R4N White Paper


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Original white paper on "Clusters", an early form of what is know now as Cloud Computing.

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R4N White Paper

  1. 1. ReadyForTheNet SME Clustering: Enabling Business Without Limits April 2001 ReadyForTheNet Confidential Information/Protected Under NDA
  2. 2. ReadyForTheNet Solutions for Business Without Limits R4N White Paper INTRODUCTION Many people have proclaimed the Internet as a self-contained revolution. A revolution in changing the foundation of the global economy and in fact they have declared that a “New Economy” has emerged. A distinction has been made between companies that conduct business on the Internet (“New Economy” Businesses) versus those who have partially embraced the Internet or not at all (“Old Economy” Businesses). The reality is that the Internet is not revolutionary, nor are the so-called “New Economy” companies destined to replace the “Old Economy” businesses. The Internet, in a broad definition, is a tool that can help create significant efficiencies and economies of scale where none exists in the non-Internet world. To achieve these benefits, the Internet needs to be supported by new business processes that are tuned to take advantage of Internet Technology. The Internet itself cannot create these efficiencies; it can only be a business process enabler. If we look at the overall market for IT and segment the market by size, there is a substantial gap between large enterprises and the small/medium enterprises (SME). The large enterprises have used their ability to achieve economies of scale to leverage IT in many areas of the value chain. The SME market has lagged behind in exploiting technology. The large enterprise market segment is rapidly maturing with established buying cycles and little turnover with respect to preferred vendors amongst this segment. This contrasts with the SME market, where there are no dominant suppliers and acceptance of IT is rapidly on the rise. Clearly the most pressing issues facing IT today, and into the early years of the 21st century will be the cost of acquisition of equipment and the costs of supporting that equipment. The total cost of ownership of computing equipment has increased 3 fold over the past 5 years. This increase to SMEs was related to just maintaining market share, not increasing. We anticipate this trend to increase, with the small/medium company struggling to maintain revenues and profitability. Along side this issue is the continuing pressure on IT management to retain staff. IT staff are motivated by a number of factors including the challenge of the position, careers prospects, training offered, the facilities they work in and not least of all their paycheck. Further, as the world rapidly adopts the web as a key instrument in commerce there is increasing pressure on IT management to deliver application solutions to the market in a rapid approach. ReadyForTheNet is positioning itself to remove these pressures from small to medium sized companies so they may concentrate on their particular core of specialty. To fuel continued growth we must look at creative ways of developing the SME market. Until now, there have been major barriers for technology suppliers to enter this market including: • No traditional channel to leverage • IT requirements are different from the large enterprise • IT skills are virtually non-existent • The lack of awareness of the IT market and trends At the same time, the risks associated with IT have been substantial for SME companies including: • High technology acquisition costs • Cost of operations can be unpredictable • Low economies of scale leads to marginal ROI The concept of clustering looks to mitigate these risks and in fact can enable us to become the dominant supplier of technology to the SME market, regardless of specific vertical segments. MISSION The mission of SME Clustering is to be the enabling force allowing Small and Medium sized businesses to leverage Information and Internet Technologies on par with larger Institutions. When successful, this initiative will level the technology playing field for the target market. Manufacturers, retailers, and suppliers who subscribe to the Cluster services will be able to maximize distribution efficiencies and streamline accounting functions and business processes using Internet technology as the primary transaction mechanism. In the Cluster marketing campaign we will seek to establish that ReadyForTheNet Clusters will accomplish 3 specific goals for the user. First is to support the customer’s current IT requirements while reducing the IT Cost of Ownership. Second, we will deliver these services according to a defined Service Level Agreement (SLA). The SLA will be defined so the customer will have better levels of service than their current model. Last, the service will enable value to the customer. This will come ReadyForTheNet Confidential Information/Protected Under NDA
  3. 3. ReadyForTheNet Solutions for Business Without Limits R4N White Paper in the form of supporting applications and services not feasible under their existing model. For example, low cost, high quality videoconferencing to their suppliers and/or customers. We can achieve this goal through a creative use of existing technology and creating quality partnerships when applicable. Using a technology consolidator model, we can achieve large economies of scale, passing the resultant cost savings to the customer. We also become the primary source for support to the customer. Customers within this market have used technology, but not leveraged it. These customers have been reluctant to overly rely on technology due to a lack of confidence in the typical 5 to 6 vendors they work with. Their fears are justified given the current sales and support model that is the norm in this market segment. Vendors that address this market typically work on low margins and are generally focused on a niche area, like voice services, PC maintenance or Internet access. The Cluster model will change all this. The Cluster marketing and the execution of the service will provide these customers with the confidence to rely on Information Technology for a competitive advantage. Clusters can do this, even with the price sensitivity normally associated with this market segment. ReadyForTheNet Clusters is the ultimate competitive edge for small businesses thinking big. ReadyForTheNet Clusters - Technology for Business Without Limits. CLUSTER DEFINITION The concept of a cluster involves a large group of diverse private and/or public enterprises that are set in a geographically close setting. The setting would typically be an area that could be served by a common central office or they are in the same physical structure (office building, shopping mall, etc.). The businesses within the cluster are usually low consumers of technology, primarily due to cost factors associated with servers and high-end software. Last they buy some services from a common third party like a landlord or systems integrator or BLEC. The implied opportunity is to add value by providing some shared information technology infrastructure. The operation of that shared infrastructure can enhance the value of the space, and also equip a service provider with valuable knowledge of customer behavior, which can be the basis of further added value services. This is a generalization of several opportunities we are currently involved with. The economic significance of the cluster is that we can achieve significant economies of scale in delivering shared Information Technology services to the enterprises within the cluster. With these economies of scale, we can create a unique balance between acceptable price points for the customer along with generous margins for our products and services. CLUSTER APPLICATIONS As previously stated, the cluster needs to create efficiencies through the delivery of IT services to a grouping of enterprises. The driving force is the applications that would be delivered. Applications are to be delivered using the ASP model of a software lease with charges on a per unit basis. Applications can be industry specific, or applicable across industry segments. In a typical cluster we may experience more than one industry segment to be supported. It is not expected that ReadyForTheNet will support all applications. In many cases it is preferable that we partner with ASPs to deliver applications. Examples of horizontal application services can include: • eMarketplace • eBarterExchange • Unified Messaging • Decision Support • Knowledge Management • Customer Relationship Management • Supply Chain Management • Point of Sale • Internet Access • VPN • Telephony ReadyForTheNet Confidential Information/Protected Under NDA
  4. 4. ReadyForTheNet Solutions for Business Without Limits R4N White Paper • Video Conferencing • Data Warehousing • Enterprise Portal • SAN • Tenant Services • Building Management • Purchasing • Document Management MARKET DEFINITION AND VALUE Definition The market we are targeting is the small and medium sized business. We further qualify this by stating that during the initial stages of the initiative, we will primarily sell to those businesses that are located in a multi-tenant, airport or cam- pus/community environment. This does not significantly impact the overall size of the market, but does bring a focus on lowering the cost of the sale, reducing the impact of potential account turnover and minimizes the complexity of the Informa- tion Systems needed to support the customer base. Property owners and managers can enhance property value and increase building revenue by offering high-speed Internet access and other voice and data services to tenants. An advanced communications infrastructure in commercial office buildings is a value-added amenity that helps attract and retain premier tenants. Because it can utilize existing copper infrastructure, the service in the MTU facilitates rapid turn up of multiple revenue-generating services The current trends that affect our business plan are: • Companies are focused on lowering their cost income ratios. Increased focus on Internet use for business-to-business transactions. • Relocation to new premises, upgrade of underlying IT technologies and applications will occur. • Higher security, more construction for campus style office parks. • Rents have increased by less than 2% with a reduction of .9% in real dollars. • Customer expectations for newer technology options are on the increase. • In many cities there is a trend toward creative conversion of buildings into hotels, condos, apartments (in particular Class B buildings in Class A areas). • Average age of buildings is 28 years for downtown, 14 years for suburban. • Top locations are NY, Chicago, Boston, Seattle, San Jose and Dallas Building Market Attributes There are more than 118,000 multi-tenant office buildings in the U.S. housing business customers that are prime targets. According to Department of Energy building surveys, there are approximately 31,000 skyscrapers, 26,000 mid-size buildings, and 61,000 small buildings in the United States. The number of potential customers in each category of building is as follows: • Skyscrapers or other buildings with an area of more than 300,000 sq. ft. typically house 50 or more establishments. • Mid-sized buildings range in area from 75,000 to 300,000 sq. ft. and house 20 to 50 organizations. • Small buildings with an area between 25,000 and 75,000 sq. ft. typically have 6 to 20 business tenants. Buildings are further classified into 3 Classes: • Class A Buildings - have ideal locations with state of the art facilities, accessibility and market presence. This is 48% of market (BOMA). • Class B Buildings - buildings with a wide range of users with average rents. Average locations with adequate facilitates, accessibility and market presence. Class B rents average 53.7% lower than Class A, with only 17.9% lower expenses. ReadyForTheNet Confidential Information/Protected Under NDA
  5. 5. ReadyForTheNet Solutions for Business Without Limits R4N White Paper • Class C makes up the rest of the market with inadequate everything. Small End User Profile The small business market is loosely defined as companies with fewer than 100 employees with average annual sales of less than $50M (US$). By some estimates, there are close to 10 million businesses in this category. The large majority of these businesses are not in a position to take advantage of the service offerings from ReadyForTheNet. The cost of sale will be prohibitively high for us in these areas. At the present time, our best estimates are that we could serve 30% to 40% of this market, but to maintain a high gross margin we will only target the upper 20% of the market. Currently there is little reliable information regarding the network equipment and services expenditures for this market. IDC estimates that the average small business spends approximately $250 to $300 on IT applications, services and connectivity per month. These expenditures only include a minimum set of applications that are often inadequate to sustain market position. Medium End User Profile The medium sized business is loosely defined as companies with 100 to 500 employees with average annual sales of between $50M and $250M (US $). There are approximately 135,000 companies in this category, with the total network equipment and services market size of $24.5B, with a CAGR of 27% (Infonetics study on medium business market in North America). Consumer Profile At the present time we will not target the consumer market, however according to our research in the future this may be an area that our service can provide value, while maintaining reasonable margins. Sources of Value In any initiative of this nature it is important to understand the value proposition to the customer. The cluster needs a bit more definition here since we provide value to three entities, the consumer (end user), the channel (landlord, property manager, etc.) and the technology service provider (carrier, ASP, etc.). The following is an example of the value proposition to Clusters that involve a channel involved in real estate. The technology consumer will see the following value: • Lower Total Cost of Operations for an IT infrastructure • Low risk solution that maintains cost predictability • Deliver higher levels of service, particularly in the areas of application availability and response time, fast time to market for new business initiatives and knowledgeable technical support. • Gain access to applications and services that are currently not feasible to deploy, yet provide great business value. Such applications include e-commerce, customer relationship management, streaming multimedia and knowledge management. This will also provide the customer with instant scalability. • Knowledge management. This will also provide the customer with instant scalability. • Ensure that all software, systems and other infrastructure components are up to date with the latest releases of software and bug fixes. • ReadyForTheNet will have a Testing, Integration and Staging laboratory to ensure that all IT components operate to customer expectations and are tailored for maximum performance, scalability and resiliency. • The ReadyForTheNet technology infrastructure is well managed and secure, providing business continuity and Disaster Recovery services on par with any large enterprise. The building owner/manager will see the following value: • New source of revenue. Rents have increased by fewer than 2% with a reduction of.9% in real dollars. • Creative conversion of buildings into hotels, condos, apartments (in particular Class B buildings in Class A areas). • Customer expectations for newer technology options are on the increase. • Adding new Internet technologies and a robust communications infrastructure can significantly enhance the value of a building. • Revenue can be increased with little effect on the operating expenses of the building, therefore increasing operating margins. • Building managers can leverage services to attract and retain premier tenants, and offer these tenants a large choice of revenue generating services. ReadyForTheNet Confidential Information/Protected Under NDA
  6. 6. ReadyForTheNet Solutions for Business Without Limits R4N White Paper • Greatly enhanced security is an additional benefit, using the latest in digital cameras and intelligent building systems. • Overall, 36 percent of the respondents of a recent BOMA study said they use e-commerce to manage their facilities. The top use of e-commerce – cited by 55 percent – was to purchase supplies and materials from a specific vendor. • Other uses include accessing facilities manuals on the Web; publishing static project information on the Internet; purchasing supplies and materials through an Internet service that connects buyers and sellers; and taking online interactive training courses. • The survey also found that 51 percent of facility managers said it was "somewhat" of a problem to implement e- commerce. Another 10 percent said it was a "big" problem. • The top barrier to implementing e-commerce was the difficulty in integrating legacy systems with e-commerce. Other problems include the lack of a budget to invest in e-commerce; hard-to-customize software packages; cost of software upgrades and the cost of keeping building data current. • A total of 55 percent of facilities managers said they have noticed a decrease in the cost of purchasing supplies and materials through e-commerce. This is expected to be a benefit for 85 percent of the respondents in the survey within the next two years. • Other e-commerce benefits listed in the survey include a reduction in the time required to complete projects; a reduction in the cost of facility maintenance and operations; a decrease in the cost of space management; and a reduction in the cost of new construction projects. Sources of Value (technology suppliers): The third party technology supplier will see the following value: • On the supply side, ReadyForTheNet Clustering will offer emerging ASPs, and new wave software companies the opportunity to offer their products to a broader spectrum of potential customers, fully resilient facilities and a pricing model that is based on recurring license fees. POTENTIAL CLUSTERS During the initial stages of developing the Cluster business strategy, we will need to identify a list of potential Cluster opportunities and fine-tune the list to one or two where we can establish early wins. The following is a list of potential Cluster opportunities. The list has not been fine-tuned and therefore needs to go through selection criteria prior to establishing the final list. The selection criterion includes the following: size, expected growth, our competitive position, cost of reaching the segment, and the significance of our value proposition within each Cluster. The table below is a list of potential Clusters with each column representing a Vertical Industry that may or may not have influence in the Cluster. This list is meant to be a beginning and is subject to change. Government Education HealthCare Transportation Retail Manufacturing Finance Media/Entertainment Wired Communities X X X X X X X BLECs/Intelligent Buildings X X X X Intelligent Highway X X X X X Airport X X X X X X Financial Exchange X X Community Care Center X X X We will need to establish the correct foundation for this effort for each Cluster so that we can quantify buying trends (including who, when and how much), and the decision process by which companies purchase. Using this information we will create the correct sales strategy that will win and sustain mind and market share. The plan for each Cluster will be fine-tuned over the course of this fiscal year. This fine-tuning will be done in response to capitalize on emerging opportunities and new application windows. In addition the plan will undergo consistent results measurement to evaluate the correct focus on the plan. ReadyForTheNet Confidential Information/Protected Under NDA
  7. 7. ReadyForTheNet Solutions for Business Without Limits R4N White Paper VALUE TO READYFORTHENET The Pre-Sales Benefit Many of the barriers we face in competing in any industry occur in the early stages of the sales cycle. We have the opportunity to use the Clusters program to remove some barriers and limit the others. Pushing the concept of vertical solutions changes the way in which customers approach their projects and the best use of their suppliers. Selling a Cluster solution will address the business problems as much, if not more, than just a pure technology sale. The paradigm we are defining here will change the customer’s perception of ReadyForTheNet from a pure technology company to a business consultant offering focused solutions to their specific business requirements. This type of strategy provides entry into areas where we have traditionally been weak, senior IT management. When we combine the business solutions based discussion with applications and network technology, we have successfully covered the entire spectrum of the IT decision process. We have then become a strategic provider, rather than relegated to provide equipment to niche areas of the customer’s infrastructure. The Post-Sales Benefit Once the sale has been consummated, the benefits of the solution continue. It is important to remember here that all customers want a customized, risk free solution to their specific business challenges, at the price of a generic solution. The challenge for us is approach this without eroding gross margins. The closer we come to this type of solution, the more benefit we derive after the sale. Customer satisfaction is one of the most important benefits derived from the solution-based sale. Increased customer satisfaction will help us in sustaining the account, but more importantly, will help in obtaining additional business from the customer, likely without high sales overhead. The Cluster strategy will help us in organizing and understanding our customer base. In general, we have a difficult time in leveraging our wins effectively. The key to leveraging our customer base is to understand their challenges and what were the key areas we provided value. This knowledge helps in subsequent opportunities and helps in obtaining focuses references. As business is closed and our customers derive real and measurable business value, our visibility within the industry will increase dramatically. This visibility will occur at all levels of IT management, and more importantly will increase at the individual business unit level. This will provide us with additional opportunities that we are not currently in a position to take advantage of now. READYFORTHENET COMPETITIVE ADVANTAGES Some of the significant advantages that ReadyForTheNet has are as follows: • High Barrier to Entry for competition. The current competition and the conventional wisdom in this industry are to provide single application solutions with a focus on a direct sales model. Little or no thought is given to facilities management and network management. • Proven Resources with Significant Knowledge Capital. The current team and potential team members have com- plementary skills with the individuals reading like a who’s who in their respective field. • The market for our services is large and growing quickly. The technology part of the market is fairly mature, but the overall business is very much in its fetal stage. • Highly differentiable product/service. In a world of standardization, we leverage standard products and services better than anyone else in the world. • At the present time there is little competition. Most competitors are marketing point products with the customer needing to manage 5-6 technology suppliers, or more. • Our strategy is well thought out and we have a team who are fast thinking and willing to act aggressively in respond to the dynamic nature of the business. • At the present time, there are no regulatory risks associated with this business. This is true worldwide. We anticipate that regulation may be loosened in the next 18+ months, this will increase competition, however our plan is to negate this with a strong marketing campaign that identifies ReadyForTheNet as the solutions leader. ReadyForTheNet Confidential Information/Protected Under NDA
  8. 8. ReadyForTheNet Solutions for Business Without Limits R4N White Paper CHANNELS TO MARKET We have several channel to market, each Cluster type will have one or more channels. This may involve the following: • Local governments looking to improve businesses districts • Emerging Building LECs • Builders/Managers of Tele-Hotel facilities • Utility companies SALES STRATEGY Overview Our sales strategy is to deploy an aggressive channel program driven by generous margins for the channel and comprehensive marketing programs designed for a low expertise salesperson. For the purposes of balancing an upwardly scalable channel sales force with one that is manageable and replicateable, we have limited the types of channels to three primary types. First is the building managers/owners, second is the emerging area of Application Service Providers (ASPs), and last are systems integrators. Details on this plan are given in a later section. Our edge is defined in two areas. First is the owners and manager of multi-tenant buildings. Adding new Internet technologies and a robust communications infrastructure can significantly enhance the value of a building. Revenue can be increased with little effect on the operating expenses of the building, therefore increasing operating margins. Building managers can use ReadyForTheNet cooperative marketing dollars (and marketing programs) to attract and retain premier tenants, and offer these tenants a large choice of revenue generating services. Greatly enhanced security is an additional benefit, using the latest in digital cameras and intelligent building systems. Tenants within a Cluster building will enjoy the ability to use advanced Internet Technologies with no up front costs, and low monthly operating costs. Enabling applications such as Knowledge Management (KM), Customer Relationship Management (CRM), Enterprise Resource Planning (ERP) and E-Commerce are typically not deployed in these companies due to significant up front costs and a high Cost of Ownership of these products. The Cluster service brings the enabling power of these applications to these businesses, without the complexity and high Cost of Ownership. Solutions Sales Guide The most effective way for ReadyForTheNet to execute its market strategy is to provide a virtual SWAT team to produce a Sales Guide that is in the style of a cookbook. The “cookbook” style Sales Guide provides several key benefits including a guide to target account selling, customer presentation material and separates the product technology from the business value proposition of the Cluster service. The cookbook will allow us to have a non-technical sales force, focusing on business value of a commodity service (like the copier and fax sales model). The “cookbook” guide consists of some general material with solution specific material woven in, producing a guide that appears to be specifically focused on each individual customer. A team comprised of subject matter experts across all the appropriate business units within ReadyForTheNet will develop the guide. Each solution guide will have a solutions expert who will act as the team leader. The team leader would be responsible to bring the input together and construct the cookbook. Once a cookbook has been completed, the team leader will construct a sales program and execute a pilot of the program in a specific geographic market. Results from the sales program can be easily measured and the program can be tuned based on the success of the pilot. Once the pilot has been successfully completed, the full-scale sales program can be delivered. Each sales program will be evaluated as to its appropriateness in the various ReadyForTheNet geographic markets. The full sales program would then be rolled out to the appropriate regions. This would involve the team leader providing focused training for each of the target regions. Solutions Sales Guide Contents This section is a companion to the Overview section of the Sales Guide. The Overview section gives sales information, while this section gives information on the solution. A solutions brief includes trends, applications and a solid business case on why a ReadyForTheNet Cluster solution makes sense. Details are given on positioning both ReadyForTheNet and its partner products. A companion PowerPoint presentation is included in the presentation section. A specific table of contents is provided below: 1. Executive Summary (for RFP response) ReadyForTheNet Confidential Information/Protected Under NDA
  9. 9. ReadyForTheNet Solutions for Business Without Limits R4N White Paper 2. Sales Tools 2.1. Define the Challenge 2.2. Value Proposition 2.3. Usage guidelines for corporate collateral 2.4. Any new collateral when necessary (spun off the standard corporate collateral) 3. Typical Applications/Systems 3.1. Value Proposition 3.2. Support Packages 3.3. Application Notes for Specific Partner Applications 4. Reference Solution (Technical in scope) 4.1. Solution Components and positioning 4.2. Solution Strengths and Justification 4.3. Solution Reference design and configuration 4.4. Best Practices for Deployment 4.5. Migration 5. Technical Notes 6. References COMPETITIVE RISKS We believe that the most significant risk in this venture is market acceptance of this service offering. In the broad market (which incorporates small/medium/large companies worldwide), outsourcing is an acceptable method of operating an IT practice. It is also accepted that not all companies will derive benefits, but some will gain a competitive edge using this model. The Cluster differentiator here is the moving of high-end server equipment and applications to a secure, fully resilient site with a contingency site. This is a significant differentiator with respect to lowering the cost of delivering services and applications, minimizing the cost of downtime and eliminating many of the “hidden” costs of operating an full service IT business. We believe that this type of service is inevitable. Acceptance in any market is related to demonstrating a positive ROI to the business with a lowering of the TCO as the secondary factor. Through our marketing programs, we will manage the risk, and look to drive the acceptance of this model down to the smallest business and application where maintaining margins is feasible. The other major risk for us is the entry of unknown competitors, or from well-capitalized competitors. We feel that this is also inevitable. At the present time we believe that we have an 18-24 month lead time to develop strong brand name recognition. In conjunction with the brand name recognition, we will continue to focus our efforts on supporting new technologies, applications and services that the market will require, before they require it. Currently there are no direct competitors to this service offering. There are many reasons for this, but the primary ones are related to the evolution of product and service strategies to the customer and the evolution of the buying trends of the customer. The fundamental problem with this model is that the customers need to manage many different vendors in addition to managing multiple technologies and a combination of off-the-shelf and custom software applications. Customers in this market are typically forced into buying products and services from different vendors who are typically focused on delivering a niche solution. Some of these vendors include systems integrators (usually data only service without managed services), consultants, LEC/CLEC, long distance carriers, equipment resellers, a variety of application software companies, systems software companies, etc., etc. All this with a high probability that only a fraction of the real advantage of technology will be harnessed. The evolution of this industry is to provide application services to the customer on a monthly basis, typically on a fully outsourced basis. These classes of companies are known as Application Service Providers (ASPs), and provide their niche application to the customer. This is a logical progression of the industry, but only provides marginal benefits to the customer. Many of the high-end applications (as previously discussed) are still too costly to be delivered in this type of service model. ReadyForTheNet Confidential Information/Protected Under NDA
  10. 10. ReadyForTheNet Solutions for Business Without Limits R4N White Paper Copyright © 2001 ReadyForTheNet. All rights reserved. All other brands or product names are trademarks of their respective holders. ReadyForTheNet Confidential Information/Protected Under NDA