The cable industry's ability to capitalize on the true
revenue potential of its broadband networks could require a profound adjustment in
strategic thinking if the new trends in Internet-based applications services for the
business community are to be taken seriously.
Application-service providers, or ASPs, which weren't
even recognized as a separate category a year ago, now generate about $3 billion in annual
revenue. Various research firms projected that within three years, that rate could jump to
anywhere from $23 billion to $35 billion.
Citing these figures, Art Medici, senior vice president of
marketing at Cable & Wireless USA, suggested that the numbers barely tell the story of
what's in store for the way the Internet economy operates as broadband Internet
protocol-based connectivity becomes more widespread.
"ASPs won't be a fad -- they'll be the
foundation," Medici told attendees at an Internet-services conference in San Jose,
Calif., earlier this month.
Researchers reported that most ISPs are rapidly plotting
ways to make the transition to ASP status, where their main value proposition is their
ability to host the increasingly complex and fast-changing information-technology
applications that have become mainstays of virtually every aspect of corporate operations.
One just-completed study found that 95 percent of 1,200
service-provider executives surveyed are looking at applications services as a
"viable means of enhancing revenues and profit margins."
In the ASP model, network traffic and network resources are
maximized by allowing as many service providers as possible to use those resources in
meeting the highly specialized IT needs of corporate clients.
Those clients include smaller types of businesses that
can't afford the massive software programs and in-house networking facilities that
give larger companies a competitive edge.
This may mean that for cable operators to exploit business
demand for data services via the sophisticated IP-voice and data platform created through
the Data Over Cable Service Interface Specification and PacketCable standardization
processes, they may have to open their networks to outside service providers.
Former cable executive Leo J. Hindery Jr., addressing the
"Next-Generation Internet" conference held by Frost & Sullivan in San
Francisco in mid-February, suggested that cable's policies to date, as reflected in
its approach to addressing the needs of residential customers, have undermined its ability
"Cable lost its competitive edge, and it has
commoditized itself," he said in reference to the ability of satellite and other
providers to offer TV.
Hindery, CEO of Web-hosting firm GlobalCenter Inc., warned
Internet-service providers not to "repeat the mistakes of my old industry."
Hindery's point was that ISPs can't hope to
survive without moving to value-added services, which means availing themselves of the
partnerships, networking technologies, integration-support services and other components
his and other companies provide to make network-hosted applications a reality.
The complexity of the emerging broadband business-services
infrastructure was clear at the two West Coast conferences. Networks must accommodate
ASPs, and ASPs must turn to others, like GlobalCenter, to act as network and technology
integrators. They must also tap specialists in the field -- namely, the integrated-systems
vendors that assist with IT implementations in the enterprise market.
One example of how the pieces can fit together was offered
by Roger Gallego, senior vice president of FutureLink Corp., which calls itself an
His company is providing the infrastructure in terms of
data centers and relationships with network providers, along with networking expertise, IT
know-how and specialized software systems that individual ISPs can tap into in order to
play a direct ASP role with traditional clients.
"It's great to be able to tell an ISP that
you're now an ASP," Gallego said, speaking at the San Jose conference, which was
produced by ZD Studios.
Gallego described how FutureLink's model works by
citing its evolving relationship with one of its clients, Metrociti Mortgage Corp., a
midsized lender seeking to expand by adding branch offices throughout the country.
Originally, the company came to FutureLink for help setting
up an in-house application running on software supplied by Citrix Systems Inc. It quickly
became apparent that it would be easier and cheaper to outsource not just the Citrix
software, but many other mission-critical applications, as well, Gallego said.
"Metrociti came to the realization that if they were
going to employ network-managed technology, they could add and change applications much
faster with fewer costs and less stress on their IT staff by moving to the ASP
model," Gallego said. "All they have to worry about is managing a single number
each month, which is the fee they pay for our services."
Peter Alexander, vice president of marketing for Cisco
Systems Inc.'s enterprise unit, said this type of thinking was gaining currency
throughout his customer base. "Today, the single most important attribute is a
company's ability to use IT and network technology," he said.
Internet technology has triggered a major cultural shift in
the corporate world, Alexander noted. "This shift is taking place around the need to
make quick changes in IP-based applications as new software and hardware comes on the
market," he said.
In many large companies, IP-based voice is outmoding the
use of separate PBX-based (private branch exchange) networks for voice connections. Those
network managers recognize that "the PBX is dead," and they are anxious to bring
their voice-applications know-how into the data-networking space.
Adding to the corporate need for outside hosting of
applications is the "scarcity of IT professionals," Medici said. "In
northern Virginia, where we're headquartered, a study of regional employment needs
found that two of every three IT jobs will go unfilled for several years."
The predicted proliferation of ASPs and the emergence of a
"compute utility" space all point to an opportunity for the cable industry to
gain far greater use of its advanced broadband-IP infrastructure than would be possible
through a single-provider model applied largely to the residential market.
With this prospect in the offing, cable could find itself
quickly moving away from Hindery's "commoditization" label to where the
value-adding functionality of its data platform becomes a competitive advantage as ASPs
look for optimal networking capabilities in the carrier arena.