A virtual Gold Mine?: Offering VPNs to small businesses may be an excellent opportunity for service providers. A multiservices Internet gateway can simplify the task of delivering those services

The Internet and technology spawned by the Internet have revolutionized the way many companies conduct business throughout the world. Today's 68 million World Wide Web users all but secure the Internet's long-term dominance, viability and success. That number is projected to soar to nearly 300 million users by the turn of the century,

Companies typically start by creating a Web site, mainly for advertising, information dissemination and electronic communication with anyone who has Internet access. Companies often become dependent on Internet technologies to support daily intracompany business functions.

International Data Corp. projects that 90% of all large companies will have a Web site by the end of 1997. On the intranet side, Zona Research estimates that at the end of 1996, 80% of companies with more than 1000 employees and 55% of companies with 100 to 1000 employees deployed intranets. These intranets serve multiple functions, including e-mail, workgroup collaboration, database sharing, help desks, directories, inventory management, and employee or group Web sites. Zona Research further anticipates that intranet products and services revenues will exceed that of the Internet by a 2-to-1 ratio.

In a recent Meta Group study, 80% of the companies surveyed received a positive return on their intranet investment, with an average annualized benefit of 38% of the money invested. Besides improving profitability, intranets can help companies improve efficiency, productivity, customer service and satisfaction, and increase competitiveness.

Often, individual departments such as engineering, operations, human resources, customer service, marketing, finance and information systems may have their own intranets. By having a separate intranet, each group controls security, content and other features not part of a companywide intranet. Additionally, local Internet/intranet infrastructures consisting of servers, routers, firewalls and remote access and other devices are often deployed in regional and branch offices as well as in corporate headquarters.

The fast pace of technology evolution, changing end user demands and integrating new applications already has created unique problems for the internal information technology organizations of some large and medium-sized companies. Managing local networks at the remote sites can be particularly problematic.

Where does this leave the small businesses that typically have few internal information technology resources? Are companies with fewer than 200 Internet users doomed to fail in this age of technology?

Small business challenge Small businesses that have implemented intranets usually have used either the "jigsaw net" or the "remotely hosted net" approach.

A company uses the jigsaw approach when it needs to publish company, group or even employee Web sites; to exchange e-mail; and to store corporate information locally. The company installs individual equipment components designed to perform specific functions (Figure 1).

The corporate server that is on the same local area network as the end users stores proprietary company information for internal use and access only. Company users include workers collocated in the same office, in other offices and even telecommuters.

On a physically separate LAN, the company connects the Internet application servers to support file transfer protocol (FTP), e-mail and the Web; remote access servers to support dial-up, ISDN, digital subscriber line and dedicated connections to the Internet; and routers.

A firewall typically separates the corporate LAN from the Internet to ensure that only authorized users can access proprietary company information. While the Internet application servers may support intracompany and external access, external users can be denied access to intranet-specific information and sites. Intranet information can include corporate phone directories, multimedia employee training, technical database libraries, universal data entry for employee database changes such as 401K enrollments, sales information such as catalogs and price lists, product availability and competitive information, job postings and procedures manuals.

The jigsaw net model gives information technology managers more direct control of their own networks. Information technology managers can build as much security, scalability and robustness into the network as required. However, this implementation presents some interesting problems for the information technology managers.

High-level networking expertise. This solution requires information technology managers to have an in-depth knowledge of managing LANs, wide area networks, Internet, remote access and applications. These highly skilled individuals demand premium salaries. Even if a company is lucky enough to find and afford qualified information technology managers, these resources may be stretched thinly across the organization.

Multiple vendors. Information technology managers must determine what type of equipment is required, evaluate multiple vendors and ensure interoperability between different vendors. Ongoing network management of a multivendor solution further complicates the puzzle.

Complex maintenance coordination. Troubleshooting and maintenance present daunting tasks. Susceptibility to vendor finger-pointing is inherent in multidevice, multivendor platforms. Finger-pointing results in extended network downtime and dissatisfied internal and external users.

High cost. The jigsaw net model is an expensive solution in terms of hardware, software and ongoing maintenance and management. This solution also poses scalability problems in meeting growing business needs.

The remotely hosted model offers a hybrid private/public solution (Figure 2). A business builds and manages the corporate LAN while an Internet service provider hosts the company's Internet and intranet applications on a dedicated or shared server located in its point of presence.

Many small businesses with little or no information technology resources consider this the best model because it gives them security and control of their corporate LANs while relegating the responsibility of hosting and managing highly dynamic Web and e-mail applications to an ISP. However, this solution has some drawbacks for rapidly growing companies with constantly changing end user needs and applications. The disadvantages vary depending on the ISP, its network implementation and its service offering.

Shared ISP server. The ISP's server, hence server-processing power, is shared among multiple ISP customers. This means that each company's Web site or intranet traffic can diminish the performance of the other companies' Web sites and intranets. Some ISPs implement load-sharing servers to minimize this problem.

Less flexible e-mail management. End users may need to coordinate moves, adds and changes with the ISP, which can be tedious and time-consuming and can delay implementation. These functions include adding and deleting e-mail users, copying or forwarding e-mail, specifying file encoding schemes and managing file size.

Static Web publishing. Companies often use FTP to upload changes to Web sites hosted by an ISP. The speed of the access link primarily determines the time it takes to update the Web site, which is often five to 180 times slower than a LAN connection. For sites with graphics, this delay can affect the quality of the Web site and how frequently it is updated.

The service provider opportunity One company's problem is another's opportunity. Small business networking challenges open the door for public service offerings that can address these challenges.

The total intranet market is expected to grow more than 100% in 1997 to $8.4 billion. Key areas of expansion will include intranet development, integration and programming, which is expected to increase 171% to $1.8 billion, and training, which will be up 165% to $1.2 billion, according to CAP Ventures.

By offering Internet protocol-based virtual private data network services, service providers can offer small businesses the best of both the jigsaw net and remotely hosted net models. Providers of virtual private data network service typically install, maintain and manage the hardware and software in the area within the dashed lines in Figure 1.

In developing and launching such a service, service providers should conduct a market segmentation analysis to determine customers' goals and objectives, network configurations, business applications, fears, hot buttons and buying trends. Providers should match their own core competencies and constraints against each market segment's key characteristics to identify target segments.

The market segmentation analysis, together with a competitive gap analysis, should provide ideas for differentiation and packaging. For example, service providers may want to pre-package different levels of service depending on the type of offices a customer has and the amount of information technology resources in those offices.

Remote offices may need a fully managed solution, including the management of the corporate LAN, because remote offices often do not have in-house networking expertise. This is normally true of small branch offices of travel agencies, law firms, realtors, insurance companies and health facilities. These remote offices would need a comprehensive set of pre-packaged services and support.

On the other hand, the central site or headquarters may need only a subset of the services offered to the remote sites. Serviceproviders might want to offer customer-controlled access and service management capabilities to the information technology manager at the headquarters location only. The information technology manager then can manage the branches remotely.

Another option is to pre-package e-mail, FTP, Web, security and other Internet services. Customers can choose the types of services that their virtual private data network needs to support and pay for only the subscribed services. Multiservices Internet gateways enable service providers to layer incremental services on top of the network infrastructure to increase revenues and simultaneously achieve network and operations economies of scale.

Service providers can leverage their expertise in vertical markets by tailoring their services to these markets. In the future, vertical-specific content distribution can be integrated with the service offering.

Service providers also should work closely with equipment vendors to fully understand a platform's capabilities. Many vendors target corporate end users and have a solid understanding of end user needs and concerns. Some also may provide professional marketing services to help develop, launch and manage virtual private data network services. These vendors usually are eager to provide valuable insight because their long-term success depends on the success of each customer's services.

The multiservices Internet gateway The devices and vendor platforms that a service provider deploys at the customer premises influence the features that can be offered as part of a virtual private data network service. These devices and platforms also determine the level of operational and management support required to provide the service.

Many service providers are choosing a single-box, single-vendor solution for the customer premises equipment portion of their offering. This eliminates the need to install, maintain and manage multiple devices at the customer premises and manage multiple equipment vendors. A single piece of equipment can reduce the number of maintenance trips to the customer site and reduce points of failure.

The multiservices Internet gateway can serve this function. It allows multiple users to access a variety of Internet services using different WAN interfaces. The gateway offers router, firewall, remote access server and network management functionality.

In selecting a multiservices Internet gateway, service providers should consider a number of criteria.

Carrier-class features. Although the equipment platform resides at the customer premises, it is an integral part of the service. A platform that offers carrier-class features can result in higher functionality and improved customer satisfaction.

Among these features are an uninterruptible universal power supply, redundant mirroring servers, hot-swappable modules and out-of-band remote management.

Scalability in multiple dimensions. Ease of scaling the network is critical in catering to the fast-growing small business market. Neither service providers nor their customers can afford potential downtime associated with forklift platform upgrades. Key areas are Internet server memory, router processing power, WAN access bandwidth and the number of end users supported.

An easy-to-use network management system. A browser interface can simplify network management for end users and service providers. Device and services configurations, diagnostics and upgrades all should be easy-to-control.

Additionally, the network management system should provide reports that offer analysis, interpretation and recommendations. Service providers may wish to give customers access to performance data, offering them a sense of security about network performance that may reduce customer calls to the service center.

Remote manageability. Service providers can reduce the need to make on-site customer visits by using a platform that can be configured, upgraded, maintained and remotely managed. Remote management can decrease the mean time to repair and increase network availability.

Network partitioning. Some small business customers may have a virtual private data network composed of several intranets-one for each of its corporate departments. A network management system that allows service providers to view and manage individual customer virtual private data networks and individual intranets within each virtual private data network can enable more efficient and effective trouble isolation and resolution.

Function security levels. The platform should support different levels of function security. The service provider needs to be able to set up, configure, upgrade and perform maintenance. Information technology managers need to set up user accounts, allow Internet or intranet publishing and control access to directories. They also must be able to analyze file transfer, mail and other logs, as well as Web server statistics.

On-site CPE support. Service providers that have resource concerns about on-site installation and maintenance of the multiservices Internet gateway may want to subcontract these functions to a third party. Many CPE vendors have an on-site CPE program designed to address these concerns. Some programs may offer backup units for emergency replacements.

In addition, some vendors respond to after-hours trouble calls from end users or during office hours for overflow calls.

Other infrastructure Service providers that do not currently have their own IP-based network should consider partnering with an ISP to provide the WAN Internet transport for their virtual private data network service offering. This would enable a service provider to quickly enter the virtual private data network market without taking on the added responsibility of managing the WAN connection.

Another option is for service providers to deploy a hybrid network to increase their service coverage. A service provider may build its own regional network and then find that some customers have a few locations outside the region. Partnering with an ISP for these out-of-region locations may be an economical solution that allows the service provider to enter the market quickly with wide service coverage. The service provider may later decide to build its own network outside its region as traffic volumes and the number of off-net locations increase.

The market for IP-based virtual private data network services, which TeleChoice expects to grow from $225 million in 1996 to $3.5 billion by 2000, is up for grabs. Unlike many of the larger companies with in-house information technology resources, small businesses demonstrate an urgent need and willingness to outsource their networks.

Aggressive and innovative service providers that target small businesses with a virtual private data network service offering have tremendous immediate revenue opportunities. However, early service launches will be critical in successfully penetrating this market.