IDC
International Data Corporation

Does the Rise of Wireless and Internet Delivery-Focused NDOS Providers Signal a New Outsourcing Paradigm?

David Tapper
IDC IDCFlash #20774 - November 1999

Table of Contents - Abstract - Document



IDC Opinion

Are network and desktop outsourcing services (NDOS) newcomers Systinet, OneNetPlus.com, CenterBeam, and everdream laying the foundation of the next-generation NDOS service delivery and business model?

The combination of converging and maturing transport technologies (e.g., Internet/IP and digital subscriber line [DSL]), a massive expansion of global and domestic networks, and price reductions in IT hardware (e.g., PCs) is providing the technological and cost-effective foundation needed to offer customers flexible and robust NDOS solutions. As a result, new NDOS entrants can deliver network and desktop services to customers using a utility-based business model, with services delivered through next-generation technologies such as wireless DSL.

These changes extend even further the ability of these players to offer services not only to the traditional base of NDOS clients (e.g., those with 100-plus seats under management) but also to businesses with as few as 10 seats. Although a number of technological and customer-sensitive barriers still need to be overcome, this set of new NDOS vendors appears to be laying the foundation not only for what may become the dominant form of service delivery but also for the delivery of NDOS solutions to the "home networking" market.

Within the past 12 months, a new breed of service providers has made its presence known for the delivery of broad-based NDOS. This new cast of NDOS competitors includes Systinet, OneNetPlus.com, CenterBeam, and everdream. The critical difference between these start-ups and existing NDOS players, such as Inacom, ENTEX, IBM Global Services, and Unisys, is their primary emphasis on delivering most or all network and desktop services via advanced wireless and Internet technologies that are designed to dramatically lower a customer's total cost of ownership (TCO) and that can be offered to a wide range of customer sizes (e.g., those with 10 to 5,000 seats).

Although currently in their nascent stage and with a number of technological challenges in their path, these new ventures are attracting the attention of traditional NDOS providers because they signal the transition to new business and service-delivery models that could seriously challenge the existing community of players.

IDC Analysis

By combining either Internet or wireless DSL technologies with a utility-based business model, these four NDOS vendors are offering customers not only a set of new options for receiving end-to-end services for their distributed IT infrastructures but also a service-delivery model that centers on the ever-growing use of next-generation technologies. As Figure 1 highlights, the strategic differences between these new ventures involve the type of technology utilized for service delivery, the size of the target customer, and the service-delivery infrastructure, whether Web-based marketplace or technology alliances, leveraged to provide end-to-end solutions. Most of these new ventures -- some of which have yet to be formally launched -- are headed by experienced IT executives who hail from such well-established companies as IBM, Comdisco, and Novell.

Figure 1 - Key Customer and Service-Delivery Features of Network and Desktop Outsourcing Services Vendors

Source: International Data Corporation, 1999

Background

Systinet

Optimal Integrated Solutions president and CEO Ayman Suleiman, in an alliance with Hewlett-Packard's OpenView business unit, is launching a new company, called Systinet, to deliver Internet-based, remote-enterprise-management NDOS solutions to small and medium-sized organizations. Using HP's OpenView platform, Systinet will provide customers with end-to-end services, including desktop management (e.g., assets, systems, and applications), help desk, 24 x 7 support, server support (e.g., file, print, and critical applications), LAN/WAN management, CIO reporting tools, application management (e.g., email, database, and back office), and security management (e.g., intrusion detection and firewall). These offerings will be provided on either an ongoing or an as-needed (i.e., utility) basis to customers that range in size from 100 to 5,000 desktop seats.

OneNetPlus.com

Systems Management Specialists (SMS), an international outsourcing, systems integration, and computer services firm, announced the formation of an Internet-centric NDOS company called OneNetPlus.com, which will be headed by Russell West, formerly of Comdisco (see OneNetPlus.com Launches Internet-centric Network and Desktop Outsourcing Services Business, IDC #20615, October 1999). NDOS offerings will include desktop and server management and network connectivity services. Examples of these services include the essential design and reengineering of the corporate network and critical servers based on service-level agreements (SLAs), help desk, asset management, lease management, problem management, and change management. eBusiness services designed to support network and desktop infrastructures include virtual private networks (VPNs), Web connectivity, and high-availability services. OneNetPlus.com's target customers include medium-sized companies with between 1,500 and 2,000 employees.

CenterBeam

Led by CEO Sheldon Laube, former chief technology officer at Novell, and backed by more than $20 million in venture capital from Microsoft and USWeb/CKS, CenterBeam will provide a full range of NDOS solutions to organizations with between 10 and 100 desktops for a monthly fee currently set at $165 per month, based on a minimum commitment of three years. Services, which will be delivered via wireless DSL technology, include wireless LAN management, high-speed Internet access, email, a Web site, applications, security management, troubleshooting, back-up and disaster recovery, an Internet portal, 24 x 7 customer service, and a two-year technology refresh schedule. Part of CenterBeam's delivery model includes an "electronic marketplace" of Web-based service companies, including NetAbacus, which provides next-generation, Web-based business services; Beyond.com, which sells desktop applications; EmployeeService.com, which provides Web-based human resource management and administration processing services; and UpShot.com, which enables companies to manage sales and customer relationships. Through this electronic marketplace, customers can access from CenterBeam partners the NDOS offerings that CenterBeam does not directly provide.

everdream

Located in Mountain View, California, and headed by CEO Gary Griffiths, formerly of IBM, everdream will provide companies that have fewer than 20 desktop seats with a completely outsourced, Internet-based computer service at a cost of approximately $150 per month. Through a series of strategic partnerships with such companies as Lucent Technologies, Oracle, Caliber Computer Corp., and Concentric Network Corp., everdream will provide robust computer and remote computer system support by using the Internet to deliver bundled business applications and key Web-based services. Lucent and Oracle will support network and enterprise resource planning (ERP) software management capabilities, respectively, and companies such as Caliber Computer will supply PCs and PC component upgrades to corporate customers. In addition, everdream formed a partnership with Concentric Network to deliver easy-to-use Internet networking solutions to small and medium-sized businesses, including high-speed dedicated and DSL access as well as Web-hosting and ecommerce services.

Opportunities

By incorporating these leading technologies and a utility-based business model as part of the foundation for NDOS delivery, these four vendors are meeting the technological, human resource, service, and capital budgeting needs of today's customers. The opportunities arising from the implementation of this new service model include the following:

Establishing first-mover advantages. As with most industries in any market today, so-called first-movers that quickly build and sustain competitive advantage can capture market share and establish brand equity, with a greater possibility of becoming a market leader. The opportunity for any or all of these vendors to achieve this level of advantage is tremendous given the concentrated effort and focus they are giving to implementing these new technologies and a utility-based business model. Gaining first-mover advantages will involve establishing successful early wins that can be leveraged to build additional customer trust.

Providing customers with the comprehensive NDOS solutions they need to support business-critical areas such as ecommerce and remote access. By aligning in-house technologies with the rapidly expanding -- and expected domination by -- IP and DSL networked backbones, vendors can leverage these global networks to offer customers end-to-end solutions that are designed to support business-critical opportunities in areas such as ecommerce, which currently depends heavily on the Internet, and the extended enterprise, which includes remote employees and strategic alliances and partnerships.


Providing "micro," small, and medium-sized customers with a lower-cost, more predictable TCO that is critical in addressing their financial constraints. For small and medium-sized customers that have capital budgets constrained by insufficient cash resources, this utility-based model -- where services can be rendered based on either a continuous service agreement (e.g., over an agreed-upon period of time) or on an as-needed basis (e.g., between the hours of 8 p.m. and 8 a.m.) -- offers customers greater control over IT operational expenditures.
Challenges

The success of each of these new entrants will depend on their ability to overcome a series of competitive, technological, and customer-related factors, including the following:

Accelerating the learning curve. Although these competitors can leverage their first-mover advantage, one disadvantage confronting them is their position at the beginning of the learning curve. Despite the experience brought to each of these ventures by veteran IT executives -- such as CenterBeam's Sheldon Laube, formerly of Novell, and everdream's Gary Griffiths, formerly of IBM -- the initial knowledge base needed to accelerate the learning curve may not emerge in time to defend against incumbent NDOS players such as IBM Global Services and Unisys, both of which have greater resources and well-developed processes for launching new services. In addition to seeking critical partnerships with established players that can rapidly contribute to the delivery of these solutions, these NDOS vendors may need to employ more radical management systems that can further accelerate the learning process, such as Open Book Management.

Mitigating existing technological barriers and customer apprehension. The primary technological barriers impeding the success of these new NDOS offerings include the provision of robust security and quality-of-service capabilities. Although customer fears regarding security are slowly being alleviated with the implementation of more bulletproof technologies, including public key infrastructure (PKI) and digital certificates, service quality issues that involve high availability and bandwidth access must be addressed to ensure that customers receive the level of service commensurate with that offered by existing NDOS providers, such as ENTEX and Inacom.


Competing with established players. Dwarfing the financial and human resources available to these newer players are those available to veteran players such as ENTEX, Inacom, GetronicsWang, IBM Global Services, and Unisys. This is no small factor in establishing market presence, given the high infrastructure costs associated with building the network operations centers and sales and marketing forces needed to support the vast array of services that are part of an NDOS solution. In addition, the critical NDOS partnerships that experienced competitors have with distributed systems product vendors, such Cisco, Dell, and Microsoft, already provide them with major cost advantages as well as greater geographic reach and range of services.

Market Implications

Although these start-up vendors may not pose a direct threat to the existing community of NDOS providers, the emergence of this new business and service model must be taken seriously. The delivery of services across new, less-expensive transport systems, such as the Internet and wireless networks, is becoming more viable with the convergence of several critical factors. These factors include the expansion of global networks by telecommunications companies to support the reach of these technologies, the greater robustness of network and security management tools to provide end-to-end management and customer assurance, and the growing maturity of critical technologies, such as DSL, that will meet customer demand for high-speed connections and availability.

Supported by this new technology infrastructure, the new business model of providing customers with a utility-based pricing structure -- which provides both continuous and periodic use of vendor services as well as a flexible menu of service options -- will align well with customers' need to become more nimble in a rapidly changing marketplace. In addition, the range of customer types to which these new service-delivery offerings are being marketed, from as few as 10 to as many as 5,000 desktop seats, indicates not only the threat this delivery system poses to existing NDOS vendors that compete for these same customers but also illustrates the opportunities this model provides in the small and "micro" NDOS market. Furthermore, if proved viable, this same business and service model could open the door to the home networking market.

With this in mind, NDOS providers -- particularly those either struggling, such as Inacom, CompuCom, and MicroAge, and those restructuring their network and desktop service-delivery models, such as ENTEX (see ENTEX Becomes a Pure-Play Services Firm by Selling Its Product Business to CompuCom, IDC 19310 , May 1999), Comdisco (see Comdisco Nears the New Millennium: Making the Leap from Mainframe to Network and Desktop Services Provider, IDC 19192 , May 1999), and GE Capital IT Solutions (see GE Capital ITS Outsources Product Configuration and Assembly Business to Tech Data, IDC 19419 , June 1999) -- must take seriously the implications of this emerging NDOS service-delivery and business model. These vendors must make bold decisions regarding capital investment and the recruitment of senior staff who possess the necessary skills and "thinking" in these new technologies and service-delivery systems.

Industry Trends

The emergence of this new breed of NDOS provider will have an impact on trends in technology use, customer focus, and pricing structures. Technologically, service delivery is moving from the traditional dedicated WAN/LAN (e.g., switched multimegabyte data service and token ring) to Internet (IP-based) and wireless DSL systems. As discussed earlier, this shift will result in new service-delivery capabilities and a new cost structure that are more favorable to the customer. Customer focus will expand from the midsize to "megasize" market and will include customers in the small business segment and "micromarket." Although larger vendors may not pursue these smaller segments, this new model gives them the opportunity to develop innovative service-delivery programs that could provide NDOS offerings to small companies and perhaps to individuals through third-party service channels or electronic marketplaces. Finally, the pricing model that will result from this new service-delivery capability will be centered on a pay-as-you-go or utility-type monthly fee structure.

Conclusion

Dell Computer, in the PC arena, and Wal-Mart, in the retail sector, have both changed the landscape of their respective industries due to the viability of new IT technologies, including the Internet and electronic data interchange (EDI). These same technologies, coupled with more advanced ones such as DSL, are allowing quantum shifts to occur in the service-delivery structure that NDOS providers currently employ. By embracing these new technologies and pricing options, companies such as Systinet, OneNetPlus.com, CenterBeam, and everdream may be pioneering a new era of customer service based on a much more flexible business model. Though it may not be these particular companies that eventually grab the reins of leadership from incumbent NDOS players, their bold initiatives are setting the stage for a new generation of potential leaders. The question remaining is, from which group of NDOS vendors will the future leaders emerge: the old or the new?


Table of Contents - Abstract - Document



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