The tradtional Internet service provider market is slowly changing shape to accommodate the influence of competition, and it appears that the once well-defined roles of vedor and reseller, ISP and distributor are becoming more and more blurred. Phillip Sim reccounts how this new direction in service providers has created a market encommpassing both the old and the new . . .
Once upon a time there was a computer industry. In this industry the people were happy, as everyone knew what their role was, and also knew the role of everybody else.
In this industry there were several groups. One group was made up of vendors. These good folk made computer equipment and developed software. Then there was the reseller group. It was their role to sell the vendor's wares to a group called customers. Yet another group was the distributors, who built great big warehouses to store the vendor's equipment and supply it to the resellers.
The computer industry was a wonderful, enchanted place. There were lots of customers with lots of money and everybody was paid handsomely.
However, as time passed, something began happening to the computer industry. A dark, mysterious force called competition began to infiltrate the industry. More and more people tried to enter the computer industry and suddenly, nobody was getting paid quite like they were used to. Everybody began to look suspiciously at everybody else, as they greedily plotted to steal the other's bounty.
And everyone's role changed.Vendors became distributors, distributors became resellers, resellers became vendors. All of a sudden, nobody knew exactly what they were meant to be doing. Anarchy ensued.
Now there was another group of people in the computer industry called Internet service providers (or ISPs for short). In the old computer industry, ISPs carved out a wonderful living helping customers connect to a new invention called the Internet. ISPs lived harmoniously with the rest of the computer industry, often buying equipment such as routers and modem banks from their friends, the resellers.
However, as the happy industry began to crumble, the ISPs found themselves under attack. First, the big bad telcos moved in on their territory, as did the vendors and finally, even their former friends, the resellers, joined in the fray. The ISPs fought back, becoming resellers themselves. So distributors began selling directly to the ISPs instead of through the resellers. Sometimes the ISP even bypassed the distributor and went straight to the vendor.
Then, all of a sudden, ISPs weren't ISPs anymore. They had become service providers, selling applications, commerce and content. Few resellers knew how to deal with these new beasts. Were they competitors? Were they partners? Or were they customers?
So it is today. There really is no clear relationship between ISPs and resellers/integrators. However, as is often the case, amongst the current confusion there exists real opportunities for those able to develop the expertise and the infrastructure needed to provide solutions to the new challenges being offered.
For one, resellers should not write off the ISP as a potential customer.
Like the rest of the industry, ISPs are trying to grow quickly, but in many cases are held back because they simply can't find enough of the right technical skills.
Many ISPs are turning to integrators to fill that breach. One integrator doing a booming trade as a result of this is Web developer NetStar.
"I think what has happened is that [because] the market has grown so quickly there is now a real need for integrators who have a service focus and the right skills," said Trevor Boal, NetStar's NSW state manager.
"The reason we have been successful is focus," he continued. "We've developed a specific group to address the needs of service providers. We're working with a select group of vendors; some of them are infrastructure vendors, some of them are application vendors. And we now have the skills you need both on the technical and the sales side for this part of the market."
Boal stressed that the service provider (SP) sale is a very technical sell.
"These guys [service providers] all have technical backgrounds, having worked for an ISP, telco or equipment manufacturer like Ericcson or Siemens, so it's a very sophisticated market."
And one that is different to the enterprise market, he added.
"The service provider market is all about converged IP networks, which means you need different skills to what is required in the enterprise space. You just have to have skills in Voice over IP (Vo IP) and SS7 to IP."
Notice, too, that NetStar refers to the SP market and not just the ISP market. In fact, NetStar dubs this new market the xSP space, as it encompasses ISPs, application service providers (ASPs) and a multitude of other SPs emerging in the market.
Like NetStar, eServ is another integrator who has been successful in the emerging SP market. Dino Trabucco, eServ's sales director, said that while the company does have a number of equipment relationships with traditional ISP companies, the real action lies with the emerging second-tier niche service providers.
"We supply networking and hardware components to a number of classic-style ISPs, but we're doing a lot more work with companies who don't fit the traditional mould," said Trabucco. "We're talking about companies who are delivering more than just Internet access; for example, specific content or interactive television."
"[These new service providers'] core business does not lie in building an infrastructure; their focus is the content or whatever niche they are concentrating on. So they're looking to outsource to a partner who can provide them with the infrastructure services they need, while they concentrate on their core competency," explained Trabucco.
It is clear that the ISP market is not what is was. For resellers, that means there is an opportunity to help ISPs keep pace and evolve their business model, said Peter Papaionnou, Cisco Systems' sales manager.
"What we're saying to resellers is try and think outside the box about where the service provider market is heading.
"An ISP's expertise typically lies in its infrastructure, or knowing how to build Web pages. So [resellers should] look to other areas where ISPs don't havethe time to develop skills in areas like unified messaging, billing and Vo IP," he added.
"Resellers really need to investigate the ISP market and look at what they are doing to reinvent themselves and stay ahead of the competition."
For example, as ISPs become more content aware, resellers can help tune their networks and deliver the required quality of service, Papaionnou said.
NetStar has seen strong demand for its network design capabilities, security services and "old fashion rollout and implementation", as well as ongoing support and operations management, said Boal.
"We have a couple of customers who are really nothing more than sales and marketing operations. They own their infrastructure, but it's almost entirely operated and managed by us."
NetStar has also had success on the application side, selling messaging and billing solutions.
Trabucco said eServ has had a lot of success selling services associated with quality of service and high availability.
"A lot of ISPs aren't all that interested in having an army of support people, so we're providing management services to them as well," he said.
According to Nortel's director of channels, Gary Starr, there are a lot of opportunities on the voice side selling into ISPs.
"There are definitely opportunities to sell managed telephony solutions into ISPs," he said. "If I'm an ISP and I can also offer my customers telephony services, there is less chance I will lose them.
"Most ISPs are very IP-centric and don't have a lot of experience in the voice arena."
While distributor Express Data's communications marketing manager, Charles Wellington, conceded his company did sell directly to some ISPs, he said there were certainly opportunities for resellers to add value and "tie" an ISP's infrastructure together.
"A lot of ISPs have grown out of garages, so they don't have the skills to connect all the servers to the infrastructure and make sure it is running as well as it should be," he said.
Wellington pointed to security solutions like Check Point and RSA, as well as bandwidth management equipment like Packeteer, as technologies that ISPs would demand.
However, customer relations is not the only way for a reseller to grow its revenue by targeting ISPs. Partnering with an ISP to jointly sell to customers is probably a far more lucrative opportunity for the majority of resellers. As vendor D-Link's business development manager Eric Brace pointed out, while there are currently only a couple of hundred ISPs in existence, there are a couple of hundred thousand user organisations in operation.
"Every single business already receives a bill from their telco or ISP, so they [resellers] are in a great position to become the prime contractor for [an ISP's] complete networking needs," said LAN Systems' chief marketing officer Nick Verykios.
"However, they [ISP's] are going to need to team with resellers who can do the integration work and that's a massive opportunity."
Cisco's Papaionnou agreed. "If you have a look at even the bigger ISPs, like UUNet, they are launching business partner programs because they can't scale to do it all," he said.
"They [ISP's] need reseller partners to deliver the last mile, especially to small-and-medium (SMB) businesses.
"ISPs want to offer SMBs a lot more than Internet access, but they don't have all the necessary skills," he said.
The area of security is a perfect example. "It's almost guaranteed that most end-user organisations won't have their own security staff," said security solutions Check Point's regional manager for Australia and New Zealand, Peter Sandilands.
"Security services will have to be provided, and as it's the ISP that is supplying the connection which poses all the risks, in many cases, they [the end user organisation] are either going to want the ISP to do it or they will want the ISP to have a partner that will take care of it."
Sandilands said the nirvana that both ISPs and resellers are heading towards is a managed service provision (MSP). This is an outsourced, secure, audited and managed connection to the outside world.
"ISPs want to provide this type of service to the customer but typically can't do it without partners. For one, you need a body at the customer premise to install the equipment. However, the real value [of an ISP/reseller partnership] is that resellers can [utilise] their intellectual services in defining security policies and setting up the auditing capabilities, as well as [offer] ongoing management," he said.
"The partner road is attractive to ISPs because they can then offer a more rounded service, but it doesn't require hiring more people or developing new skills."
Another area where it makes sense for ISPs and resellers to partner is virtual private networks, said Nortel's Starr.
Some vendors are attempting to bundle up equipment with Internet access packages from ISPs to enable resellers to sell complete solutions to their customers. Telstra Big Pond entered into such an agreement with 3Com last year. D-Link's Brace said that his company was working to team up with ISPs to offer bundles comprising its hardware equipment with broadband Internet access packages.
"There is going to be a big opportunity in Australia in broadband which is already starting with the rollout of ADSL and cable modems," he said.
"The job of the reseller will be to take that broadband connection provided by the ISP and make it available securely across a small business local area network."
Such an offering will be attractive to resellers who want to retain ownership of the customer. The obvious danger of some partnership agreements with ISPs is that if the reseller is not the prime contractor, they risk losing control of the customer. If an ISP decides it wants to develop the skills that the reseller has been providing in-house, then the reseller is locked out in the cold.
The alternative, according to Sandilands, is that resellers can supply the complete solution if they morph themselves into a service provider.
"Don't partner with an ISP, become one. There is nothing magic about being an SP - your only real requirement is a connection to the Internet. You get wholesale data services from Telstra or Optus, then you wrap your value-added services around that," Sandilands said.
So how does the story end? Who will live happily ever after? If this writer knew that, he certainly wouldn't be writing for a living. But the one thing that seems certain is that service-focused companies who have the appropriate technical and sales skills and are willing to adapt to a changing market, will live on. What is also certain is that, in the end, it doesn't really matter if it's an ISP or a user who is paying for those services, just as long as somebody is paying.