Ascending the right verticals
Once resellers understand exactly what broadband is all about, they must make sure that they sell the right application to the right vertical sector, otherwise they will miss out on margin. Nick Booth reports in the second part of our three-part serie
New technologies evolve through two stages. First, everyone asks, why on earth would you want to do that? Second, they say, I always said that this was a good idea. Getting to the second stage is when you know a new business system has reached maturity.
Demand for broadband, while mushrooming, always relies on various applications and markets to reach maturity. Over the years there have been a number of promising broadband-related markets covering a plethora of vertical sectors that generated a huge amount of hype.
With regards to voice over IP (VoIP), a few problems have emerged over the past five years, mainly that people believed they could use the internet to make free calls without any additional cost or consideration.
However, after all the initial disappointment that comes with any new technology, people do eventually find uses for them. And VoIP is no different, according to Alan Ryan, managing director of EasyNet.
“The growth and advertising of companies such as Skype led businesses to consider how they could harness the technology,” he says. “At the SME level in particular, activity in VoIP projects accelerated quickly and without control.”
In some instances the projects worked – usually where the service was on a new exchange with little or no contention – and the businesses were happy. That is until the network began to fill up as more and more users joined the broadband revolution from homes and offices, sharing the line and increasing the contention levels.
As the carriers strived to maintain a margin and get an return on investment in Local Loop Unbundling, the VoIP traffic was no longer on its own and shared the line with data downloads of music and film uploads to sites such as YouTube. This resulted in increased latency, packet loss and jitter, all of which affected the VoIP and the service degraded.
Initially the degradation was blamed on the network provider. It is only now that customers trying to carry VoIP are waking up to the reality of requiring a higher-end service with lower contention and prioritisation of the traffic.
“Not quite the ‘plug and play’ free world they had expected,” Ryan says.
On a more general level, at first the broadband market in the business arena was seen as a cheap alternative to leased-line internet access and customers had a realistic expectation of the service level that was possible with such technology.
Some customers now believe that X Digital Subscriber Line (xDSL) is a comparable alternative to other network infrastructures such as leased lines and fibre, according to Ryan.
“Yes, there are relatively high levels of reliability and increased performance with xDSL,” he says. “But there is a responsibility on the carrier, reseller or consultant to make sure that customers are made aware that in terms of resilience and performance, xDSL is towards the bottom of the list of technologies.”
While more resilience can be added – using ISDN and multiple lines – these are often omitted in the search for a quick sale and to keep the price comparable with the competition.
In 1999, ASPs were said to be the new gods of the networking industry, according to all the experts. That year, Durlacher Research produced a report that proved to be so wide of the mark it has become something of a collector’s item.
The so-called experts advised their clients that the ASP market would be worth $1.5bn by 2004. Arguably, the true value of the ASP market in 2004 was nearer to $1.50. Such incompetence would be funny if so many people had not made fatally expensive mistakes as a result of this flawed ‘intelligence’.
This misinformation about the broadband market was so disastrous that many IT directors considered taking a class action against Durlacher Research. After all, they pay a high price for such market insight. Many companies lost millions of pounds because they based their IT strategies on the ludicrous market projections. Unfortunately for the companies involved, suing the analysts was not a good option because Durlacher Research no longer exists.
In a normal world, people would learn to be very cautious about the next big dot-com bubble. But in the IT industry, hype springs eternal. Ten years ago a whisper went round the industry about putting voice calls over the internet.
This sparked the world’s marketing managers into action and they began making rash predictions about the massive savings that could be made on internet telephony. Pretty soon, all the usual analysts were writing sponsored reports that predicted the death of PBX and IP handsets by the end of 2005.
According to conventional wisdom at the time, internet telephony was going to drive the next broadband revolution. There were road shows and trade events up and down the country where IT VARs and dealers were told to invest heavily in opportunities of a lifetime such as IP Centrex and hosted telephony.
It did not take long before the wheels came off this particular bandwagon, leaving hundreds of resellers out of pocket and, in the worst cases, out of business. One particular telecoms franchise went under and dragged its suppliers into years of expensive litigation.
In other words, the internet might expand rapidly, but selling broadband and services is not as easy as people might think. Even reputable companies have fallen foul of believing their own hype. Competent firms are stalling as everyone jumps on the bandwagon and slows it down. For example, there are now about 70 hosted switch suppliers in the voice market. The simple fact of the matter is that there just is not enough demand to support a fraction of that number.
However, for the firms that get it right, there is a lot of money to be made. Companies such as Griffin Internet and Entanet are doing well, as are their channel partners.
It is all about understanding the right applications for the right type of broadband for the right vertical markets. Then it is all about choosing the right supplier.
There are two qualities VARs need to rely on: reliable bandwidth and a reliable supplier. Control over bandwidth is a function of how close VARs are to the original ownership of that capacity. Resellers using a supplier that is selling on network capacity that they in turn bought from another distributor is unlikely to get a reliable supply. But dealing with a company that owns its own pipes in the ground, it is likely to be such a big firm that it will regard smaller VARs as an inconvenience. Calls will not be answered quickly and systems will not harmonise or interoperate.
The challenge is to find a supplier that is big enough to own its own infrastructure, but small enough to appreciate a VAR’s business. This rules out BT Wholesale for most companies.
The best way is for resellers to get as far up the hierarchy as they can without being dwarfed by a supplier that can take or leave their business. Most ISPs operate to their limit, so partners can get a variable service.
Griffin Internet, for example, has a client base that never exceeds its limits on bandwidth or user contention. At peak times its capacity is never more than 75 per cent full. However, after 6pm its network use runs at 25 per cent of capacity. This is because Griffin does not have any residential users. This has allowed Griffin’s partners to offer its banking clients, for example, security services over broadband.
And this is what is vital for resellers: picking the right vertical market, which allows them to add value to any broadband sales.
Andrew Dickinson, sales and marketing director at Griffin, says: “Being able to help resellers offer applications and add-on sales to target vertical sectors is a good way for us to help VARs get more margin.”
Griffin Internet also carried all of the voice traffic for second-tier suppliers such as HipCom, Teleware and Kingston, which then sell their capacity on to resellers.
Not that second-tier suppliers are to be dismissed entirely. Entanet, for example, has been enormously successful in supplying the channel with broadband services. The fact that it is reselling capacity from BT Wholesale is not a drawback. In fact, it is probably a boon to be one step away from BT.
Darren Farnden, marketing manager at Entanet, says: “Managing a relationship with a company the size of BT Wholesale is very difficult.”
Entanet has the clout to get through to the right people and get them to act. However, many resellers might find that BT is not so responsive towards them.
One of the biggest complaints that networking and telecoms resellers have with suppliers is the amount of mistakes that are made. For example, a reseller told its client that a connection would be in place by Tuesday. However, in reality Tuesday was the day that a BT engineer turned up on site, scratched his head and left. By the time the connection was actually made – a week later – the reseller had fielded a number of angry calls from the client. In turn the VAR has wasted long hours on the phone while they tried to get some sense out of BT.
In the past few years, in direct response to those sort of complaints, communications between suppliers and the channel have improved. Some misunderstandings have been ironed out, but not all. Many of the vendors have made efforts to automate their supply chain so that channel partners can process orders online.
A good working relationship with your bandwidth provider is crucial to the channel, according to Matt Cantwell, head of internet at Thus.
“These days the margins on bandwidth aren’t great for the VAR – it’s getting the right applications in the right vertical market that make them their money,” he says. “So VARs want to provision the services as smoothly as possible. This is why a good provisioning system is an important part of our channel offering.”
Being able to go online and browse an entire product portfolio saves resellers a huge amount of time and energy. Ordering services, and tracking progress online, is another boon for efficiency.
Taking the hassle out of clients’ lives is the name of the game. It applies as equally to the channel as it does to their clients and the applications they choose to buy.
After choosing the right supplier, helping various clients – whether in a particular vertical or not – to select the right application to run over their broadband is crucial.
“The reason why VoIP doesn’t work in some cases is because the people selling it don’t make a compelling-enough business case,” Cantwell says. “Not that the salespeople are always at fault; often there simply isn’t a good enough business case to be made. Why would someone go through all the hassle of changing their phone numbers, reprinting all their stationary and retraining staff, for a tiny cost-saving?
That is not to say that VoIP cannot be sold as a service, but it is not the primary motive. Companies order broadband to run data services. They order data services that will make their life easier. Once they have got that in place, running voice calls over the data network is a project they may invest in, but the priority is to make their core business run more smoothly.
Reseller Eurotel is a case in point. It sells managed mail services for companies that do not have the time or the expertise to install and manage an email server. It is a simple, easy-to-sell application that gets Eurotel’s foot in the door at many a medium-to-large-sized corporation. Having established themselves, they can set about selling their clients more services as the need arises.
This is where specialising in a particular vertical can give resellers an advantage.
In the retail industry, there are some massive opportunities being created by the phasing out of BT’s Highway bundle of services.
Up until recently, the tills at shops across the nation have used ISDN to conduct online credit card verifications. This is all changing. With retailers being forced to adopt chip and PIN – and with ISDN being phased out – the retail industry is looking for alternative broadband service suppliers. Griffin Internet and its partners are doing particularly well in this area.
“We have got some massive prospects in our bidding machine at the moment,” Dickinson says. “There are retail projects where the customer will need about 1,000 lines, one for each shop. In total, we have got about 50,000 potential line orders that we are bidding for with our partners.”
Entanet also reports some exciting prospects being created by the progress of Citrix. Again, the projects are based on a simple need to remove the pain of managing IT.
Carol Davies, broadband business development manager at Entanet, says: “Citrix thin clients at remote sites allow companies to manage their IT far more effectively. They are either doing it themselves or getting us to host and manage their data for them. It’s a real growth area because the cost of managing IT needs to be rationalised for many companies.”
So rather than artificially create solutions for problems that don’t exist, it is far more profitable for VARs to ask clients what their major problems are and cater for them.
“We build solutions around what people need,” Davies says. “You need flexibility to do this, as well as a product portfolio that gives you all the building blocks.”
A good partner, such as Entanet, Griffin or Thus, will allow the reseller to outsource elements of the service that they cannot manage.
James Blessing, Entanet’s chief operating officer, says: “We will do the bits that VARs can’t.”
This could include some of the more difficult functions involved in security, another of the disciplines that is becoming increasingly critical to corporate UK. Data security, as in VPNs – be they SSL or IP Security – is highly important. Especially since even more of the workforce is being encouraged to work from home.
With the government advising workers not to get on the train, local authorities applying congestion taxes on people who drive to work and the rest of nation’s cars being put out of action by dodgy petrol, there has never been a stronger incentive for home working.
“We have got a partner that is currently enabling 150 of its client’s staff to work from home,” Cantwell says. “The margins on the bandwidth may not be much, but the VPNs, the anti-virus and anti-phishing work are all lucrative.”
Another branch of security that is paying off is surveillance. The UK is maintaining its position as the most scrutinised nation on earth. We have hundreds of retailers, factories and petrol stations demanding CCTV cameras that can photograph just about everything that happens in their business. Nobody actually watches it, but if a criminal incident does take place, the stored images can be easily retrieved and replayed. Naturally, this is creating a lot of sales opportunities for VARs that understand CCTV, IT storage and broadband. If you are not one of this rare breed, the best thing to do is find a sympathetic supplier who will fill in the gaps for you.