Recent analysis by Frost & Sullivan estimates the overall potential of core integrated LAN/WAN services in the Western European market at EUR 16.5 billion. Apart from the obvious benefits of enhanced customer relationship and lock-in, the prospect of up-selling additional hardware, applications and services is making this emerging market an increasingly attractive one.
At present, companies are recognising the need to focus on core competencies and on revenue generation. Simultaneously, they have aimed for greater rationalisation through joint managed services. This has provided added motivation to delegate complex, network management tasks to a more skilled workforce.
“Integration of LAN and WAN switching offers new opportunities to satisfy end-user requirements in ways that are more efficient, more affordable and more universal than ever before,” explains Frost & Sullivan Research Industry Analyst Niamh Spillane. ”This increasing ease of integration will allow organisations to refocus time and resources away from network management and towards core business activities,” she adds.
Resource shortfalls have rendered the outsourced management element of a LAN/WAN solution particularly appealing to enterprises. With the network operator assuming entire responsibility for network management, the need to hire on-site management is obviated. At the same time, the growing preference for fewer suppliers that can still offer similar levels of service, is also pushing enterprises towards integrated WAN/LAN solutions providers.
While these are positive signs, significant obstacles still remain. Wariness about the stability and reliability of the service provider persists. The collapse of many service providers during the recent telecom market crisis has made end-users chary of entrusting their entire networking needs to a single provider.
“The challenge to the service provider here is to prove its own stability and financial security and ultimately convince the end users of competencies in taking complete control of the user network,” suggests Ms. Spillane.
Another obstacle is the large installed base of legacy technology within the network architecture of large enterprises. In many large enterprises - a key target market for integrated WAN/LAN service providers - the existing technology has yet to depreciate fully. A reluctance to undertake the potentially disruptive switch to new technology might delay the shift toward an integrated WAN/LAN service provider. Moreover, discrete, long-term contracts with LAN and WAN service providers might hold up contracting-out to a single LAN/WAN supplier.
As the boundaries between voice and data and LAN and WAN fade, traditional suppliers have attained competencies in all areas. However, many customers are ignorant of the abilities of service providers to offer this broader range of services. To this end, raising end-user awareness will be critical pre-requisite to market success.
Regardless of the many challenges ahead, Ms Spillane confidently says: “The market presents a host of new opportunities to the service provider, including increasing customer loyalty, development of a more aggressive defensive strategy, and a significant opportunity to increase ARPU.”
From traditional incumbents, data network providers, global service providers to system integrators and network integrators, a rising number of competitors are in the fray for a share in the integration services market. Despite the multitude of new and aggressive competitors, it is clear that service providers who desist from enlarging capabilities could find their present customer base eroded.
Among prospective customer segments, the large, national enterprises segment is projected to be the most profitable. Offering a service component can suit the needs of both the supplier and the consumer and ultimately present both parties a win/win opportunity.
Based on the large number of sites and high reliance on IT for business processes, the wholesale/retail and financial services verticals are expected to represent nearly 50 percent of the total potential. From a geographic perspective, the German and the UK markets are collectively expected to generate over half of the overall anticipated revenues.
Annual growth rates in this emerging market are pegged at between 13 to 15 percent per annum with growth really poised for take-off in 2004. Transparent pricing strategies and services that provide real value to the customer will be key to optimising on market potential.
“Initial activity in this marketplace should focus on education and proving capability with case history. The customers need a guarantee that they are not losing control from a direction and strategy perspective. Rather, they should be convinced that they are obtaining a key partner to work with them to attain the level of service they want to achieve in the coming years,” concludes Ms Spillane.
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