BlogAre You Prepared for the New Service Provider Business Models?

Why Equinix Acquired Bell Data Centres and What It Means for You

Telecommunications companies, Internet Service Providers and Data Center operators (collectively, Service Providers) have succeeded for the past two decades selling bandwidth and rack space — and not much else in the way of value-added services. But the increasing commoditization of bandwidth and data centers has disrupted these Service Provider business models as cloud computing and over-the-top services have gained popularity.

Service Provider business models are evolving to account for this change. Successful SPs are now providing a value-added mix of services that include bandwidth, private and public cloud hosting and public cloud access. Equinix is a prime example of this new strategy — working to attract and retain customers by offering easy access to public and private clouds from hosted servers over converged networks.

Bundling services — including direct or low hop access to cloud service providers and last-mile connectivity — is one way Service Providers can update business models to simplify the purchasing process and add value to win deals.

Service Provider Business Models: From Then to Now

The Journey From Then to Now

The dot-com boom drove a rapid proliferation of internet-related services. Service Providers increased their capacity to deliver bandwidth and data center square footage to a continually growing number of e-commerce and social media enterprises. Server virtualization further increased the utilization rate of square footage and required even more bandwidth to accommodate the increasing volume.

But when the dot-com bust rolled around, the Service Provider business model hit a wall. Service Providers were faced with frantic M&A activity to consolidate business and avoid bankruptcy. Demand dropped drastically, but overcapacity remained, driving prices — and profit margins — lower and lower.

On-demand cloud computing services came into their own after the financial crisis of 2008, as organizations struggled to regain control of their finances and capital expenditures. A focus on cloud-first business models, physical-to-cloud migrations and over-the-top (OTT) internet-based services that didn’t boost SP revenues — but did increase pressure on their finances — forced a rethink of Service Provider business models.

A New Service Provider Business Model

Equinix has found a business model that appears to offer the best of both worlds. They offer:

Branded public and private cloud

Server hosting and colocation

Globally interconnected backbone network

Low latency connectivity to big public cloud providers

This new Service Provider business model makes sense for a number of reasons:

  • It leverages existing capabilities and infrastructure, increasing the utilization rate and return on assets expected by the markets.
  • It creates value by interconnecting with multiple public Cloud Service Providers.
  • It offers the ability to locate organizations’ servers close to branded public cloud service offerings and major public cloud Service Providers.
  • It offers the added benefit of being on a global backbone network.

As a growing number of organizations move their services to the cloud and build cloud-first business models, we can expect that Service Provider business models will increasingly resemble that of Equinix. SPs will extend their services to include public cloud Service Provider interconnection, as well as their own branded (or white labelled) public and private cloud services.

A New Service Provider Business Model

Looking to the Future

This new Service Provider business model should lead to improved revenues and profit margins for Service Providers, but can still be augmented further by offering diverse connection methods to enterprise and mid-market clients. It makes sense for SPs to offer OTT connectivity to organizations with widely distributed operations, small branch offices, job sites or other locations that need public or private cloud access — because not all organizations can afford dedicated direct connections.

As we’d expect, Equinix and other organizations emulating their Service Provider business model are adding software-defined wide-area networking (SD-WAN) to their portfolios. This offering enables small branch offices to connect affordable and ensure secure, managed enterprise-wide access to key applications. (It also helps SPs extend market reach, by making reliable high-performance SD-WAN connections to cloud services more accessible to mid-market customers.)

Turnium: For the New Breed of Service Provider

Many Service Providers are in the process of reimaging their business models. The last decade has brought significant change to the technology world, and SPs have seen the building blocks of the internet diminish in importance to their customers. The best they can do is emulate the Service Provider business model demonstrated by Equinix — adding additional value to bandwidth and rack space and considering all avenues, like SD-WAN, to enhance their offering.

Companies like Turnium Technology Group are well placed to offer this new breed of Service Provider a do-it-yourself multi-tenant solution or white-label managed service that can increase the value of their offerings. Want to know more about how we can help you? Learn more about our SD-WAN solutions or contact us to schedule a demo.