IDC’s Rona Shuchat – Forecast for the future of IT services

January 29th, 2007 |
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In this Thought Leaders podcast brought to you by SAVVIS, Rona Shuchat, research director, IDC, shares her unique perspective, gained through the study of the strategic impact of telecommunications and web hosting. She discusses what’s interesting in corporate networking, such as deep packet inspection, the use of web-based portals to administer internal networks, and the use of web optimization techniques. She also addresses how corporations will see advantages in bundling the elements of their IT Services, including IP bandwidth, storage, software, security and systems monitoring, to lower their overall total cost of ownership (TCO). Finally, Rona discusses the value of virtualization and utility computing and forecasts the future of IT services.

Transcript:

Host: Jim Leach – SAVVIS

Guest: Rona Shuchat – IDC

Jim Leach – SAVVIS

Welcome to this edition of Thought Leaders, where, we bring you candid conversations with the people whose research and writing are guiding the buyers and suppliers of IT Solutions. I’m Jim Leach. Today we are pleased to welcome Rona Shuchat, Research Director for Telecommunication Transformation Strategy and top industry analyst from IDC. Rona conducts research in the evolution and roll out of next-generation services, using the Internet Protocol or IP as well as manage network services, Web Hosting, utility and on-demand computing, virtualized services, intelligent content delivery networks, service portals and application,-a way of networking. That’s quite a list Rona, you must be pretty busy.

Rona Shuchat – IDC

Well, thanks for inviting me Jim. It is really fast moving market, I’m covering a lot of areas but there is a lot of new innovation and we’ll talk about that.

Jim Leach – SAVVIS

Oh, we’re so pleased to have you, thanks for joining us here on Thought Leaders. The first question I have is, you bring really a unique prospective to our audience and that you study the strategic impact of both Telecommunications and Web Hosting. So, let’s start with Telecommunications. Ten years ago, at the height of .com boom, corporate networks were the rage. Venture money was pouring in to .com startups to develop new IT gear and billions of dollars were being spent to build out global networks but today corporate networking seems kind of boring. Other than Voice Over IP, is there anything interesting going on in corporate networking?

Rona Shuchat – IDC

Yes, actually there is a lot more going on than it first may be obvious. What comes to mind for me are areas like Deep Packet Inspection. The use of Web Optimization techniques. Even the use Web based portals to administer internal networks. For example, Deep Packet Inspection is a technology that’s helping IT managers, better understand how applications are using their network, helping them to set policies for controlling the utilization of IP Bandwidth, really with the goal of helping them to better control costs. Another innovation that I thought of is really the use of application acceleration products, to enhance the performance of highly dynamic transaction oriented Websites. I think, what we’re really seeing is there’s lot of new or refined optimization techniques incumbent to help companies improve application performance bringing together functionality like low bouncing, caching, compression, read optimization.

If you look at portals, like say more and more reporting and network control functions are being developed with portal type functionality and this is really an improvement over what I call previous separate control systems that often necessitate companies to support large development stuff that have expertise in different languages. So, I could go on and on Jim, but I think I’m going stop there, there really are a lot of interesting developments in corporate networking.

Jim Leach – SAVVIS

It seems like Rona, common thread across those different initiatives in the networking space is focused on the application and what applications need to run effectively and yet those of us in the IT Solution space, I think we tend a look at IT in discrete parts, whether it’s hosting or networks, servers or software. If CIOs are really looking for integrated IT Solutions for their applications, that cut across the Silos, is there an opportunity for telecommunications and hosting to come together to bring value for an IT Department or is it really better for an IT Department to continue buying these pieces individually.

Rona Shuchat – IDC

Jim, I think, there is a far more advantage for corporations to look at bundling a combination of elements to lower their overall total cost of ownership and when I say elements, I’m referring to potentially outsourcing a combination of server hardware, IP Bandwidth, storage, software, security you need in systems to monitoring into a single bundle. As we look out, at the different market segments, it’s really expected that small to mid size companies are really going to have a hard time, keeping up with and absorbing the in-house cost and expertise that they will need to support the growing complexity of their networked applications. From a large enterprise perspective, we believe that they can also benefit from advanced outsourced solutions, that take advantage of functionality like automated virtualization or utility computing and what I’ll refer to as performance application engineering.

These different elements help a company to consolidate their server resources but also enable then to scale, the whole concept of virtualization and utility computing for dynamic allocation of resources, will enable companies to scale their applications while keeping their cost under control, which is really a critical element that CIOs and CFOs will continue to watch, as applications grow and become more complex over time.

Jim Leach – SAVVIS

I think virtualization and utility computing for some of us, they sound just like another buzzword in IT and for those of us who’ve been around the IT block, a few times, I think, were all, a little bit jaded and some of us were even a bit cynical. Can you help us understand, what virtualization and utility computing are and what their real value is, that those concepts can deliver to a corporate IT Department?

Rona Shuchat – IDC

First of all, there is really a lot of media play around virtualization and utility computing. There’s a lot of different interpretations but there is, what I would say a real functionality to these concepts which is being provided in solutions by a number of large providers such as yourself. Simply put, a virtualization is the ability to take a single resource and make it appear as more than one, so that each instance can service separate application. For example, virtualization helps to partition servers, storage or even network interfaces and this in turn allows through the dynamic allocation of fixed resources.

When you think of utility computing, it’s very similar to the way you pay for electricity that you use over, let’s say the power line to your house. You only pay for what you consume over that power line and in today’s hosting world, this concept has been enhanced, I would say to include not only metered usage cost but the dynamic allocation of additional resources as they are needed and those resources might include things like processing power, storage or bandwidth.

So the point here, is that virtualization and on-demand computing can minimize the total cost of ownership for an enterprise, way beyond what they could achieve with a fixed resource model.

Now we are seeing savings in the — anywhere from 25-40% enterprisers say, when they compare a virtualization strategy versus a dedicated model. So, companies can really minimize their overall capital expenditure outlay. They don’t need to buy extra servers, for example, for those unusual peak periods and they can continue to scale and grow their applications and adjust up or down depending on how their growth moves ahead.

Jim Leach – SAVVIS

Oh, let’s talk a little bit more about Web Hosting and that’s another key area of your research and it appears that both supply and demand for Web Hosting are working to drive prices up in this area. There is a demand for high quality data center space with the right kind of power and cooling and security and the supply seems a little bit constrained. Can you talk to us a little bit about what’s driving this demand and do you think it’s going to increase?

Rona Shuchat – IDC

With the wholesale migration of traditional applications to Web-oriented architectures, we’re really seeing a tremendous growth and the need for Web Hosted applications. It’s really leading to, what I have call, resurgence and the need for web support systems and in addition to this migration of existing applications, I’d say that enterprisers are really bringing online, a wide range of new e-business functions, tie it to marketing, sales and transaction type services, there is really no limit for the types of applications that are evolving for e-business and to share some stats with you, IDC’s 2006 research shows, that approximately, 50% of all companies are now outsourcing all or part of their Website operations through an external service provider.

And this is up from about 44% compared to 2004 and we really expect this demand to keep growing. Our latest, Web Hosting forecast for example, shows that the US market for out sourced hosting services is predicted to grow from just under about 7 billion in 2005 to 14.5 billion in 2010, so we’re definitely projecting significant growth in this area.

Jim Leach – SAVVIS

So, if demand is going to continue to grow for Web hosting, you’re actually a trusted advisor to a number of corporate IT Departments. How are you advising them to evaluate Web hosting providers?

Rona Shuchat – IDC

Fairly, with so many options on the table today, it can very well be confusing to a corporate IT Department, there is multiple types of Web hosting providers out there. There’s Telecom Carriers, there’s IT outsourcing firms like IBM or EDS, there’s specialized managed Web hosting companies that are more of a (Inaudible) like a Rackspace for example, and then of course, there is the mass market hosters like GoDaddy or Yahoo, but as an enterprise customer, I think it’s really important, they need to assess whether the hoster can provide the scalability, needed to support their anticipated application growth and complexity and scalability isn’t just about providing data center capacity and processing power.

It may require the use of virtualization services or on-demand utility to achieve the economies of scale that are going to make the difference for that enterprise in terms of really lowering its total cost of ownership in an outsourced model. The enterprise also needs to evaluate the provider’s capabilities in terms of prepackaged solutions, levels of customization available. Last but not least, I’d say, they need to consider, the training and availability of support staff at that Web hoster, what kinds of certification does the staff have, availability of SOAs, what are the penalties for non compliance, there’s just really a whole diligent process, that an enterprise needs to go through to ensure that they are selecting a qualified Web hosting provider.

Jim Leach – SAVVIS

Oh Rona, this has been a great conversation and we’ve gotten a chance to talk with you about telecommunications and networking and Web hosting. Let’s put on your forecaster hat for the last question and give you the opportunity to look out five years, what recommendations would you give to Web hosting companies and corporate IT Departments?

Rona Shuchat – IDC

It’s going to be really important for companies to be able to dynamically scale their applications under increased usage and load and only pay for what they use, I think cost is still going to be a critical consideration for IT Organizations. So, in response to that, I think, it’s going to be a really important for hosting companies to be able to offer very granular utility computing service model, that can support very cost efficient solutions to help companies to be able to scale — outsource more complex applications and in the same breath really keep their costs under control.

Jim Leach – SAVVIS

Oh, thanks again, Rona Shuchat; Research Director at IDC and thanks to our listeners for joining us for this edition of Thought Leaders.

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