Managed services are facing a new kid on the block with the emergence of cloud computing, says Nigel Stephenson, and network service providers are well placed to benefit. Co-sponsored feature: Juniper Networks

Managed services play a crucial role in service providers’ businesses because they can leverage their economies of scale to deliver reliable, high-performance and profitable services to their customers. Cloud computing makes similar promises and by delivering applications over the network its providers hope to make major inroads into the massive desktop software market. So can network service providers take a leading role in this new managed services market or does the over-the-top cloud computing providers’ network-agnostic approach mean they will be left out of the loop?Service providers are actually in an ideal position to benefit from cloud computing’s evolution of managed services. The concept is simple enough: by inserting themselves in the cloud computing value chain from application to consumer, the service provider can improve the experience of user-to-application transactions that far exceed cloud applications hosted on the open internet. This network-based approach to assuring services can attract a share of the adjacent market of software revenue associated with the use of the applications, which is a market currently untapped by the network provider. To do this, however, they have to ensure the essence of the cloud – the service provider infrastructure – provides embedded and perceived value to the services delivered through it.

Traditionally we think of managed network services as connecting people and offices for a fixed fee; they are invisible to a large part of the enterprise community that uses them. The service definition and service level agreement (SLA) is typically based on metrics such as availability, throughput and time to repair. They all relate to the infrastructure and not the application services that the infrastructure is being used to enable. In fact there is often no obvious or visible link between the service provider brand and the business applications running through their network. Individuals relate to the application vendors they access through the network and the performance of these applications, not the underlying network infrastructure that delivers them. Indeed, the network service provider is probably only thought about when a problem occurs or performance is slow, when users often unfairly blame the network.

With cloud computing, service providers have the chance to play a much larger role in application delivery, but they will have to move away from focusing on connectivity alone. If they don’t, they will find it hard to differentiate themselves and price pressures will weigh on the cost-per-bit sent across the network. The only defence in this cost-per-bit model is to continually maximise scale to reduce costs. We have seen this clearly in industries such as mobile telephony, where a lack of differentiation has led to intense price pressure, flat rate tariffs and a decoupling of the revenues from the costs. The mobile operator suffers the cost of deploying ever increasing bandwidth while the value that this bandwidth enables - the access to over the top (OTT) applications and services - benefits the OTT providers.

Value-per-bit strategies are key to sustainable business

To avoid this commoditisation, service providers need to add intelligence to the way they deliver these bits. Adopting a value-per-bit strategy ensures that the value added over and above the simple transport of data is seen and desired by the consumer and by any upstream content or application provider. It provides an environment where the downstream revenue can contain a fixed fee for the service access (connectivity) but incremental downstream and upstream revenue can be based on the ability to deliver a quality of experience at the time of use. Content owners and providers who see a better customer experience delivered as a result of the interconnecting infrastructure will be more willing to share revenue for their service with the network provider, in return for greater customer satisfaction and customer loyalty.

Behind every cloud lies an intelligent network

Service providers are in a unique position in the value chain, because they can ultimately shape the overall end-user experience. They have vital data about end users, where they are, what device they are using, their available bandwidth, and the required bandwidth and security for any given application, user and subscribed service. To grasp the cloud computing opportunity, service providers need to correlate data fragmented across different services and partners in order to create real time user information that can drive changes in the network to deliver a positive user experience.

When combined with the ability to treat this whole collaborative environment as a transactional business at scale, the unique role of the service provider becomes clear. This will be increasingly important as cloud computing develops from today’s OTT offers to delivering business-critical enterprise applications with demanding SLAs. CIO’s concerns with cloud computing are well reported: security, performance and availability. In the cloud environment, these need to be considered end to end, from data centre to desktop. This is why service providers are so important in the cloud computing value chain.

End-to-end security, performance and availability require a policy and control layer within the network that links applications to the underlying infrastructure through a network API. Using technologies such as Web 2.0, SOAP, SOA, and DIAMETER, together with the providers of OSS/BSS systems, service providers can establish a policy and control layer that will interact with applications not only embedded within the service providers’ own walled garden services, but also with third-party applications in an open garden model. Adding security, performance and availability assurances to open garden applications is key to delivering value and sharing revenue with upstream customers.

Service provider scenarios for the cloud age

There are three scenarios for service providers in cloud computing. The first described earlier, is where they deliver OTT applications without adding any significant value. This is the worst-case scenario and will only increase downward price pressure and commoditisation. It decouples the cost of the infrastructure borne by the provider from the revenues benefiting the OTT applications.

The second is the traditional walled garden where the service provider owns the complete application infrastructure and network delivery. This may be more suited to infrastructure as a service opportunities where the service provider is responsible for the application delivery hardware, data centre and network and rents that capacity to third party software houses, application delivery organisations or enterprises themselves.

The final scenario is the open garden model, where the service provider partners with an ‘off-net’ cloud content or application owner to enhance the experience of delivery to customers. This model may be most applicable to services such as software as a service or platform as a service where the service provider does not have the skills to become involved in the intricacies of the application, but can play a key part in delivering application-level SLAs as part of a partnership agreement to a common customer. This generates an upstream revenue opportunity and, perhaps combined with the walled garden approach, results in a sustainable business model and innovative service environment.

Driving architectural change

By focusing on walled garden and in particular open-garden scenarios to deliver a value-per-bit strategy, the dynamic nature of cloud-based services and the concept of flexible demand and delivery will trigger a key architectural transition in network design and thinking: the move from a predominantly static IP Next Generation Network (NGN) to a much more dynamic and agile environment. Resources will be demanded at scale from the network at an application level and the network has to not only deliver on those demands and meet application-level SLAs but also deliver the ability to transact for those occurrences a massive scale.

To fully realise this scalable, dynamic, collaborative service environment it will be critical for the overriding applications and management systems to have direct access to the underlying infrastructure through a network API. It will allow managed service providers to develop differentiated services and management capabilities that support innovation, built-in flexibility and reductions in operational costs.

A win-win situation

By embracing the automation techniques and economies of scale of managed services, and applying them to the collaborative world of cloud computing to generate mass-customised transaction-centric services, service providers can realise the value of their infrastructure and enable a new, two-sided business model with consumers and upstream content providers.

A sustainable infrastructure business is a win-win. A win for the service providers tasked with deploying and managing this critical resource and a win to those using and delivering services through it in the form of enhanced experience – be that delivered in the form of security at the appropriate level, bandwidth, latency reliability or even access method.

So once the technology has done its work we are left with one more challenge for the service provider. There are some interesting organisational aspects that need to be addressed: in a world of cloud computing and micro service SLAs the responsibility for the service definition, deployment and operation spans multiple organisations within the provider that are currently autonomous. The providers who best manage the organisational as well as the technical challenges of cloud computing will best capitalise on this exciting managed service opportunity.

Nigel Stephenson is head of managed services solutions marketing, EMEA, Juniper Networks