Three Key Ingredients for Managed Services to Help You Win in Enterprise IT

How can communication service providers (CSP) reverse the trend of the past decade and grab a bigger slice of enterprises’ IT budget in today’s application economy? What role does SD-WAN play in all this? As digitization transforms all lines of business, how can CSPs harness the power of 5G and IoT to create new value? And, what is the role of CSPs in taking enterprises’ own customers’ experience to the next level across different sectors, from small logistics businesses to big banks? I look to answer all these questions in a series of blog posts focusing on managed services – starting with how CSP can capture more of enterprises’ IT budgets…

From first monetizing fixed line, mobile and data services, to moving up the value chain into bundles of content through media at the start of the digitization boom, communication service providers (CSP) have, over several decades, successfully adapted to changes in customer behavior and monetized their core network. Yet, over the past ten years or so, we have seen the rise of Hyperscalers and digital native specialist IT service providers while CSPs’ revenues have shrunk. ^[1]

One segment of the market that has proved a particularly hard nut to crack for CSPs is IT services: as enterprises have embraced cloud-based applications and different digital platforms to transform how they operate and engage with their customers, CSPs have struggled in this new, different landscape to replicate their earlier success of selling traditional connectivity services. Consequently, today just around 6% of a typical CSP’s revenue comes from IT services – the rest is from core connectivity, voice and consumer services, and wholesale.

Some of the challenges that CSPs have faced in selling IT services have extended to operational technologies (OT) too – but many CSPs have thrived in enabling different IoT-enabled applications for logistics, for example. (That, and some of the untapped opportunities for CSPs in digitizing OT, will be the focus of my next blog post…)

All of this means that there has been a drastic shift in CSPs’ position in the market: in 2010, the telecom industry represented 50%+ of the ~$2.9T revenue from the digital ecosystem. By 2021, the digital economy more than doubled to ~$6T+… but the telecom industry has captured less than 2% of that growth. ^[2]

How did we get here?

As digitization has gathered pace in enterprises across all industries, the way in which these businesses buy technology has changed in a big way. We have seen the emergence of a whole new application economy, where the purpose of IT – and crucially for CSPs, the budget spent on IT – is all about improving the application experience for end customers. In contrast, CSPs’ sweet spot has always been, and still is, connectivity.

If we rewind some fifteen years and look at how enterprises used to buy IT services, it’s clear that telecom services and applications were worlds apart: typically, an enterprise ran its various applications on a server farm, with the head of IT taking care of application lifecycles. He or she rented circuits from a CSP to connect to the HQ, datacenter and from there onwards to the Internet. In those days, all the enterprise wanted from the CSP was reliable connectivity at competitive price.

Move closer to enterprise application budgets by building on your strengths

Fast-forward to today, and that picture is very different: cloud-based applications and web-based services have become the default way for people to get their work done anywhere, anytime. So, enterprises need to be able to move data and applications, distributed in public and private clouds, and support hybrid work – and do all of this in a secure way. As enterprises use a mix or hybrid of public Internet and private networks to connect applications with different connectivity requirements, CSPs need to adapt to become more relevant for enterprises.

To strengthen their position as today’s digital enterprises make their IT spending decisions, CSPs should focus on transforming the application experience through managed services. I see three strategic ingredients for their success in this endeavor:

Offers: creating IT capabilities that extend beyond traditional connectivity
Credibility: evolving their brand to be seen a trusted provider of IT services by enterprises
Knowledge: building their understanding of different industries’ application requirements

Offers

We have seen an evolution in the business of “connectivity” for CSPs. It has become much more sophisticated. It is built on the foundation of reliability, quality of service and ubiquity. Built on top of that foundation are the key attributes of today’s CSP “connectivity” offers to serve the enterprise IT stack. Those attributes are secure, application-aware, point-to-cloud (instead of just point-to-point), and as-a-service.

As CSPs look at evolving their offers to get closer to enterprises’ application budgets, the most natural and effective way forward is to build on their strengths. The cloud and hybrid work have put application-aware connectivity at the top of enterprises’ shopping list. CSPs have incredible high-octane networks, but they are under-leveraged by applications, and risk becoming commoditized – or just “sockets”, in developers’ language. The opportunity for monetizing these networking capabilities is showing how they respond to application requirements in a dynamic way. That is what makes SD-WAN an ideal place for CSPs to start. It gives IT leaders unparalleled control and visibility and allows the mapping of application requirements with the type of connectivity that best matches those requirements. SD-WAN is a hugely compelling proposition for any IT leader because it helps them make connectivity an on-demand resource that is invoked by the application, with all the bells and whistles – or “attributes” – that the application wants and when it wants them.

Credibility

A managed SD-WAN offer is also an opportunity for CSPs’ sales executives to start building credibility for their company’s capabilities and shift how they are perceived by IT leaders. CSPs will no longer be confined to the world of traditional connectivity. They can position themselves as a technology provider that offers differentiated services for all applications – and then use that as a platform to start building their relationship with the enterprise CIO, and even with new buying centers and lines of business. By building their credibility starting with SD-WAN, CSPs can get a seat at the table and start advising enterprises on their wider application strategy.

Knowledge

The last one of those three points is probably the most challenging: knowledge of enterprises’ application requirements in different industries. It takes time to build an in-depth understanding of these requirements. The breakneck speed of technology innovation that is reshaping every sector adds to the complexity. To untangle this complexity, we have worked with CSPs such as AT&T ^[3] and Comcast ^[4] as they introduce new managed services with SD-WAN, sharing our knowledge of the nuances of different enterprises’ application needs. This type of collaboration is mutually beneficial, as it spurs CSPs’ growth in the enterprise applications world while being aligned with our own ambitions as a business.

Joining forces through managed services can also bring new opportunities for both the CSP and Cisco as a relationship with an enterprise customer deepens. Once the CSP has a seat at the table with the IT leader, they will have the opportunity to talk not only about application-driven on-demand connectivity with SD-WAN, but also about security as an edge network service. This will open the door to a discussion around SASE ^[5], whichc ombines SD-WAN and security at the edge as a managed service with further value-add. This is where things can get truly exciting… once engaged in a conversation around application transformation, the CSP can take it up a notch: they can show how by combining their strengths in augmenting connectivity with Full Stack Observability ^[6] as a managed service, they can give the IT leader unprecedented visibility across the entire multi-cloud environment of the enterprise and ensure a seamless and secure application experience^[7] for customers and employees alike.

In it together – in more ways than one

I know that those three points aren’t new for many CSPs, and I also know that it’s a lot easier said than done.

Having worked for Cisco for more than 20 years, I have seen and felt first-hand how difficult adapting to industry transitions can sometimes be. Just like many CSPs worldwide are changing from within and evolving their capabilities, Cisco too has been on a very similar path of transformation, moving from just “selling boxes”, to software and services from collaboration to security and a lot in between.

Throughout this time, I think the most important lesson we have learnt is how crucial it is for us to really understand our customers’ and their customers’ challenges and the business outcomes they seek – and put that at the heart of everything we do. It is the key for all businesses, CSPs as well as enterprises, to put their trust in us and for us to succeed.

So, while we know that getting it right is not easy, we know it can be done, because we have done it ourselves.