The Return of Pure Networking
Network and hosting service providers venturing into the software business have found demand for all but the most obvious of these futuristic services is slim, and that competition for network services tends to creep up from the most improbable places.
Just a year ago, the formula still seemed to be clicking. Businesses, tired of maintaining their computer networks and individual machines, would turn to service providers to lease equipment and rent software packages. Since network quality is essential to using applications such as Microsoft Word that are hosted in data centers, network providers that jumped on the bandwagon early raked in revenue from both the data traffic and from renting software.
But even though corporate networking has graduated into the gigabit Ethernet class of connectivity, application service provider (ASP) models seem to be developing in slow-motion as virtual private networks and dedicated extranet-style services geared to specific applications - like CoreExpress videoconferencing bundle - gain steam. And while technologists argue over which approach is better - raw bandwidth, class-based routing or tunneling - businesses typically choose the types of connectivity that best fit their application stacks.
Its not hard to find those who disagree with the ASP business pitch. In fact, most network providers and data center owners now are pushing the idea of acting as the back office for legitimate ASP efforts, with the caveat that at the end of the day, Microsoft will be the biggest ASP of all.
"It would be a fatal mistake for any telecommunications company to go and try to sell a customer an application," Sam Mohamad, Exodus Communications president of worldwide sales, told Interactive Week before the company filed for bankruptcy protection. "They just dont have the expertise. The practicality of the situation is that software vendors themselves will do most of the selling, and outsourcing partners like us should stick to what we do best, which is supporting a mission-critical environment."
Still, not everybody has written off the software business as a failed fad.
Cable & Wireless is attacking the niche with a division called a-Services. A joint venture between Cable & Wireless, Compaq Computer and Microsoft, the division initially aimed to rent out apps to business customers via thin client machines set up on a local area network (LAN) installed by a-Services and connected to Cable & Wireless network. Compaq machines were to serve as desktop and wireless platforms.
But business realities introduced serious adjustments to this plan. First, companies didnt want to part with their computer LANs; even if Cable & Wireless learned to support their proprietary databases, customers were reluctant to turn them over to a third party. Second, customers didnt want to be locked into a specific hardware vendor. And third, they were not eager to install a thin-client operating system onto existing machines. The wireless part of the offering didnt go too far, either, mainly because of the bulk and expense of existing devices, Cable & Wireless execs say.
As a result, a-Services switched to delivering its for-rent apps via Web browser. "The last 12 months have been a torturous market and its changing seemingly by the month. This isnt a cheap game to get into or to remain in," Cable & Wirelesss a-Services President Jeremy Thompson says. "Collaboration is an area of pain for a lot of organizations, so there is a lot of interest in that suite of products."
Among 1,000 a-Services customers, about half are using collaboration software, most commonly Microsoft Exchange. With this application, an organization can have e-mail hosted off-site and users can share files, calendars and other functions. This information can be accessed from anywhere.
This is not the high-volume pipe contract that was envisioned at the dawn of initiatives like a-Services.
While Thompson says business is fundamentally good and that as more businesses get comfortable with outsourcing, more applications will follow, for now, Cable & Wireless is competing with boutiques like Intermedia.Net, which specializes in outsourcing Microsoft Exchange.
Through the rationalization of back-end order processing and provisioning, such boutiques are price-competitive with a-Services, erasing any benefit from economies of scale that large telcos like Cable & Wireless might have had. The only trump card Cable & Wireless has left in the game of Microsoft Exchange outsourcing is its sheer size.
With the software-for-rent business stuck in low gear, many carriers have begun to offer large corporate extranets that allow enterprises to access software applications that they arent ready to outsource, from many locations. WorldCom in early September said it had rolled out a 1,000-site virtual private network (VPN) for Toyota Motor, perhaps signaling that many large telecom companies are bound to become the value-added intermediary in enterprise transactions.
However, the latest developments in automating enterprise application integration over wide area networks (WANs) are emerging as a threat to value-added connectivity services like VPNs. New schemes are reducing corporate requirements for application-specific quality-of-service provisions in the last mile and upholding the telecoms status as providers of the dumb pipe.
Peer-to-peer WAN enterprise software integrator Flamenco specializes in interconnecting various enterprise software applications - so that a travel reservation system could talk directly to credit card companys database, for example. But in the process of connecting the enterprises it undermines the value proposition of carriers business-grade networking.
"The Internet is notoriously not robust, it is not secure, it is not reliable - but it is cheap," says Flamenco President James Davis. "Our network allows us to guarantee the delivery. We use digital certificates, we do encryption and we do compression; basically, we are taking that message, wrapping it up and transferring it to the other end of the network on a peer-to-peer basis."
Peer-to-peer technology allows mission-critical communication over the public Internet for non-live apps, which eats into the bandwidth market.
Would the future of large carrier enterprise networking then lie in selling dumb high-speed pipes, the equivalent of circuit-switched dial tone?
If history is any indication, such a conclusion would be a stretch, but with the ASP segment being stuck, it is hard to imagine carriers becoming worthy competitors of system integrators and software companies in the arena of advanced networking services.