Yesterday’s blog post introduced the term Communications as a Service.  In the post, I opined that the definition of the term as provided by the Gartner Group was too limiting.  I do, nonetheless, like what Gartner Group is saying about the CaaS market.

Like yesterday, I will quote from the Andrew R. Hickey’s September 2007 article:

“Communications-as-a-Service, or CaaS, is starting to take hold worldwide and will rope in a total of $251.9 million by year’s end, according to recent forecasts released by Gartner Inc.   The $251.9 million total is a jump of 37.6% over last year and an indicator that the market for CaaS will continue to climb as providers learn more of the particulars. Gartner predicts that the CaaS market will hit a whopping $2.3 billion by 2011, representing a compound annual growth rate of more than 105% for the period.”

 This is good news for two companies I am heavily involved with:  Zayo Managed Services and NGT.

Communications-as-a-Service taking hold

Communication

By Andrew R. Hickey, News Editor 11 Sep 2007 | SearchVoIP.com

News on networking, mobility and voice Digg This!     StumbleUpon     Del.icio.us

Communications-as-a-Service, or CaaS, is starting to take hold worldwide and will rope in a total of $251.9 million by year’s end, according to recent forecasts released by Gartner Inc.The $251.9 million total is a jump of 37.6% over last year and an indicator that the market for CaaS will continue to climb as providers learn more of the particulars. Gartner predicts that the CaaS market will hit a whopping $2.3 billion by 2011, representing a compound annual growth rate of more than 105% for the period.

One reason CaaS isn’t exploding out of the starting gate, however, is lack of provider knowledge. According to the report, providers are still trying to determine to whom to define, package and market services as a value-added IP telephony offering.

In the report, titled “Emerging Communications Services (Hosted IP Telephony, IP Centrex and CaaS), Worldwide, 2006-2001,” Gartner defines CaaS as IP telephony that is located within a third-party data center and managed and owned by a third party. The assets are not carrier-grade, the service is not in the network, and the assets are multi-tenant in terms of usage, Gartner says.

But the growth of CaaS within corporations will take off once users find its true usability, according to Eric Goodness, research vice president at Gartner. It will grow further as companies realize they won’t run the risks associated with having their own in-house communications systems.

“Users will begin to embrace CaaS more enthusiastically in 2009, attracted by predictable costs for fixed telecoms,” Goodness said. “Users will also be attracted to CaaS as a means of shifting technology risk to the service provider. Technology obsolescence will be more easily managed by a scalable third party.”

The largest growth for CaaS will occur between 2010 and 2011, when the market jumps from $1.2 billion to $2.3 billion. In the years leading up to the market’s boom, CaaS will grow gradually, hitting $576.2 million in 2008 and $742 million in 2009.

CaaS’s slow start will be compounded by a longer sales cycle, Goodness said, as customers need time to get used to higher, but better consolidated, pricing.

“A single bill that consolidates telecom services with equipment infrastructure will gain acceptance,” he said. “Providers are bullish about CaaS’s potential because of the opportunity to bundle more new features and capabilities to avoid service commoditization.”

I spent yesterday afternoon in a 3 hour working session at Envysion.   Over my career, I have found that more times than not, strategy sessions prove to be frustrating and disappointing.  But sometimes these working sessions turn out to be extremely valuable.  Thankfully, this one was the latter.

Scott Beck, our newest board member and an extremely successful entreprenuer, prompted the pow wow.  Envysion is largely aimed at the retail industry–and this is an industry which Scott has extensive expertise.  Scott was CEO of Blockbuster Video, Boston Market, and founder of Einstein’s Bagel.  Therefore, he was able to help Envysion better position its messaging to this sector. 

Scott also offered insights into the broader topic of what makes early stage companies successful.  How do you get them to be customer focused, metrics driven, and full of energy.  Though we spent only 20 minutes on this broader target (most of the session was messaging to retail), it was every bit as valuable.

Scott brought a subject matter expert with him named Keith Robinson.  Keith has a bunch of marketing expertise in the retail space and his contributions bolstered the quality of the discussion.  Thanks Keith.

I will share some of what I took away in a series of blog posts titled “Scott Beck Sessions”.  We appreciate the time you are spending with Envysion Scott.

I recently stumbled across the term “Communications as a Services” or CaaS.  I like the term and might begin to use it to describe the business focus of Zayo Managed Services. 

I do have a problem though.  This will be shocking for those readers who know me personally.  You see, I am known as an agreeable, flexible, accomodating person.  People do not see me as a stubborn individual who has a “my way or the highway” disposition.  So this is why my problem with CaaS–a term I just stumbled on a couple weeks back–will be so shocking.  

My problem is this:  I think the term is defined incorrectly.  Like I said, shocking someone like me would be so bold to question the definition of a term that I had nothing to do with coining.  Whoever did coin it–can you do me a favor and modify the term a bit?   Below is what I have in mind.

Andrew R. Hickey wrote the article “Communications-as-a-Service Taking Hold“ in September of 2007.  Hickey writes:

In the report, titled “Emerging Communications Services (Hosted IP Telephony, IP Centrex and CaaS), Worldwide, 2006-2011,” Gartner defines CaaS as IP telephony that is located within a third-party data center and managed and owned by a third party. The assets are not carrier-grade, the service is not in the network, and the assets are multi-tenant in terms of usage, Gartner says.

My problems are multi-fold (again, shocking I know):

• Communications is a much broader term than telephone calls.  Texting, video conferencing, emailing, and IP security are examples of non-telephony communications services
• Many next generation communications providers focus on providing a bundle of services around a hosted platform.  Beyond the staples of Internet access and telephony, they provide services like microsoft exchange hosting and web/video conferencing
• The “not-carrier-grade” shouldn’t be part of the definition.  It is certainly true that VoIP platforms are relatively new whereas circuit switch platforms have been around for many decades.  It is also true that early-stage VoIP was unreliable relative to circuit switch.  However, the gap has closed dramatically and, for most customers, the tradeoff is small.  Fast forward a year or two, and this gap will narrow to the point where the difference might not be perceptable.   That the gap is closing is not the point; including not carrier grade in the CaaS definition is simply inappropriate. 

I like the term CaaS.  I’d simply like it to be defined around a broader bundle of communications services.  Ike Elliott–you must know who to talk to–can you help out here? 

Business Week ran a cover story called “Beyond Blogs” which revamped a story written three years ago when the blogosphere was just getting started.  The idea is that everything has changed and blogging is no exception.  Now the powerful change is broader than just blogs.  Business Week focuses on the term “social media”.    I encourage you to read this article. 

Yesterday, I rambled on Rob Powell’s CDN post.  Today I will ramble some more.  [How come I didn’t think of the blog name Telecom Rambling?]

AT&T and Level 3 are newer entrants into the CDN arena.  Though Akamai, Limelight, and others have a head start, AT&T and Level 3 have fiber; lots of fiber, as a matter of fact.  I mentioned that Akamai has first mover, technology, and brand advantages in the CDN space.  I do want to add one more thought before moving off this topic.

Another advantage Akamai has is focus.  Laser focus.  Myopic focus.  This is huge.  In the executive suite, they will understand the CDN market better than others.  In the engineering department, CDN knowledge and expertise will be superior to telecom generalists.  Their finance organization will understand profitability, while their competitors will be lost in cost allocations and inter-organization resource allocations. 

Bottom line, focus will be more than enough to off-set fiber for a long time.  I don’t know whether this means Akamai’s stock price is a good or bad buy.  But certainly I wouldn’t count them as the odd CDN out just because they don’t have fiber.

In an interview with Europe’s Der Spiegel magazine last week, Warren Buffett commented on the US economy.   The Oracle of Omaha believes we are already in a recession, even if economists don’t yet know.  The richest man in the world warned: ”It will be deeper and last longer than many think.” 

Rob Powell had an interesting CDN write-up in his Telecom Rambling blog.  He posed the question of whether owning a fiber network is an important advantage to a CDN provider.  Akamai might claim not; AT&T and Level 3 likely would have a contrary view. Rob, it appeared at first, was going to straddle the fence with an “It depends”. 

Thankfully, he didn’t stop there.  Instead, he postulated that fiber ownership gives engineers more design possibilities.  In our bandwidth babylon world of ours, more degrees of freedom will be increasingly important.

Why then is Akamai the CDN leader?   They were the first mover.  They have unique and important technology.  They established a brand.   All of this matters a bunch, so don’t count them out.  Nonetheless, they will have long term vulnerability due to the lack of fiber in their diet.  My guess, they combine with a fiber carrier sometime in the next five years.

I will add a few more thoughts on this topic tomorrow.

Nice post Rob!

Michael Wilson has a great post on the ManagedVideoBlog.com site.  He is asking for guesses on where it is headed.  I’m stumped for now but am thinking about it.  In either case, the video clip is fun to watch.

I get this question often.  I think I am still learning the full answer–and how to explain it.

For now, I will point people to the explanations offered Brad Feld, a venture capitalist and a blogger with several years of experience.  In his post “I Blog, I Tweet, But Why?”, he tounches on many of the points that inspire me. 

This is a complicated one.  Fortunately, Fiberlight has a great play-by-play on its web site.  Click here to get a bit more substance on the extremely brief summary I will provide below.

American Communications Services Inc. was formed in 1993.   $1.6B or so was spent building 1,000 miles of fiber optic networks in tier one markets such as Baltimore, Washington D.C., Atlanta, Miami, and Dallas.

In 1998, ACSI changed its name to e.spire.  It also separated into two divisions:  one focused on lit services and it used the name e.spire.  The other became a wholely owned subsidiary named ACSI Network Technologies.  Are you with me so far? 

Along comes the bubble and e.spire hits a wall.  In 2002, e.spire was purchased by Xspedius for $68M.  The ACSI Network Technology group operated as a separate company within Xspedius and was named Xspedius Fiber Group.  Later in 2002, XFG was separated from Xspedius and its name was changed to Fiberlight.  Mike Miller was named CEO and the private equity firm Thermo Group became primary owner.   Between 2003 and 2007, Fiberlight focused almost exclusively on selling dark fiber.  Over the past year, it began to offer lit services.

Fiberlight is certainly an active player in the Texas Hold’em tournament.  Should we put them at Table 1 or Table 2?  They have lots of interesting fiber networks but are small in terms of revenue and employees.  For now, I will put them at Table 2–though I might move them up as there are a few other border-line participants.  Regardless, their chip stack is being eyed by the aggressive Table 1 players.