Systems management vendor Tivoli became the latest technology company to commit substantial resources to the burgeoning service provider market last week, when it announced the formation of a business unit dedicated to the sector. Forming the backbone of its Net Generation initiative targeting leading telcos, the Tivoli Service Provider Business Unit (SPBU) aims to enable service providers to offer a new breed of revenue-generating services. The announcement has been backed by a $300m worldwide investment over the next three years by the vendor. Although the SPBU will initially be offered only to 'early adopters', made up almost exclusively of multinational telcos, the unit offers resellers a glimpse of where the money-making opportunities exist in a future dominated by ISPs, ASPs and related portals. According to John Thompson, senior vice president and group executive for IBM Software, about a third of the software market is currently in the hands of service providers such as ISPs. Considering the current rate of growth of the ASP sector, that figure can be expected to mushroom. What's more, selling software and related services is extremely profitable; IBM's software divisions, including Tivoli and Lotus, contribute 17 per cent of IBM's overall revenue, yet generate about a third of its profit, according to Thompson. "The new business unit will involve Tivoli partnering with the service provider to build a range of managed services. This is important to IBM as we move our ebusiness strategy to the next generation of computing," he said. Thompson said the decision to establish a business unit had been driven by three main factors: the huge increase in the amount of data running on corporate networks; a surge in the number of IT and non-IT devices that can be attached to a network; and the way companies are distributing their applications across a network. It is this 'distribution' or outsourcing model of business processes that is of most interest to service providers, at least in the shorter term. As companies continue to focus on their core competencies, they will increasingly look to service providers to take on more of the management and hosting of their network and computing needs to reduce costs and free up other resources. Rob Rich, analyst and senior vice president of the Yankee Group, said: "Next-generation services are being driven worldwide by the deregulation of the telco industry. The alliances, mergers and acquisitions and resulting competition add to the growing globalisation of the industry." Rich said rapid technological advances in fibre optics, wireless technology, IP and infrastructure were also acting as a catalyst to the telco sector. "Corporate focus on core businesses and demand from SMEs for sophisticated services that they don't have the skills to implement in a short space of time, have resulted in an explosion in demand for service providers," added Rich. Application hosting is just one area Tivoli has identified and targeted as part of the Net Generation initiative. With the launch of the SPBU comes a raft of products under the Tivoli Service Provider banner. These are designed to exploit other revenue opportunities for SPs, such as managing subscriptions, hosting business services as well as managing network and application services. Tivoli has signed up a number of early adopters to the SPBU, including Deutsche Telekom and US carrier Sprint, which will initially target large corporations with the offer to manage certain services. Maurizio Carli, EMEA general manager at Tivoli, said the SPBU, which replaces a telco unit formerly focused solely on telephony service providers, would make the telco industry Tivoli's biggest market in the region. "Banking is catching up the telco as the biggest industry for Tivoli," he said. "But I want the SPBU to be the most significant revenue generator for Tivoli in EMEA. "Service providers are asking us to help them make the switch from traditional technology to more pervasive computing and IP-based services," Carli added. "In addition, we need to differentiate ourselves from the competition. Computer Associates has never challenged us in this space because a telco sale is more sophisticated. "Although CA will try to catch us up, we have a much larger referenceable customer base. Our competitive advantage is that we have most of the top 20 telco providers worldwide," he said. However, the bad news for resellers is that this thrusting new initiative will be closed to the channel, at least in the short term, as the SPBU is the sole property of Tivoli's direct sales force. Carli played down concerns that Vars faced a cut-down customer base as a result. He insisted that there was still enough space in the market for resellers to keep servicing existing and emerging markets. "We are investing a lot in our two-tier channel, but we do have a separate organisation for system integrators. The key challenge for me is that I cannot cover all the opportunities, and as a result there is no problem of channel conflict," he said. Carli added that Tivoli would continue to focus its channel organisation on targeting customers with between 1,000 and 5,000 seats, where he said the vendor was still underperforming. "We have started from scratch in this space and our top priority is investing in marketing and the channel to address this. It is not possible to access the entire market with our direct sales force and that is why we have a channel organisation. We will aggressively enter this upper-mid market," he said. However, Carli warned that traditional resellers need to quickly address the issues that continue to question their role in the market. "If you look in the long term you can question whether you will have dealers at all, as the entire distribution chain will be different in a few years' time. "If an ASP can provide a replicable service involving the use of an application rather than buying it, the market will respond. I see it as a move from a sales model to the delivery of services," added Carli. THE DEALS BEHIND THE SCENES AT TIVOLI The launch of Tivoli's Service Provider Business Unit (SPBU) and the Net Generation initiative was accompanied by a host of technology and strategic agreements designed to push net-based services through service providers. These included: - An agreement with Cisco to jointly develop management policies to help service providers implement and operate networks, and develop management systems for ASPs - A deal with Telcordia to manage next-generation IP services, including network service level agreement management, work force management and configuration management - An internet telephony alliance for SMEs with Nortel Networks, to embed Tivoli's Management Agent into Nortel's Enterprise Edge IP integration platform - The expansion of the Team Tivoli partner programme to include industry partners such as Newbridge Networks, Applied Digital Access (ADA), CrossKeys Systems and Open Networks Engineering (ONE) Commenting on the expansion of the Team Tivoli programme, Alan Bird, director of business development and alliances, Service Provider Business Unit at Tivoli, said: "By working with these key industry partners, we are laying the foundation to expand our industry-leading Tivoli Ready programs. "You will see us expanding these relationships, as well as relationships with others in the Net Generation space as we work with existing Team Tivoli members to deliver systems required by service providers."
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