Who do you trust? The service provider dilemma

Last week, I posed the question of whether the service provider market is ‘back.’ That drew lots of interesting responses, but none more so than this comment from a reader who asked not to be identified.

In the fight between you and the world, back the world.Frank Zappa

Dear Vorticians,

You know I aim to please and the quote above is just one small example. Vortician Woody Benson told me yesterday he’s been waiting for a Zappa quote for quite some time. Sorry, Woody. Here’s one for your reading pleasure. Now, how’s that for service?

Last week, I posed the question of whether the service provider market is “back.” That drew lots of interesting responses, but none more so than this comment from a reader who asked not to be identified.

“John, the game is changing for service providers. Who do enterprises trust for ERP implementations and support, Verizon or IBM? As communications comes to look more like enterprise software and networking, who will enterprises trust?  (According to one report), 43% of service spending by enterprises — almost as much as all data and wireless spending combined — still goes for voice services. The potential impact of shifting that massive spending to other technologies and other providers, as well as to do-it-yourself solutions, is still underappreciated.” 

The comment really struck a nerve because it fed directly into a discussion that Geoffrey Moore and I have been having regarding VORTEX 04: What role will service providers play in the next phase of the IT industry?

This is a critical question that our astute reader has framed a bit differently: What do traditional service providers stand to lose if they don’t define a role for themselves in the evolving enterprise space and the next generation of applications and infrastructure?

Today, frankly, enterprises don’t look to service providers for strategic direction. It’s a sad truth.

The major ideological initiatives such as virtualization, grids, autonomic computing and on-demand are the stock in trade of the premier computing, storage, applications and network vendors. Customers are looking to gorillas – in Geoff’s parlance – like IBM, Microsoft, HP, EMC and others for their visions of the future – despite the fact that they continue to spend huge chunks of their IT budgets with service providers.

Most enterprises spend far more with their carriers than they spend on Microsoft products, but it’s Bill Gates they turn to for direction and not Ed Whitacre. How can that be?

Because service providers have failed to evolve. Service providers remain purveyors of capacity. They sell time and bits. They haven’t secured their spot in the boardroom-level discussions about the evolving architecture for services-oriented computing. Service providers have failed to articulate clear visions for this architecture and, perhaps worse, have not even aligned themselves with the visions of other the top IT vendors.

What is the role of the service provider in IBM’s on-demand architecture? What part do service providers play in EMC’s Information Lifecycle Management plans or HP’s Adaptive Enterprise? How will their service portfolios change to reflect the changing mix of applications and infrastructure customers embrace?

As our reader points out, this is far from a theoretical quandary. Companies – even giant companies that are currently leaders in their markets – that do not control or contribute to the future computing architecture will be reduced to secondary status, perhaps even commodity status. Service providers will never be able to get beyond their current, bruising price wars without gaining some control at the vision level.

Case in point: Let’s say IBM Global Services wins a major deal to bring “Bigco” into an on-demand world. At that point, the service provider’s relationship with Bigco is largely severed. Transport becomes a commodity and IBM Global Services’ goal will certainly not be to maximize the service provider’s revenue. In fact, the outsourcer or business partner will likely pit service providers against one another to drive costs down substantially, shifting those revenues elsewhere. (Guess where?)

If you think the future for long-haulers and local telcos is bleak already, imagine what it could be in the scenario above, which is already taking shape.

Am I being too harsh? Am I painting too dark a picture for service providers? Are service providers more articulate and inventive here than I’m stating? Is there a leader among the crowd?

Those are the deep questions that I leave to my fellow Vorticians on this beautiful New England afternoon. You can answer them, as always, by writing to me at jgallant@vortex.net.

Bye for now.