Cloud computing can solve business competition challenge

The saga of the telco and cable rivalry has moved to the business market place. As of March 2009, Cox is on the record targeting close to $1 Billion of revenues from business customers by year-end, while Comcast's publicized goal is $2.5 Billion per year within an undefined timeframe.

The cable industry's strategy is instigated by thinning residential opportunities, due to broadband Internet saturation and price sensitivity, emerging interest in watching TV and movies on broadband Internet connections rather than on cable TV, and the decline of landlines as voice shifts to wireless. The progress of AT&T and Verizon in deploying faster triple-play on fiber networks and of 3G operators offering triple-play on attractive phones also compels cable MSOs toward business markets.

In the business market, telcos should have the primary advantage with fiber-rich networks saturating the commercial geography. The cable companies, however, are building extensions of their network into business areas and will offer both metro Ethernet services and DOCSIS 3.0 on HFC plant that provides data speeds akin to the speeds of Verizon's FiOS or AT&T's U-verse. Lower price claims are in the forefront of MSOs' market penetration efforts, just as the telcos are using lower pricing in their residential marketing activities. Comcast's web site is currently promoting business communication services by offering: "Save more than 22% over the competition."

The competitive formula generally used by cable companies pursuing business customers features aggressive pricing, bundles of service, innovative technologies for higher Internet speeds and expanding physical plant to access more customers. This approach pretty much mirrors the formula that telcos are using to expand into residential markets. In effect, telcos and cablecos appear to be spending billions to seemingly trade customers.

In the competitive business communications landscape, one service provider's churn is likely to be another service provider's new customer at a lower price. A more attractive means of business is innovation that grows the category of services offered to gain competitive advantage. Such an opportunity is the building momentum for "cloud computing" which is a representation of software-as-a-service (SaaS). I prefer the term SaaS for this discussion.

For telcos and cable companies alike, a silver lining of the economic recession is likely to be acute enterprise sensitivity to IT costs – staffing, facilities, software and hardware - which favors SaaS as a cost cutting initiative. System integrators and VARs have not embraced SaaS, as it challenges their business model. This leaves an opening for communication service providers to lead the distribution of SaaS while also benefiting from increased SaaS traffic on their networks.

"Anything that has been a server needs to be a service," was asserted on March 20 by Microsoft's CEO, Steve Ballmer in referring to Microsoft's new offer of Exchange, Sharepoint, and other server software in a cloud computing model branded Azure. (NY Times, "Steve Ballmer Maps Microsoft's Cloudy Future"; 03/20/09).

Google also recently announced their applications are being offered as SaaS for enterprise users. Jamcracker has long featured a catalog of diverse software from multiple vendors for purchase by subscription over Jamcracker's support and billing platform. Their SaaS is designed to be "white-labeled" and sold by communication service providers.

Salesforce.com is the SaaS leader and they sell directly on the web. Their example demonstrates that if communication service providers don't take part in creating future SaaS value propositions through distribution, SaaS can still emerge leaving communication service providers to the unflattering role of "dumb pipes". SaaS presents a promising business opportunity to gain new revenue from new sources which merits reconsideration. Simplistically, SaaS could be the premium service for business Internet customers, just as movie channels are the premium service for consumer video customers.

Peter Lynch is Managing Principal – Technology, for the NextGen Marketing Group.