Cisco convinced the future is managed services

Seeing managed services opportunities arise, Cisco Systems turned to U.K.-based analyst and consulting firm, Ovum, to confirm the level of interest by enterprises for services managed by their network providers. Ovum's answer? A $41.5 billion market by 2009.

However, not all of Cisco's assumptions about the managed services market have been correct. Cisco assumed the small and medium-sized business market would be more voracious. It also assumed managed storage services would be bigger than they are, said Kirt Jorgenson, director of managed services and the Cisco Powered Network Program.

However, Ovum's study shows a more consistent appeal across vertical markets and geographies and more enthusiasm for security and managed voice services. It also confirms Cisco's instincts that the market is starting to pop.

Managed voice-over-IP (VoIP) services will see a 65% compound annual growth rate over the next three years, according to Ovum. And managed network security is now the most commonly adopted IP service.

“What's most interesting is how consistent the demand is,” said Jan Dawson, research director of telecom for Ovum.

The study collected data from 2500 end users from 20 countries across the major enterprise segments, such as finance, manufacturing, etc. The results indicate that these end users are now ready to accept managed services.

“When technology is new, enterprises are less inclined to entrust another entity to run their network, but as technology becomes mainstream, there is more of a willingness to out-task to a service provider because it is no longer seen as a science project,” Jorgenson said.

Cisco sees managed services as a way to help service providers overcome their revenue woes. Sprint, a Gold Member in the Cisco Powered Networks Program, hopes that is the case.

“Who knows if managed VoIP will grow as fast as people are thinking … but it is becoming clear that VoIP is finally coming of age,” said John Montross, Sprint's vice president of managed network operations.

“As companies start stepping through VoIP implementations, we see them running into brick walls,” Montross said. “So a lot of them are coming back to us as an outsourced partner to relieve the level of complexity.”

Some doubt still lingers with large enterprises that hesitate giving up control, he said, but that doubt is waning as they see the benefit of utilizing their carriers' ability to resolve problems. This is due to both the more direct relationships between other network providers that enterprises don't have as well as, in Sprint's case, having Cisco-certified technicians on staff.

The Ovum study indicated that enterprises worldwide have a strong preference for purchasing IP managed services from carriers that use Cisco products.

Other companies that see the managed services light will be trying to change that perception. Lucent Technologies, for instance, boasts of $1 billion in managed services contracts over the last 24 months. It recently launched a hosted application and managed security business.

“These are two new lines of business within managed services that are adding to our bottom line significantly,” said Patrick Matthews, senior strategic portfolio manager for managed and hosted services for Lucent.