Bernd Gross, Nokia Siemens Networks: SME market is where
the operators will win first with cloud services. SMEs’ willingness
to adapt is very high 
                                                                                     
                                               

                                               
Chris McKay, Orange Business Services: customers are far
more mature in moving towards the software as a service than
infrastructure as a service 
                                                
                                                 
Operators need to replace the revenues lost from provision of commoditised services and increase loyalty in the face of competitive threats from over the top providers and third parties. Software as a service has the potential to address both those challenges but strategic mis-steps could result in operators either failing to provide sufficiently attractive services or over-investing in systems and technology to support SaaS to the extent that the business case no longer makes sense.
The as-a-service concept isn’t a new one for operators. After all, they are service providers and have been providing connectivity on a per-user, monthly rental basis for a century or more. Arguably the operator core business is one of the earliest examples of an IaaS or NaaS business — that’s infrastructure or network as-a-service.
Adding software to that seems a logical step and operators have identified it. However, their approach is cautious. The memory of the dotcom bubble and the over-investment in network and supporting technologies such as data centre capacity remains too fresh for many. Yet, being too slow could equate to not being able to compete at all.
Companies that barely existed a decade ago, such as Amazon or Google, are routinely offering cloud-based services for server infrastructure and the SaaS market. Its near identical twin, the application-as-a-service market, is increasingly being addressed by fast moving newcomers known as over-the-top players. 
                                               
                                               
Shift of dogma 
                                               
Can operators shift their dogma, identify the business model they want to use to offer SaaS and execute while they still have some advantages to bring to bear?
“Yes” is the facile answer, but operators don’t want to make multi-million dollar investments in an unproven business. Caution characterises their approaches and operators and their suppliers are looking to address the most fertile markets first with targeted propositions rather than jumping in with both feet and betting their company’s future on choosing the right strategy.
Bernd Gross, head of business innovation and development at Nokia Siemens Networks, thinks the small to medium enterprise (SME) market is where the operators will win first. “We’ve supported several of our customers for the last two and a half years in this,” he says. “We believe the market is enterprise driven and software services for SMEs are the main opportunity for operators. SMEs can really benefit from the pure opex model and their willingness to adapt is very high.”
Gross gives the example of Vodafone Spain which has an offering based on a Nokia Siemens Networks system that offers 11 different propositions from an enterprise store — a full-blown portal developed by the vendor.
“The services are things like security, back-up, desktop security and desktop management,” says Gross. “We’ve debated whether an operator should offer CRM or if it should be left to a provider like salesforce.com, but there still seems to be room for the operator because the operator is trusted. If an SME wants to deploy SaaS, they want one vendor and one stop shop for all their applications.”
Chris McKay, senior vice president of transformation at Orange Business Services, sees unified communications as the technology that will unlock the SaaS market for operators. As a set of software-based communications solutions it bridges the gap between the operator of old and the communications service provider of the future. 
                                               
                                               
Customer challenge 
                                               
“We actually see SaaS from a unified communications perspective,” he explains. “We believe the whole collaborative workspace element is becoming a big challenge for our customers. In this initial period, demand for such services on a cloud-based infrastructure will probably be more significant than for traditional cloud propositions.”
He adds: “One area seen to be moving far, far quicker is the SaaS/unified communications portfolio. There’s still a lot of hesitation around cloud IaaS offerings with regards to CIOs feeling IaaS is more of an IT transformation [than a communications transformation].
“Customers are far more mature in moving towards the SaaS element than the IaaS element. It took us by surprise that the difference is so large. We see unified communications as a cloud offering as our strongest take up opportunity. We are repositioning our SaaS offering in line with the intelligence that’s coming in. We’re particularly seeing the SaaS offer can stand on its own two feet.”
For Gross, operators have a lot to offer. “Some of operators’ strengths and credibility pay off well,” he says. “The trust in operators is extremely high and to combine mobile, broadband and SaaS seems to be a very attractive proposition. Another highlight for us is communications services like conferencing and videoconferencing as pure SaaS offerings. SMEs are a price sensitive segment; they don’t need the big [IT] brands.”
McKay thinks using that link as the provider of connectivity to enterprise is the natural foundation for operators to enter the SaaS market and offers the most likely bridgehead for success. “SaaS offers unified communications and therefore has a linkage with the telco so our ability to market our SaaS offer is in line with our history,” he says. 
                                               
                                               
Part of the network 
                                               
“SaaS offers are synonymous with the telco and our engagement with our customers moving from legacy to new SaaS services is still seen to be part of the network. We’ve been who we’re going to be from that perspective.”
Specialised vendors of specific software also have confidence in the operators as a channel for their solutions. Rainer Baeder, a solutions consultant at security software vendor Fortinet, comments that the security requirement remains the same with traditional computing and IT as it does with cloud-based propositions.
“We sell solutions so our customers can resell functionality to end users directly,” he says. “Telcos do have the biggest enterprises as their customers but for a telco it might be the emerging or SMB market and enabling them to do what large enterprises do today that [is attractive]. Large enterprises don’t necessarily want to put sensitive data in the cloud.”
Operator fundamentals of able to bill, manage customer data, provide customer care and do things at great scale will also help.
“We have a lot of experience in terms of what the customer needs, we can manage the customer experience, we have the operational model and we know we can deliver,” adds McKay. “One of the other areas where we see our ability is with the customer base we already have. They have network connectivity and facilities they buy from us already. Many customers have significant amounts of infrastructure already with us which they can build upon.”
However, operators have had a tough run of it over the last few years as data traffic has grown but not been monetised and new rivals have sprung up, seemingly from nowhere to threaten their core revenues. The beleaguered operators may have forgotten what they’re good at.
“I believe that operators underestimate their opportunity in this domain because they ask: Can my brand extend into this domain?” says Gross. “I think they’re too cautious. The commitment of financial risk and brand risk is very low compared to the traditional market. In the traditional environment the investment would be substantial but today it is quite efficient and low risk.” 
                                               
                                               
Failed initiatives 
                                               
Yet the investment burden is an important psychological barrier for operators to overcome. They seem to have lost their confidence over the last decade, beset by failed content and service-related initiatives and the written-down billions of infrastructure investment triggered by the dotcom boom.
Could they be tempted to over-invest again in support of SaaS? “That’s becoming a regular question now,” sighs McKay. “We’ve looked long and hard at it. Our concern is we were part of that ten years ago and ended up with hosting centres that became white elephants. So we’ve taken an extremely pragmatic approach this time. We’ve gone third party on data centres and have chosen to own no real estate. We’re looking at this as a service business. We’ve described a model around not having a tremendous return on investment payback profile. We’re against seven to 10 year payback.”
Generating revenue from new services is at the heart of the SaaS promise for operators and, by adopting cautious models, they can do so without making disproportionate investments. They can also compete — based on their existing relationships and the stability they can offer — with newcomers. Yet they need to make more of their strengths and develop a greater appreciation of the benefits SaaS can deliver across their business.
It’s not just about the additional fees; it’s about strengthening the relationship with their customers and promoting greater loyalty.
“Offering these services through broadband access is creating stickiness among broadband users by delivering the secure one-stop-shop with one bill and one headline,” says McKay. “In some markets churn reduction increases by more than 30% at customers using SaaS from their operator.” GTB