Application Awareness for Service Providers

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1 Application Awareness for Service Providers Why application awareness matters to managed service providers By John E. Burke Principal Research Analyst, Nemertes Research Executive Summary New applications and an evolving organizational environment drive enterprise bandwidth growth and a need for predictable, stable, real-time performance. A new generation of enterprise application Web front-ends and Software as a Service (SaaS) offerings, plus the move to direct-to-internet branch connections are shifting where optimization and security services must be delivered. Faced with budget and staffing issues, enterprise interest in managed optimization for WAN and Internet traffic is growing, and among managed service providers, carriers are well positioned to offer such services. As profit margins shrink on services that become commoditized, such as connectivity itself, service providers must move up the stack to add value and find new revenues. Managed Service Providers (MSPs) can inject application awareness into their services as their next value-add and as a critical differentiator. Anyone offering managed services, either on-premise, in the cloud or as a hybrid solution, must build application awareness into their infrastructures from the bottom up. The Issue: Engineering Network Performance In a Changing Enterprise Organizations must regularly re-engineer their networks for performance as the set of services and applications to which they tailor them changes continually. Today s enterprise is reorganizing itself and its processes around new generations of applications that require lots of bandwidth and real-time performance. Because these applications are critical to new modes of collaboration and customer service their performance is likewise critical. The organization itself continues to spread, indicated by the 9% per year mean growth in the number of branches prior to the recession. Although growth dropped to -3% in the depths of the downturn, it will bounce back to a projected 6% rate for 2010 as the economy recovers. At the same time that they spread the staff to whom IT must deliver applications further apart, organizations of all sizes continue to centralize IT services into data centers, and to consolidate into fewer data centers. More than Nemertes Research DN0767 1

2 half (57%) of organizations are committed to a fully centralized application delivery model, and another 32% deliver most that way. Complicating network engineering is the growing use of direct branch-to- Internet connectivity: 57% of organizations now have direct Internet access in at least some branches, and only 28.6% backhaul all Internet traffic via data centers. Increasing use of direct-to-net access shifts more of the burden of performance management, optimization, and network security to branches. New Enterprise Applications and the Webification of Everything Networks must adapt to new, real-time communications tools: voice over IP (VoIP) and unified communications (UC) systems such as audio and video conferencing. Already most organizations (59.6%) deploy some form of UC, and 17% are planning and piloting solutions. Every organization s network needs to be engineered with real-time communications in mind, and no network optimization solution can ignore the needs of real-time voice and video traffic. In addition to new applications such as UC, changes to existing enterprise applications are altering the picture for performance management. Most enterprise applications have already shifted their user interfaces from custom-built fat clients to Web interfaces. Web front-ends are now moving to a second generation, utilizing Web 2.0 technologies such as AJAX. This shift changes the nature of the traffic the front end generates, often moving much more data through many independent and simultaneous calls to Web servers; this alters how that traffic can best be optimized. Likewise, most organizations (59.1%) now use some software as a service solution, and another 9.1% plan to. Like the shift to direct-to-net connectivity, this continuing shift of enterprise application traffic from WAN to Internet moves some optimization needs from inward-facing to outward-facing connections. In addition to whatever WAN optimization may be required (caching, compression, etc.), branches will require their own Internet-focused optimization, centering on bandwidth guarantees, prioritization, and traffic shaping to make sure enterprisecritical SaaS applications get what they need. Use of direct Internet access to critical applications (and ultimately the use of any cloud resources) puts an increased security burden on the branch network too. Branches need Internet-facing security that can meet organizational requirements for protection from malware, suspect Websites, attacks, and data leakage, as well as the visibility needed for compliance auditing and reporting. Bandwidth and Class of Service Are Not Enough Bandwidth demands rise even (if more slowly) when optimization is in use. Even where enough bandwidth is available, lack of conditioning of that bandwidth can be crippling to applications such as remote desktop or desktop video conferencing. IT must mitigate the effects of latency (the bane of voice and video communications) and packet loss to guarantee the performance and response time of such applications. Nemertes Research DN0767 2

3 IT also needs control over network traffic, both for security purposes (to filter out the bad) and for prioritization (protecting the good). Organizations need to be able to ensure that capacity goes to applications according to their priority to the organization. Prioritization has to be fine-grain, especially with the use of media sharing, bandwidth-intensive social media, and recreational sites still rising. IT must be able to ensure, for example, that a video conference between a key client and sales does not suffer because there is a new Wedding Dance video on YouTube. Likewise, access to critical SaaS applications must take priority over basic Web browsing or even over other, less-critical SaaS services. While class-of-service and quality-of-service features can provide some prioritization on a WAN link, they usually can provide only four to 10 levels of discrimination and prioritization. This will not be granular enough for many an environment with dozens or hundreds of applications and services in use across a similar number of departments and divisions. Application Awareness on the Web As nearly all applications become Web-mediated services, whether internal or external, optimization and security need to parse Web traffic streams with all the granularity they previously brought to bear when application traffic flowed over product-specific ports using application-specific protocols. Treating the Web as a single class of traffic has long been inadequate for performance management; it became so as soon as Web access to enterprise applications became widespread. For a while it was enough to discriminate among URLs or domain names: this domain is high priority, these domains are low, these are forbidden. But when an organization comes to use Web protocols to reach almost everything internally and externally, from applications to shared storage, URL discrimination becomes insufficient. So, organizations requiring fine-grain application awareness need optimization that can distinguish among the different communications streams of applications sharing the same protocol and ports across the firewall. This may simply be for application performance tracking, such as it takes X seconds for an acknowledgement of a transaction to reach the user after the user sends the update request. More likely, though, once an organization has visibility, it will also want to exert some control: give sales transactions priority over reporting transactions, for example, or give all production use of Oracle Web applications priority over training uses. Managed Optimization Services As organizations more frequently outgrow their first optimization systems, they look into upgrading with their current vendors. They look at competitive vendors solutions, too. Increasingly, they also contemplate new deployment paradigms, such as outsourcing some or all of the problem. Nemertes Research DN0767 3

4 Advanced Services UC, SaaS, Cloud Managed Application Hosting, Messaging, Filtering Managed VPN Managed Security, MPLS Basic Connectivity Managed Router Business-level Complex SLA Application Fluent Rich Business Portal Basic Application SLA Application Aware Business Portal, Reporting IP SLA, Quality Guarantees Application Identification Per User Billing/Basic Portal Basic SLA Application Unaware Simple Billing / No Portal Evolution of Managed Services Figure 1: Evolution of Managed Services (Nemertes Research Spring 2009) Fewer than 5% of organizations outsource optimization today, but Nemertes finds about 43% of organizations would prefer to, with a carrier-based managed optimization service layered atop basic connectivity. This is notable, given that outside a traditional you buy it, we manage it outsourcing model, such options barely existed two years ago. Now, solutions exist that treat optimization as the service, rather than management of an optimization appliance. This excites the interest of IT shops strapped for cash and for in-house experts and attention. For the MSP, Applications are the Key Gradual commoditization of once-profitable services puts providers in a never-ending struggle to stay one step ahead of the race to the bottom on pricing. As a result of there being little money to be made in basic connectivity, value-add has to come from somewhere further up the stack, in the application layers. Enterprises focus on delivering applications to remote users with solid performance; this makes deep understanding of application behaviors on the network critically important for providers in the search for profitable value-add services, and optimization an area of vital interest. Nemertes Research DN0767 4

5 Application awareness begins with basic identification of applications present on the network. Once the network knows applications exist, the next step is for it to understand the state and flow of applications communications, what constitutes a conversation and how content flows in each direction. Ultimately, the network should understand various applications protocols well enough to tear down and rebuild network traffic, injecting intelligence, security, control and optimization, providing deep visibility. Application-savvy networks let service providers move their value proposition up the stack, ahead of the oncoming wave of commoditization. The application-fluent network becomes a platform on top of which service providers can build managed services, raise profit margins, and deliver services that can map directly to customers' core businesses. (Please see Figure 1: Evolution of Managed Services, Page 4.) What Managed Optimization Lets Carriers Deliver Ultimately, the application-enabled carrier can define, monitor, and deliver on complete service-level agreements (SLAs) that touch on performance at all layers of the network stack, from base connectivity through transaction times. More than that, they can address issues of visibility and reporting, security and auditability as well, addressing all the layers of enterprise function that IT needs to consider rather than just the lowest ones. To see who will not just survive but thrive in this intensely competitive market, look at customers needs, preferences, and buying requirements. Incumbency in a rapidly changing market is only a temporary advantage and at times, thanks to commoditization, may even be a disadvantage. As many service providers have discovered, cost motivates customers enough to switch providers. When providers fail to cut costs fast enough, they lose customers. Once lost, it takes much bigger price cuts to lure customers back. Price, however, is not the only consideration. Customers are already choosing the next winners in the managed services market, and surprisingly, they are not choosing based on cost alone. In fact, cost is not even the leading selection criterion for choosing a provider; instead, it is the type of services offered. (Please see Figure 2: Criteria for Choosing Managed Service Providers, Page 6.) Even more surprising, this research was conducted in 2009, in the midst of a global recession, with 85% of research participants having experienced flat or declining budgets in the preceding year, and 80% facing them in the coming year. Despite all that, cost was secondary to services. Given all this, we conclude that application fluency will play an increasingly important role in provider competition in this market. Layering services up the protocol stack in ever-increasing value (and profitability) and weaving them together across different service offerings will ultimately enable managed service providers to offer exciting new services with a high degree of customer intimacy. This allows providers to differentiate from competitors and increase customer loyalty by aligning services to the core business processes of the customers. Nemertes Research DN0767 5

6 Figure 2: Criteria for Choosing Managed Service Providers Traditional telecommunication providers have been in the race for decades now. They are adept at weaving together service offerings, and are increasingly focused on applications and optimization. The list of carriers offering some form of managed optimization services now includes AT&T, BT, Orange Business, Sprint, TaTa, and Verizon Business. Most managed optimization services fit the classic managed-services mold: the customer buys and the carrier deploys appliances to the locations requiring optimization, which the carrier then manages. They may be part of the CPE for the carriers own connectivity services, or layered on top of some other carrier s connectivity. Increasingly, though, carriers try an opex only version. The carrier retains ownership of all the appliances, and the customer buys optimization as a service, no capital investment required. A few carriers are even offering non-cpe optimization, a service truly in the cloud, with all traffic shaping and protocol acceleration happening inside the carrier s infrastructure and without appliances on customer sites. Increasingly, carrier offerings reach beyond basic optimization to weave in adjacent, allied technologies such as security, auditing, and logging. Security is a natural complement to optimization; after all, no one wants to optimize delivery of malware, spam, data leaks, or other undesirable material, inbound or outbound. Filtering out bad traffic before it even touches the organization s own network makes security an especially apt pairing with carrier-cloud optimization. Likewise, Nemertes Research DN0767 6

7 central access to network traffic makes auditing the content of the traffic for compliance purposes a natural add-on service. With both separate and integrated offerings in mind, service providers select the vendors they partner with in part based on who can offer both standalone and integrated services. They would much prefer, whether the customer owns the CPE or they do, that there be as little equipment added to each location as possible. When optimization happens in the cloud, they likewise want gear that is ready for multi-tenancy and rapid scaling. Integrated service management should be seamless, requiring as few additional, custom tools as possible and as little replication of policy definition or other efforts as possible. Carrier Case Studies: What Customers Get From Managed Optimization Service providers sell managed optimization services on the benefits customers should expect. As with internal optimization solutions, improved service (application) delivery is the key benefit. Alongside that, the benefits (and risks) that accrue with any managed service offering apply as well: owning less of the infrastructure and shifting capital to operating costs as much as possible; shifting ancillary management and expertise requirements to an outside entity, reducing the internal skill set but allowing internal IT to focus on the most critical subjects. In years like 2008 and 2009, in which capital budgets have been small to nonexistent, and in which IT staffs have been shrinking or holding steady for over 85% of organizations, relying more on operating budgets and pushing additional areas of responsibility to outsourcers looks especially attractive. So, reducing TCO while improving performance is the focus. Application performance typically improves many-fold. For example, TaTa cites 5x performance improvements as typical for many LAN applications running across an optimized WAN. AT&T cites 2x to 10x improvements. TCO reduction is driven partly by externalizing management costs but mostly by slowed/deferred bandwidth upgrades. Carriers typically see customer traffic drop by more than 50% if they put compression in place, allowing upgrades to be postponed for 1 or more years for most customers. The majority of our managed optimization customers see a double-digit reduction in TCO, said an executive with Orange. Deferring major bandwidth upgrades can, in itself, provide very significant savings and, in Nemertes cost modeling, leads to positive ROI in under a year in most cases. Carrier Case Studies: What Carriers Get From Managed Optimization Carriers realize several benefits themselves. Optimization offerings broaden that essential catalogue of services, the key decision criterion for enterprises selecting MSPs as discussed above. Further, they offer another entry point to new accounts; they make RFP responses more robust; and, most importantly, they improve customer intimacy. Nemertes Research DN0767 7

8 A foot in the door. Orange, TaTa, Sprint, and others all cite optimization as an opportunity to gain entry to accounts where other carriers are handling commodity connectivity. Whether coming in to manage active traffic optimization, or simply deploying optimization gear in order to gain deep visibility into network traffic, as a secondary service provider they come in with the opportunity to point out and help fix performance problems, an excellent first step toward becoming a primary service provider. A better response. Most carriers with optimization services begin to add them to lots of RFP responses as an additional service. The majority of network services RFPs go out without any requirement for optimization included. However, being able to offer things like application-level QoS or application performance SLAs can be a valuable differentiator in a response. Applications are the key, notes a Verizon Business executive. Folks often come in with one problem, but leave with the resolution to several. Given 43% of organizations having an interest in carrier-based optimization, Nemertes believes both that optimization will be the specific focus of as steadily increasing number of RFPs in the short term (for the next 3 years or so), and that it will become a required feature on the majority of large WAN RFPs within the next 5 years. A new level of intimacy. By their nature, optimization appliances provide an unprecedented level of visibility into enterprise network traffic, especially that driven by the newest generation of web-everything applications. Combine that with extensive discussion about what applications and services really matter to the customer, and these carriers gain a much deeper level of intimacy with those customers. Being able to act on that deeper knowledge of the business and better serve their needs by effecting changes in network vastly increases the importance of the carrier to the customer when compared to being just plumbing. As a TaTa executive puts it, We can stop talking about dollars per megabit and instead about the applications they need, the bandwidth those use, and about guaranteeing their performance, a sentiment echoed by Orange: Ultimately, we come to learn more about the customer s business and therefore can better serve their needs. By establishing relationships that revolve around more than bandwidth (on which they make little or no profit) these carriers establish relationships they expect to last longer and be more lucrative. Conclusions and Recommendations To deliver all the new and old services users require, IT may need to compress traffic to conserve bandwidth, but must condition network traffic to guarantee acceptable performance. IT must control traffic to ensure security and also accountability, making sure network resources go to applications according to their organizational priority, no matter what else they may share protocols or delivery models with. IT may do this in-house or via managed or cloud services. IT service delivery requires focusing on application performance. This makes application awareness of value to carriers and other network service Nemertes Research DN0767 8

9 providers. Service providers, to prepare infrastructures, organizations, and processes for application awareness, should: Add application-fluent components to the network edge, intermediate and even core layers. Multi-tenancy and high throughput with low latency while using all features are critical criteria. Integrate reporting data from application-fluent components into portals and standard dashboards. Provide, as value added services, drill-down to very granular data about process, transaction, application or component performance, as well as per-site and per-user performance. Develop, or partner to provide business-process integration and reengineering services; optimization services enabling resource centralization or worker distribution will enable customers to re-imagine how they work, but be ready to help them realize their visions. Strengthen security, reporting, audits, and mechanisms for working with customer auditors. Weaving more tightly into client business processes increases your clients exposure, so be prepared to demonstrate that you are not significantly increasing their risk. About Nemertes Research: Nemertes Research is a research-advisory firm that specializes in analyzing and quantifying the business value of emerging technologies. You can learn more about Nemertes Research at our Website, or contact us directly at research@nemertes.com. Nemertes Research DN0767 9