Drop in Economy Could Mean Rise in Outsourced Services

Outsourcing communications is expected to become a more attractive option as businesses across the nation try to contain costs while dealing with high transportation bills due to soaring gas prices, the credit crunch and a slowdown in consumer spending.

As mentioned in xchange’s cover story, "Riding the Storm Out," Compass Intelligence expects to see strong spending in managed/outsourcing services, with 9.8 percent growth this year over last. And market research organization Research and Markets says increasing network complexity continues to drive the managed voice and data services market at an exponential rate.

“Managed services offerings provide two compelling advantages to today's service provider portfolios,” said Vic Northrup, vice president of U.S. service provider sales at Cisco Systems Inc. “First, managed services provide a reliable, predictable revenue stream so important to the forward planning of their business. Secondly, there is no question that a managed service is much stickier and provides a tremendous competitive advantage in terms of customer satisfaction and retention.”

Web hosting is one subsection of this sector that is seeing a lot of change lately, both for better and for worse. While the margins for Web hosting — which typically has entailed providing a server on which a business’ Web site resides — have become very thin and competition in this space has mounted, the definition of Web hosting has expanded to include such value-added features as Web site authoring tools and services; e-commerce tools and assistance; online newsletter/blog templates; and even hosted software/software-as-a-service (SaaS) options addressing customer service, enterprise resource management, productivity (hosted e-mail, sometimes with wireless synching) and more. The SaaS opportunity alone is expected to reach $19.3 billion by 2011, by some accounts.

“The SaaS movement is fundamentally reshaping the software industry,” said Jeffrey M. Kaplan, managing director of THINKstrategies Inc. and the founder of the SaaS Showplace. “This movement is creating exciting new opportunities for telcos and other service providers to expand their service portfolios to address a broader range of business needs for their customers, and help SaaS vendors manage and deliver their network-based solutions.”

Delivering applications from “the cloud” rather than the desktop also fits in with the growing trends of the mobile workforce because it makes it easier for a business to provide remote workers with access to the applications they need and to track activity on and performance of those applications.

For business customers, outsourcing Web site management, e-mail and software potentially can decrease their capital expenditures on communications gear, software licensing and IT staff. For service providers, this enhanced definition of Web hosting can result in a new opportunity to increase revenue and build customer loyalty.

But while there are clearly opportunities here, there’s also a lot of competition, at least on some Web hosting fronts. Tier 1 Research reports that the mass-market for shared, virtualized service and standardized dedicated server segments of the market “under assault from all directions.” The firm notes the proliferation of players in this space as well as an uptick in consolidation. But given that SaaS is a relatively new space, hosting companies that focus on adding enhanced value through software as a service or other features could realize the market differentiation required to attract and keep customers.

Share this article: Email, Slashdot, Digg, Del.icio.us, Yahoo!MyWeb, Windows Live Favorites, Furl
Add this article feed to: RSS, My Yahoo, Newsgator, Bloglines