the company stands apart not just in secured transport, but also a willingness to go after businesses of all sizes and types.

Sprints primary driver for differentiation is the fact that we are positioned as a full service provider, said Parrott. We can provide a comprehensive solution for all of an enterprise businesss needs. Cloud-based security solutions can be integrated in every WAN solution including wireline and wireless WAN scenarios. Also, by leveraging cloud-based offerings, customers are able to more efficiently utilize their network transport which allows them to explore convergence opportunities that may drive additional scalability and financial benefits.

Qwest. For large enterprise customers, Qwest sometimes gets lost in the shuffle among its more established brethren. Thats partly because the carrier tends to pursue midmarket customers not already snatched up by AT&T and Verizon Business and partly because its high debt load has often led to doubts about its viability in the marketplace over the years. Indeed, CenturyTel moved to acquire Qwest last April, a deal which closes in the first half of next year. Obviously, merging the two providers operations will lead to downsizing and streamlining the combined portfolios. But Qwest has pledged to step up its cloud services initiatives over the year.

Right now, Qwest is just beginning to get into the game. Though its offered hosted services from its Qwest Cyber Centers for years, it is still refining its cloud services/computing strategy and solution set. Existing solutions include a managed security service called Qwest iQ Managed Security Service, in partnership with IBMs ISS business, and iQ Unify, a line of unified communications solutions for SMBs. After opening its 17th data center in the United States last March, Qwest also announced its new Network Management Service, a monitoring and management product suite that outsources some or all of these tasks to the cloud.

These services, as well as other, more computing-intensive managed services and applications such as storage and backup, fall under the carriers Hosting Cloud Services banner. But Qwest is in the process of upgrading this portfolio to an all-automated solution set that better utilizes server virtualization, combined with business-class transport through its IP MPLS VPNs tunneling backbone, iQ Networking. Look for Qwest to launch and rebrand its new cloud services towards the end of the year.

In addition, Qwest offers its Contact Center Solutions for call center customers, which uses a hosted multitenant, virtualized approach to deliver interactive voice response and agent call routing.

Qwests Cyber Centers target the small and medium business, delivering hosted business/continuity and disaster recovery services, as well as more than 80 different types of applications, operating systems and databases. All network and application operations are monitored 24/7, with strong SLAs for the entire managed service environment.

Notwithstanding its managed services portfolio, Qwest appears to be concentrating more on IaaS, rather than PaaS or SaaS, solutions, based on its latest network-centric releases. Diana Gowen, senior vice president and general manager at Qwest Government Systems, said as much when she declared the new data centers would further establish the carriers cloud computing capabilities in the infrastructure-as-a-service space. This may change as the post-merger reorganization takes shape. For now, Qwests focus is on ensuring network security, satisfying compliance requirements and addressing customers concerns over data ownership, according to Blake Wetzel, vice president of the Qwest Business Partner Program. The company clearly is trying to differentiate on its network capabilities, integrating load balancing and QoS directly into its private network offerings for more secure, near real-time performance, which is critical to customers when accessing business applications from the cloud.

Carrier Cloud Channel Programs

Its clear that VARs and system integrators will play a critical role in cloud service deployment, if only because for all their service breadth and partnerships, carriers simply dont know how to market these customizable services on a mass scale. Thats where the channel comes in. Speaking of enterprise users, integrators will be able to help organizations identify best use cases for the cloud, integrate cloud services with internal applications, build community clouds with other similar organizations (e.g., partners in the supply chain) and provide ongoing strategic support, said analyst DeCarlo.

And clearing up customer confusion about implementing cloud solutions is going to take more than crafty marketing. Todays solutions can be sold largely on cost savings and efficiency improvements, DeCarlo explained. Over time, these services may become more feature-rich and channel partners may be able to market cloud services on the basis of strategic capabilities, but today they should emphasize their elasticity and predictable and affordable pricing.

That said, DeCarlo, recommends that channel partners be prepared to educate customers on what types of applications are best suited for cloud delivery today and which ones are better managed on premises. Application integration expertise is also of value.

For the most part, these carriers are following their traditional go-to-market strategies for their partners when it comes to cloud services. Putting together a cloud solution is a high-margin business, but also an exceedingly complex one, at least at the high-end, where network, server and application integration is the name of the game. With all the market hype, you might expect carriers to go all-out for the channel, developing special training, marketing and incentive programs as well as ongoing sales and management support. But the carriers seem be confident that their existing partner programs will be enough to drive channel sales.

Take AT&T for example. The best-known brand in telecom recognizes the value of its partners and VARs when it comes to the cloud, emphasizing their role as trusted advisors, with great existing customer relationships that AT&T can mine. The carrier is betting its Business Solution Provider program, which provides training and support for the panoply of AT&T solutions, is just the right fit for its cloud services line too.

Our Solution Provider program offers extensive support to channel partners in the form of multiple compensation programs, a full suite of products with technical support behind each, in-depth education and training, as well as optional cooperative marketing programs, according to AT&Ts Costello. The carrier has no plans at this time for more customized, technology-specific support programs.

Verizon Business is pursuing a hybrid sales strategy; currently, its taking a direct-sales only approach to its SMB Mass Business services, as well as its Computing as a Service program for the large enterprise. Having merged its enterprise and SMB partner programs last February, the decision to go direct in one market dictates taking the same approach in the other, and clearly Verizon is keen to maintain high sales margins in one of its strongest markets, the large enterprise. The only VAR access to Verizon Business cloud solutions comes at the midmarket level, where the carrier will jointly market the program along with both direct and indirect channel partners for the medium-sized business. Agents and VARS receive the same product/service training and promotional campaign terms as the carriers internal sales force.

We feel that customers choose channels, not the other way around; therefore, we work with VARs and expect them to drive new customer acquisition as well as retention for those customers that they have relationships [with], said Peter Castleton, director of product development for Verizon Business. Some manage this relationship with their own installation and management services whereas others choose to resell Verizons bundled solutions and management services.

Thats not quite the approach being taken by Sprint, which, after all, offers all of its cloud services for resale. The indirect channel is very important to our strategic plans, said Parrott. We recognize the value of the reach and solutions our partners offer, above and beyond Sprints core offerings. We embrace the business indirect channel for their ability to create customized turnkey solutions for our customers. They provide a level of creativity, innovation, focus and individual customer support that is difficult for the industry to match.

Sprints training and compensation program for partners likewise mirrors that for their direct sales force, with multilevel training, sales support, technical presale support, engineering support, marketing materials and access to internal and customer seminars. Both sales groups have access to the same competitive pricing, volume discounting and, when it is required, customized pricing. Sprint operates an exclusive indirect dedicated management and marketing support program for its partners, but there are none expressly designed for cloud services at this time.

Weve invested quite a bit in addressing the needs of our partners because we think it is a two-way street, especially as they help us expand converged solutions, Parrott said. We are working to provide ongoing information-sharing and training tools. Our newsletters, Web site, Web conferences, etc., are examples, but it is also about learning what each partner needs to be successful and ultimately increase sales.

Qwest, perhaps the most channel-centric of all the carriers, also is following the same tack as Sprint and AT&T. Qwests well-regarded Business Partner Program is open to any and all partners for each product or solution. Again, direct and indirect channel sales teams receive the same level of training and support as internal sales, but there is more of an emphasis on joint marketing and management of a cloud-based solution.

Like Sprint, Qwest places a premium on maintaining an ongoing dialogue with their partners about engineering such services, often sharing the customer relationship to a greater extent than some other providers who prefer a more clear-cut separation of operational tasks. For instance, Qwests focus on more IaaS-based services means that it can manage the service right up to the OS layer, allowing VARs to own the apps integration layer, as well as server management, for higher margins. And Qwest extends this share-the-customer approach to application monitoring and management; customers can decide which chores they want to fall to Qwest, the VAR or, potentially, both.

Though the channel may be well-served through existing carrier partner programs, some may decide to partner with providers that have more service-specific cloud service programs that would deliver more advanced educational and marketing tools, along with best-practices tutorials on an ongoing basis, both before and after the sale is made. For instance, ReliaCloud, a veteran hosted service and IaaS provider, recently introduced an enhanced training, marketing and support program solely on cloud services for its affiliate, VAR and private label partners.

Certainly, channel partners will have to evaluate carrier programs in the context of more cloudcentric service providers. That effort already is underway. In late May, two master agencies, Concierge Communications and Terrapin Solutionsformed a cloud services roundtable group to organize and coordinate other master agencies targeting managed and hosted services, as well as cloud computing. The idea is to exchange best practices, share evaluations of the latest solutions and technology and establish tighter collaboration among members. But another goal also is to introduce the channel to an entirely new set of vendors and make them aware of the channels unique benefits and requirements.

“This [cloud roundtable group] is about a fundamental shift in the communications and technology industries, said Andrew Pryfogle, CEO of Terrapin Solutions. The roundtable group ensures we keep tabs on the industry, so we can offer our agent communities the best options to fulfill their clients cloud-based initiatives.

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