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OTT and Enterprise "Cloud-Pipe-Device"

OTT and Enterprise "Cloud-Pipe-Device"

In the past decade, OTT significantly impacted the entire landscape of the Internet and telecom industries. In the next decade, OTT operators and product vendors will be the main players competing in the enterprise market.

The industry has generally agreed that the IT architecture of an enterprise consists of three layers: cloud, pipe, and device. However, opinions differ when it comes to the implications of Over The Top (OTT) services on the development of enterprise IT technologies and even the entire IT industry chain.

This article explores some of my personal opinions about the impact of OTT on the development of the "cloud-pipe-device" technology and even the entire industry. As an OTT fan, my opinions in this article may be biased. Therefore, reader comments are welcomed.

Opinion #1: Competition between OTT operators and product vendors will become increasingly fierce.

OTT operators provide services whereas product vendors provide products or solutions. They represent two totally different purchase venues for customers. Using OTT open source technologies, such as OpenStack and OpenFlow, to provide users with diverse services has become a popular trend across the industry, mainly owing to the innate advantages of OTT services in controlling costs and their expanding technological capacity. Given that customers' investments remain unchanged, competition between OTT operators and product vendors will become inevitably fiercer.

Amazon is a typical example of such competition. As more and more cloud services are launched, the scope of competition will extend from among product vendors alone (such as IBM and HP) to among product vendors, among OTT operators (such as Google and Facebook), and among OTT operators and product vendors. In the long run, product vendors will face increasing pressure from OTT operators.

Opinion #2: Small- and Medium-sized Enterprises (SMEs) are the current focus of competition between OTT operators and product vendors.

There are public clouds and private clouds. It is generally recognized that large companies use private clouds for most of their services and use public clouds for some specific services. Public clouds exist predominately in the form of "Software as a Service (SaaS)". Take Cisco as an example. Cisco uses public clouds "Salesforce.com" for its sales management system and "WebEx" for its communication services, whereas it deploys the private cloud "Infrastructure as a Service (IaaS)" internally. Cisco's approach is typical for enterprises that apply cloud technologies.

Considering their own technological capabilities, security concerns, working habits, the need to protect their existing investments, specific applications, and other needs, large enterprises often find it appropriate to adopt approaches similar to Cisco's. However, individual users have no choice but to use public clouds. Currently, OTT operators and product vendors contend mainly for SME customers. After OTT services are further developed, OTT operators will compete for large enterprise customers.

Opinion #3: The key to winning SME customers lies in sales channels.

Due to their disadvantages in price negotiations, smaller burden in service migration and upgrading, and lack of technical support capabilities, SMEs have lower bargaining power for personalized services than large enterprises. If we approach this issue from product and technology perspectives alone, then OTT operators have some advantages (such as low prices) in winning over SME customers. Cost advantages can be achieved through various means, such as self developed products, resource sharing, and centralized purchasing.

The difficulties that OTT operators face relate to marketing and service capabilities. Generally, OTT operators such as Google, Amazon, Tencent, and Baidu lag far behind product vendors in terms of user-targeted sales and service capabilities, especially when it comes to channel set-ups and standardized management necessary for SME customers. The products of OTT operators are relatively complex, and the target customers have a relatively hard time accepting new things. As a result, OTT operators and their customers are all stuck in a loop: On the one hand, OTT operators have great offerings but do not know how to sell them. On the other hand, customers want to buy a product but do not know how to recognize a good one. Therefore, setting up sales and service channels is a top priority for OTT operators. In general, resellers and integrators will shift from selling products to selling OTT services.

Opinion #4: The power of discourse on enterprise technology development will shift to OTT operators.

In terms of technology development and industry standards formulation, obvious differences exist between the telecom and the enterprise markets. In the telecom market, both vendors and carriers have the power of discourse, and jointly develop technologies and industry standards. In the enterprise market, vendors have a bigger say and exert an overwhelming influence. However, the influence that vendors have on the enterprise market will weaken as OTT operators start to play a more important role. Compared with traditional enterprise customers, OTT operators have a better understanding of technologies and invest more in this field. In addition, they have larger purchasing power. All these advantages have enabled OTT operators to have some influence on technological development. Currently, OTT operators are not as influential in the enterprise market as carriers are in the telecom market. However, OTT operators' influence on the development of enterprise IT technology and even the entire industry chain must not be underestimated.

Opinion #5: The influence of OTT operators is primarily in clouds and devices.

As it is easy to understand, this point is well supported in the industry, especially in the cloud and data center fields. Clouds themselves are services, devices carry the services, and data centers are the infrastructure. The influence of OTT operators can be split into two main categories: (1) development of technologies and formulation of industry standards and (2) development of applications.

Due to intense competition, OTT operators launch applications and services more quickly than enterprises do. Currently, enterprises dictate which applications are developed; but soon, the situation will shift to developments dominated by customer demands. Customers who have received services (such as iCloud) from OTT operators may request the same from enterprises or even require enterprises to further integrate services. To put it more precisely, the enterprise-dominant model will change to a model where "OTT operators play a dominant role and enterprises try to align with them". Of course, dominance and alignment are not the same thing. Enterprises will select appropriate applications and solutions as well as deployment modes based on their own characteristics and requirements. However, two trends will emerge. One is that OTT operators will optimize their public cloud solutions to cater to enterprise customers' needs. In this circumstance, what OTT operators sell will not be services, but solutions, which enterprise customers can buy and install on their premises to offer their own similar but private cloud services. Obviously there will be third-party vendors who adopt a similar concept to develop private cloud solutions and sell them to enterprise customers. That being said, the future enterprise market is filled with plenty of opportunities.

Opinion #6: OpenStack and OpenFlow will be the key technologies used to create "cloud architectures" for OTT operators.

OTT operators will inevitably use OpenStack for virtual computing and storage and OpenFlow for creating data centers. OpenFlow is the ideal architecture for OTT operators because it provides powerful network control functions. The separation of the control plane and the switching plane realized by OpenFlow further reduces the costs of the network system. None of the traditional data center network architectures can achieve the same results. The question is not whether or not large OTT operators will use OpenFlow; the only question is when.

Will other enterprise customers also use OpenStack or OpenFlow? The majority of people in the industry may think not, but I think they will. It is only a matter of time before enterprise customers use OpenStack and OpenFlow on a large scale. Undoubtedly, OpenStack and OpenFlow will encounter serious opposition from product vendors who want to protect their vested interests. However, their resistance will end up in failure against the rule of competition — those who have cost advantages will ultimately win. After the OTT market is well developed, OpenStack and OpenFlow will force new and old vendors to use these two technologies to grab more market share. Linux has successfully broken into the server market. Likewise, OpenStack and OpenFlow will make their way into data centers. Of course, time will tell what really happens.

Additionally, the separation of the control plane from the switching plane has a significant impact on IP network architecture and even the entire industry chain. In fact, this separation was achieved years ago in telecom networks such as Next-Generation Networks (NGNs). This technology is simple and easy to deploy and has many advantages. However, there are cases in which good technologies are not widely used because of resistance from traditional vendors. OpenFlow is one of the most controversial technologies in the industry. Whether or not it is widely accepted remains to be seen. However, separating the control plane from the switching plane will become more prevalent in future offerings, which will have a tremendous impact on the entire network industry chain.

Opinion #7: OTT operators will become leaders in developing basic technologies for data centers.

Due to their innate characteristics (ultra-large size, strong technical capabilities, and high sensitivity in pricing), OTT operators will gradually reinforce their role in developing basic technologies for data centers. These technologies include OpenStack, OpenFlow, Big Data, server consolidation, and clean energy. Although OTT operators have entirely different requirements from other enterprise customers, many technologies and products can be modified to cater to the needs of enterprise customers. That being said, it is increasingly obvious that OTT operators will become leaders in developing these basic technologies.

Opinion #8: The IT industry chain will be changed.

As cloud computing gains popularity and extends its scope of services, the IT industry chain will inevitably undergo intense changes. Interaction between product vendors and OTT operators will become increasingly complicated. Collaboration will coexist with competition.

  • First-class product vendors will expand their business into cloud service offerings in a bid to protect their industry by providing both products and cloud services. Of course, they must have a good understanding of cloud services and rethink their R&D and O&M capabilities, because selling products, after all, is different from selling services.
  • Second-class or new product vendors will strengthen collaboration with OTT operators as they obviously complement each other. OTT operators have a deeper understanding of cloud technologies and have strong technological capabilities, especially in developing and maintaining software. However, they are incompetent in developing and maintaining hardware as well as in marketing the products and providing technical support. In contrast, second-class product vendors can do a good job in this regard. This creates a large potential for cooperation between OTT operators and second-class product vendors. First-class product vendors, however, may find it impossible to join hands with OTT operators because of their vested interests.
  • To compete with OTT operators, product vendors will pay more attention to vertical industries, including providing industry-specific applications and integration services. This market is hard for OTT operators to enter because they are mainly focused on cross industry, "horizontal-layer" business initiatives. This situation provides considerable room to grow for product vendors.
  • Product vendors who sell products or market their solutions horizontally will gradually be phased out as OTT operators emerge and launch more and well-developed cloud services. Because of their competence in formulating technology standards and contending for markets, OTT operators will bear down a tremendous amount of influence on product vendors. To cope with this pressure, some first-class product vendors have proactively taken a series of measures. The results are positive for some and negative for others. Determination and capabilities are what set successful vendors apart from those that fail. One thing is certain: vendors must make changes; otherwise, they will lose the race. None of them can rest on their laurels.
  • OTT operators and product vendors compete for two types of customers: large enterprises and SMEs. Strategies differ for these two types of customers as their requirements are different. OTT operators and product vendors both have advantages and disadvantages in winning these customers. Who wins in the end depends on their level of innovation, determination, and continued efforts.

Two decades ago, the entire industry focused on telecom and Internet infrastructures. Carriers and product vendors were the shining stars at that time. Over the past decade, fame began to shift to OTT operators, as they have demonstrated their impact on the entire Internet and telecom industry chain, especially in competing with carriers and contending for the power of discourse on the user side. OTT operators are winners, and profits have shifted to them. Of course, carriers are trying hard to fight back, but have not yielded positive results yet.

In the next decade, OTT operators and first-class product vendors will compete fiercely with each other in the marketplace. As a fan who is convinced of the benefits of OTT services, I am optimistic that OTT operators will bring incredible changes to the entire industry. How carriers rethink their own roles and redefine their strategies to make the marketplace a three-party game is what we look forward to seeing. After all, more players will make the market a better place for competition.

Tides rise and fall in this rapidly changing IT era. Innovators will emerge to rise to the challenges ahead, just as history has its hall of heroes who rose to the occasion. Who will rise, who will maintain his position, and who will subside during the coming decade? Let's just wait and see.

(The views expressed in this article are the personal opinions of the author. They do not necessarily reflect the technical strategies, policies, or opinions of Huawei.)

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