Just a little picture of a great boat in San Fran – 09!
I feel traitorous in what I am about to say, I have been one of those ‘start up’ guys who injected time and passion into the carriers over many years – I passionately and genuinely believe that this is where the hosted applications market is now at. The Hosted Exchange market specifically has completely commoditised, gone are the days of strong margin, service led value sales – this is plain, simple economics.
I have been around this market for a decade, having built a couple of hosted companies and been heavily involved in the market from its inception. It is now a relatively simple task to build out a resilient and scalable hosting infrastructure. It’s not as expensive as it used to be and equally the infrastructure has just got better. It’s worlds apart from when I first started in the market hosting Exchange 2000 – believe it or not there is a simple recipe for building out hosting infrastructure using the HMC platform, if you have done it a couple of times that is! Companies of every size starting out in this area make classic mistakes which are often costly upfront and as the game unfolds.
Back to the point – its the simple laws of economics, there are hundreds of hosted exchange vendors out there today and of course many are adding additional services including SharePoint, Archiving, CRM, VOIP with a view to differentiating themselves but the matter still stands – its highly price driven and to run a hosting company you have fixed overheads, so margin’s have quite literally been destroyed over the past few years. So, in order to have any play in this market you have to have volume and add value to what you do, over and above your competitors.
The only vendors in this market who can really create the volume are carriers and telco providers – they have the base of customers and if the marketing proposition is right, hosted services are a relatively simple sale.
That said, the market is too big, the task is too large and the ‘putting together of the jigsaw pieces’ too complex for a carrier and a selection of start ups or mid tier partners – none of them have the recipe and the capability to execute such a large task. One of the key factors that you cannot avoid is margin chains – there is little left in a direct sale, so if you need to have multiple partners to deliver a proposition into a carrier the commercials simply break down.
Some have tried and are ‘marketing’ but are any really succeeding? I have seen how the carriers have attempted to get into the application space over many years and have failed for a whole manner of reasons – are they really going to succeed moving forwards if they keep making the same mistakes?
Carriers now need partners who have capability and credibility – to influence their boards and provide them with big business support – this is now about fundamentally managing risk.
As the market progresses into its next phase, the natural shift in the way in which we as users consume software at our desktop, games console, laptop, netbook, smartphone, tablet is following the traditional crossing the chasm curve for want of a better analogy – the hosted services market has become mainstream and what was innovative whether VOIP, Unified Comms, Exchange, SharePoint, CRM is actually relatively easy to deliver, the technology has been proven by the smaller vendors and now it’s time to take this on a grander scale.
Don’t worry all you hosted apps, cloudy companies out there – the market is plenty big enough and surely you will innovate in more complex spaces using the opportunities of the cloud – but you do have to face facts, the economies of scale kick it and the carriers will rule the market – where once you innovated will be rich pickings for someone else.
We are at this natural tipping point where the carriers (O2, T-Mobile, Vodafone, Orange, BT etc) or those guys who have the networks that connect us all together have a ‘gift’ – if only they could see it that way. Data is the gateway to value and they need to look from the user down rather from their P&L up – true customer focus 
At one point I was of the view that the start-ups and partnership program’s of the carriers would make this a reality – where the carrier would become a true service providers. It’s clearly not the case – why?
Without question partnerships have given them access to developers – those who create business opportunity and those who create the software. Here in lies the issue ….
It’s ‘skunk world’ – the small speed boats have an inbuilt ability to add value to very small parts of the carriers business together with those ‘pioneer teams’ in the carriers who believe and see the value. What they lack is sheer capability to support such a large organisation and the influence to change direction at a board level.
The hope of the start-up is that they become embedded in the carriers business $$$$ is what they see.
The carrier on the other hand sees risk – if I entrust xxx customers with our partners, will they look after them, will they really be able to deliver, what happens if they get acquired by my competitor or worst still go bust?
You just cannot get away from the fact that added services on top of their core revenue which is selling their network will represent “dot” on their P&L – so why should the business at top level put any time or resource in focusing on this area – it doesn’t pay the wages. Big business is P&L driven.
It’s a fundamental shift which they need help with, serious help.
I am talking about supporting their business properly – not just in helping them to sell ‘value’. They need big partners who have the currency – the household name, the operational know-how and the sheer resource to support such a big play.
Even those organisations who have been successful are not exempt – you still hold the risk card, what if the you get acquired by one of the carriers competitors? Sorry guys, it’s a fact and it’s been an education exercise and a journey that i have been on. The carriers are coming to the table as ‘innovative’ but where did they get all their ideas?
So who does have the capability – a serious play between camps. Who can deliver the value today and importantly what can they bring to the table in return – customers, communities, capability and credibility.
I am talking about the capabilities required to support their processes ‘soup to nuts’ from big marketing programs, sales rewards, customer service, billing and channel enablement.
In the next few years there is going to be a huge battle and I mean HUGE between Microsoft, the UNIX/Open source camp and the likes of Cisco.
Microsoft have the strength and portfolio across all the key devices we use as individuals – the issue more than anything is they need to have the people who can put these propositions together, position and drive them – they need people with high growth mentality and an objective view, the world isn’t Microsoft.
On the other hand, IF and I mean IF someone creates a platform that aggregates all the different open source, UNIX and every other great piece of software out there into a nice little panel aka ENSIM, Paralells esq and a big reputable player takes this to market aka Cisco – Microsoft have one very very serious problem.
