A Whitepaper for Service Providers

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1 A Whitepaper for Service Providers Using SLAs to Gain a Competitive Advantage in Today s Managed Services Market How to Capitalize on the Shift from Managing the Network to Managing Business-Critical Applications An Independent Analysis Sponsored by Blue Coat Systems, Inc.

2 Executive Summary Service providers are facing unprecedented competitive challenges due to the rising commodization of their traditional transport services and the growing uncertainty surrounding today s turbulent financial markets. In response to these intensifying pressures, a growing number of service providers are offering a widening array of managed services to deliver greater value to their customers by helping them better manage their IT operations. Yankee Group estimates that 70% of businesses are currently using a managed service, and expects that percentage to rise due to the current economic climate and escalating IT/network complexities. However, customers management requirements are shifting from relatively straightforward hardware and network management to more complicated application and security management. A recent Aberdeen Group study found that 46% of organizations who are using managed services are not satisfied with the service level guarantees for application performance. 1 In order to satisfy customers escalating needs and expectations, service providers must implement new technologies to address their application and security management requirements. They must also provide service level agreements (SLAs) which clearly demonstrate their application-level performance. This whitepaper will discuss these managed service trends and challenges, and will identify the steps to success to meet customers escalating application and security requirements. We will also examine how Blue Coat Systems integrated approach to application delivery network solutions are responding to these requirements, and provide examples showing how Blue Coat solutions are helping managed service providers (MSPs) clearly differentiate themselves in today s rapidly evolving market. 1 Aberdeen, Managed Network Services-Beyond Cost Savings and Uptime. June, THINKstrategies, Inc., p.2

3 The Rapidly Changing Managed Services Landscape Escalating competitive and economic pressures are driving organizations of all sizes to increasingly adopt managed services to augment their inhouse IT/network management capabilities. Of equal importance, these organizations are seeking help not only managing their network hardware, but also their business applications. These organizations are recognizing that it makes more sense to out-task, or selectively outsource, specific IT/network and application management responsibilities to a growing array of managed service providers (MSPs) than perform these management tasks themselves. As Exhibit 1 shows, managed services are now being used by over 70% of businesses to address their IT/business process management needs than traditional IT outsourcing, according to Yankee Group survey research. Managed services are gaining customer acceptance because of today s escalating business challenges which are driving organizations of all sizes to look for new ways to offload many of the burdens of day-to-day, IT/network and application management so they can gain greater operating efficiencies and achieve better performance. In the 1980s, the telecommunications carriers offered highly customized managed services to large-scale enterprises seeking to outsource their entire network operations. These offerings had limited success because they only served a small segment of the market and added little value. In the 1990s, a new set of start-ups emerged offering a wider array of standardized managed services to enterprises and SMBs. These new MSPs gained plenty of attention, but only won a handful of customers because most THINKstrategies, Inc., p.3

4 organizations were hesitant to entrust their IT/network operations to an unproven service provider. As a result of a perfect storm of three converging forces, the managed services market today is now entering a new era, which THINKstrategies refers to as Managed Services 3.0. These forces are: Escalating customer demand driven by the rising costs and complexities of today s IT/network technologies combined with the uncertainties surrounding the current financial crisis. Maturing MSP business models which are producing more attractive service pricing and packaging focused on specific market opportunities and segments. New enabling technologies which permit more powerful and costeffective managed services which can address network infrastructure as well as application level services. Figure 1 shows the benefits which customers believe they derive from managed services. Figure 1 Why Customers Use Managed Services 2 As customer receptivity toward managed services grows, their expectations are also rising. They are not only asking MSPs to handle their IT/network hardware and infrastructure requirements, but they are increasingly turning to MSPs to improve the performance and security of their business applications. Application-level management has become particularly important as organizations leverage web-based, Software-as-a-Service (SaaS) solutions to augment their on-premise applications. 2 IDC, Managed Services Overview: Performance Improvement for Complex Enterprise Networks. THINKstrategies, Inc., p.4

5 THINKstrategies has seen a steady increase in customer interest and adoption of on-demand SaaS solutions. Our most recent survey of over 100 companies conducted in October 2008, in conjunction with Cutter Consortium, found 63% of the companies had adopted a SaaS solution, nearly double the percentage in 2007! (See, Figure 2.) Figure 2 Percent of Companies Using and Considering SaaS Solutions Source: THINKstrategies/Cutter Consortium These SaaS solutions and a broader set of cloud computing services are growing rapidly. They demand higher performance to ensure acceptable response times, and greater security because of the sensitivity of the corporate data being transmitted. This represents a tremendous opportunity for MSPs. However, it also requires new application and security management capabilities. An IDC survey of wide-area network (WAN) managers clearly illustrates these concerns in Figure 3. Figure 3 WAN Managers Primary Network Concerns THINKstrategies, Inc., p.5

6 Source: IDC U.S. WAN Managers Survey, 2007 These dual requirements pose a classic challenge for WAN managers how to ensure optimal network/application performance while safeguarding against potential security risks. An increasing proportion of WAN managers are enlisting MSPs to help them address these challenges. A recent Infonetics survey found companies using managed services view the MSP s service reliability/uptime the key criteria for selection, as well as rank SLAs as an important criteria in vendor selection. 3 Figure 4 Service Provider Selection Criteria Managed Services Gold Rush Creates Competitive Challenges As the managed services market gains momentum, the number of aspiring MSPs competing for a share of the market is also growing rapidly. An indicator of this proliferation of players is THINKstrategies Managed Services Showplace which now has over a hundred and fifty MSPs listed in its online directory. The total number of MSPs is probably far greater than this when local value-added resellers (VARs) and others included. The proliferation of aspiring MSPs is creating a gold-rush effect which is making it increasingly difficult for service providers to differentiate themselves 3 Infonetics Research: User Plans for Content Security: North America, THINKstrategies, Inc., p.6

7 on the strength of their basic network/hardware infrastructure management capabilities alone. The Infonetics survey also found companies view the MSP s incident response and 24x7 monitoring capabilities as some of the most important features. Figure 5 Important Features of Managed Services Customers are not only seeking a MSP who can manage their network/hardware infrastructure, but can also provide application-level management as well. They want services that support the delivery of business applications and provide a positive end-user experience that will yield greater employee productivity, produce new revenue opportunities and generate additional business efficiencies. They also want the MSP s service level agreements (SLAs) and reporting capabilities to reflect this application-layer requirement. Figure 6 illustrates how MSPs must move up the stack and develop premium-level, application layer management capabilities in order to effectively differentiate themselves in the market. THINKstrategies, Inc., p.7

8 Figure 6 Managed Services Moving Up the Stack Setting New Standards for Application-Level Managed Services In order to thoroughly satisfy customers rising expectations and escalating needs, MSPs must not only deliver a broader array of services, but also clearly demonstrate that they are fulfilling their service level commitments. In order to satisfy these expectations, industry leading MSPs are adopting a new generation of integrated application acceleration, security optimization and reporting solutions that can be easily implemented and utilized. Most MSPs today focus on monitoring customers hardware and network infrastructures, and offering basic uptime and performance SLAs for these resources. They handle managed router or firewall services in this fashion, as well as WAN optimization deployments in many cases. In the security area, the SLAs focus more on threat level avoidance, policy compliance, and security event response times. THINKstrategies and Blue Coat Systems contacted a number of leading MSPs to learn how they are leveraging SLAs to differentiate themselves in the increasingly challenging managed services market to gain a competitive advantage. One of Blue Coat s MSP partners has developed an application performance management service to help its customers achieve optimal performance and a better end-user experience. This MSP recognizes that its success is not just dependent on managing customers packet networks to ensure the packets are being properly routed, but also monitoring the applications riding on that network to ensure they re responsive and useful to end users. THINKstrategies, Inc., p.8

9 According to a product manager with this MSP, application-level SLAs are now the next battle field for SPs, and a key area for service differentiation and competitive advantage. As another manager pointed out, SLAs are all about reporting, reporting, reporting for the MSPs working with enterprise clients. There are a number of new and creative ways to define SLAs that are emerging in the market. For example, application availability metrics based on the percentage of time a specific application is available is becoming a powerful new SLA component. This type of application availability SLA can have the following characteristics: Measures the transactions that are attempted and responded to. Reflects the availability of the application based upon the success of connection attempts to a server. Granular reporting on application availability, for example down to one-minute increments, or at longer intervals providing an average of application availability over time. Blue Coat s solutions permit MSPs to perform synthetic application requests to measure availability, packet/server delay and other metrics. Notifications can be set for when application performance crosses a set threshold. Delay thresholds can also be set based on traffic class, and presented in an SLA performance graph based on application performance versus the set threshold. Figure 7 illustrates some of Blue Coat s reporting capabilities. Figure 7 Application Performance Analysis with Blue Coat THINKstrategies, Inc., p.9

10 This type of SLA can also create up-sell opportunities in MPLS and VoIP projects which have higher performance mandates. As a growing number of MSPs enterprise clients turn to MPLS networks for network convergence and a range of service levels, the need for assistance in MPLS preparation and delivery of end-to-end quality of service becomes more significant. Blue Coat solutions, including the Packetshaper and Proxy SG appliances, are designed for full coverage over transactional applications, such as VoIP or client-server business software packages, as well as web applications and content. MSPs and their customers gain network and application visibility for setting policy, controlling performance through security or optimization measures, or by generating granular reports to meet SLA requirements. The Blue Coat Packetshaper product provides application visibility and control for both MPLS and next-generation application and service roll-outs. It also provides baseline SLA definition and reporting. It helps determine what to purchase; identifies and marks the application traffic needing special handling (such as VoIP); assesses performance; and keeps traffic sailing smoothly at the entry and exit points of an MPLS network. This extends the performance advantages of an MPLS core network all the way to the edge. Summary and Recommendations Companies of all sizes are facing unprecedented business and technology challenges, and are seeking new methods to better optimize the performance of their networks and business applications. In response, a growing number of companies are seeking out-tasking alternatives to inhouse network/application management, and are turning to MSPs to satisfy their escalating needs. Managed services give SPs an opportunity to offset the price competition in their traditional network transport business which is becoming increasingly commoditized. However, in order to achieve a competitive advantage, MSPs must offer a new level of application management services. They must also develop application-aware SLAs, backed by strong verification and reporting capabilities that clearly demonstrate their SLA compliance. Blue Coat Systems has developed an end-to-end application optimization and performance management approach which can help MSPs satisfy their customers escalating requirements, and utilize specialized SLAs to differentiate themselves and their offerings in the market. THINKstrategies, Inc., p.10

11 This whitepaper was sponsored by Blue Coat Systems, Inc. About Blue Coat Systems, Inc. Blue Coat secures Web communications and accelerates business applications across the distributed enterprise. Blue Coat's family of appliances and client-based solutions - deployed in branch offices, Internet gateways, end points, and data centers - provide intelligent points of policy-based control enabling IT organizations to optimize security and accelerate performance between users and applications. Blue Coat has installed more than 40,000 appliances worldwide. Blue Coat is headquartered in Sunnyvale, California, and can be reached at (408) or About THINKstrategies, Inc. THINKstrategies is a strategic consulting services company formed specifically to address the unprecedented business challenges facing IT managers, solutions providers, and investors today as the technology industry shifts from a product-centric toward a services-driven orientation. The company s mission is to help our clients re-think their corporate strategies, and refocus their limited resources to achieve their business objectives. THINKstrategies has also founded the Managed Services Showplace ( and Softwareas-a-Service Showplace ( online directories and resource centers of industry best practices. For more information regarding THINKstrategies unique consulting services, visit or contact us at THINKstrategies, Inc., p.11

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