Opportunities In Network Integration

Functioning without a reliable network is impossible for any business today. The question that crops up frequently is: "How mission critical is your network?" For those cribbing about shrinking margins, network integration may just be the area you need to look at. DQCI takes a look at some high-margin opportunities awaiting channel partners.

The networking market is growing like never before. Banks, corporations, or any other business entity for that matter, readily agree that they are increasingly dependent on networks for almost everything from communications to business transactions. 

Needless to say, the life of any business today, hinges on its network. In fact, the efficiency of the network has direct implications on the revenues and the competitive advantage that a company wishes to build. Therefore, it becomes critical for businesses to find new ways of integrating and maintaining these complex, mission-critical networks in a cost-effective manner. 

A growing market

So what do figures say? Well, International Data Corporation (IDC) projects the size of the networking market to be Rs 2262.5 crore during 01-02 against Rs 1686 crore in 00-01. The figure is expected to touch Rs 2992.3 crore during 02-03, which is not uninspiring at all. 

Market sources say that the network integration market is growing at 60 to 70 percent annually and big-time players including IBM, Wipro, Datacraft, Global Telesystems, Network Solutions, Tata Elxsi and leading partners are looking at this space to garner greater market share. 

Says Kiran Subba Rao, Marketing Manager, Wipro Infotech, "We want to grow rapidly above the industry growth rate this financial year. We have good prospects in the basket too." Adds Ketan Barai, CEO, Kay Bee Infotech, a Mumbai-based channel partner for top MNCs vending networking products, "We are looking at a 40 per cent growth this year keeping with the trend of last two years." 

A lot of companies have entered the fray by launching their India operations. These include, Huawei Technologies, Dell India, Alcatel Internetworking, Ittiam, Mobiapps, Trivium, Karnet ISP, NOW ISP, Ditium Technologies, Icode Software, Net Continuum, 01 markets, Purple Yogi, media2india.net, smartCC.com, Netkracker, EMC2 and Esymmetrix, which opened their operations in India last year made huge investments on networking. 

But what's in it for channels? 

Channels could grab a piece of the action of the networking pie. But will networking assure good margins? Before answering that question, it would be prudent to see which are the vertical segments investing on networking. Well, major investments in networking have come from the IT sector, banking and finance, government, manufacturing, telecom and ISPs. Investments have come from transport and utility sectors as well. 

Then, there is the government sector. Several state governments have gone in for computerization and networking of their offices. These projects include Internet access, extranets, intranets, virtual EPABX connectivity, hotlines, videoconferencing and LAN connections. 

Coming back to margins, channel partners planning to get into the networking, should look precisely at these sectors.

Opportunities would range from designing networks, to implementing them as well as servicing them and running them.

It should also be kept in mind that though the network integration market has been growing at a tremendous speed, network integrators say that there is a dip in their profit margins. Says Ajit Nair, President - Technology Services Division, IT&T Ltd., "The margins typically vary from 15 to 20 percent currently and this is dropping every year, last year it varied between 20 to 25 percent." 

Anirban Chowdhury of Tata Elxsi opines that in today's networking market, selling a simple LAN or WAN solution to an enterprise is not really viable for large systems integrators. He feels that the present networking market is heavily crowded with price undercutting, which seems to be the norm of the day and system integrator cannot do any value addition. According to him, the main focus should be solution and service driven, since margins are high in this area and there are few players to compete with. 

It can be argued that aspiring channel partners can more or less hope for the kind of margins mentioned above. It is also clear that solutions and services are where the money is. For obvious reasons, margins from products will continue to shrink even in the networking arena.

What drives the networking market

As mentioned, earlier, the networking market is driven by the fact that the life of any business today, hinges on its network. Network efficiency directly impacts the revenues and the competitive advantage of a business. Of course, it is also technology driven.

In fact, PM Prabhu, MD, PAM Networking Pvt Ltd believes that the advancement in the technology largely drives the networking market. Anirban Chowdhury of Tata Elxsi also agrees that today's networking business is technology driven (See box on 'Fundamental features of future networks'). He says, "Earlier the market was more of product specific and centered on the specifications of the product. Today it is the technology, which is driving the market. The application, content and services are the key words today."

Emerging opportunities

Network security, network management, convergence, IT enabled services, facility management and enterprise management, optical network backbone, broadband access like DSL, cable and ethernet at last mile, unified solutions like computer telephony, call centers etc are some of the areas a network integrator can concentrate on. These also happen to be high growth areas, which automatically means better margins.

Managed network services, which also includes facility management and network maintenance has already made its beginning in India. Managed network service manages enterprise LANs, WANs, servers and desktop systems to maximize the network operating efficiency of the company. 

Network Integrators like Datacraft have already cashed in on managed network services. Insite Secure, which is Datacraft's branded managed network service, is an online, real-time network, which includes single point accountability, network monitoring, fault management, performance and even complete facility management. Insite Secure offerings include remote firewall, anti-virus, VPNs, intrusion detection and response, URL filtering, Internet scanning, auditing and other security management essentials.

However, the market could be a big one provided network integrators with facility management services focus on addressing key concerns related to cost, reliability, service uptime, trust and security. Only then network integrators would be able to generate business from managing or monitoring enterprise network. 

Besides the expertise of network integrators in delivering these services, success however would depend lot more on their ability to notch up alliances with Internet infrastructure service providers, including data centers and bandwidth providers.

In other words, the ability to leverage the existing infrastructure rather than creating it will help them in bag newer orders.

However, there are still a number of gray areas that need to be taken care of. Indian infrastructure conditions are not ideal for investment in remote network management services. This sometimes hampers the delivery of such remote services.

Companies like Network solutions and Datacraft also play a very important role in facility management. Network Solutions claim to manage networks of ICICI, Global Trust Bank, Hewlett Packard, Texas Instruments and Verifone to name a few.

Network security has also emerged to be a business opportunity for network integrators. As more and more companies get connected to the network and to the Internet, security seems to have become a big issue in most of the businesses today. Having a secure network has become the key requirement for most customers and this space offers a wide spectrum of opportunities for network integrators.

IT enabled services like call centers are also playing an important role as revenue generators for network integrators. Several components together form the complete solution for a call center. The components could vary from the basic connection between a set of nodes to installing software like CRM. However, consultation could be a key element that could be a business scope for several network integrators.

Trends, technologies and margins

Broadband can be an ideal platform for network integrators with expertise in voice, data and video integration. Companies like Reliance will form the core of operation in the broadband space, whereas network integrators will play an important role in managing the campus network and its connectivity to broadband.

"Networking is going to be the core of the for the last mile connectivity between the customer's premises and the broadband network," says M Srinivasa Rao, GM-Operations, Network Solutions.

Convergence is also likely to emerge as the core inspiration for networks in the near future. In fact, Kiran Subba Rao of Wipro feels that technologies like optical networking will play a major role in convergence and also accelerate margins of network integrators. "Due to convergence, major changes could happen in the optical networking industry in terms of technology and revenue model. Currently, the worldwide margin for network integration is 30 percent upward." Is there anything else that could be music to the ears of channel partners who complain about shrinking margins?

Seamless co-existence

But the question that arises is whether the present day, e-commerce-based client-server architectural platform for enterprises and the Web is capable of addressing some of the potential issues that seem to arise. In the converged scenario, the different technologies like data networking, voice and video technologies have to co-exist and work with each other seamlessly.

Hence the factor differentiating data networking from voice networking will vanish, as the underlying technology will be same. Aspiring network integrators will therefore, have to keep this factor in mind and prepare for it by upgrading their expertise, before entering the market.

Says Anirban Chowdhury of Tata Elxsi, "Systems integrators will have to learn to address the total solution, rather than concentrating on data side of the network as it is happening today." Srinivas of Network Solution agrees that network integrators should also concentrate on integrating voice, data and video, whereas focusing on building data-centric networks alone might not hold good in the long run.

Fritz D'Silva of Global Telesystems feels that the market will be dominated by couple of major players, who are operating in the convergence space. He said, "Players providing products and services under a single umbrella and having turnkey implementation capabilities will play a major role in the convergence space."

Wireless networking

Another technology, which seems to be widening business opportunities in the network integration business, is the wireless network architecture. Says Anirban, "Wireless technology will be definitely one of the options for last-mile connectivity and corporate LANs, where mobility is required. But most technologies on the wireless front are limited to line-of-sight distance and limited bandwidth (11 mbps), compared to existing ethernet technology and other optical networking technologies."

Fritz also feels that the wireless technology will impact the last-mile connectivity, which will make it easier to provide connectivity to the customers for Internet access and VPN services. According to him, this technology will make its presence in a big way worldwide, but feels that the Indian market will take time to adopt it. 

According to Tata Elxsi, on the backbone optical networking, technologies like DWDM (dense wave division multiplexing), 10-gigabit ethernet, on the access side DSL, ethernet-on-last-mile, wireless-on-last-mile, etc are making news. In the unified solutions arena, technologies like voice over IP, voice over virtual private networks (VPN), computer telephony etc seem to be emerging. 

Ensuring margins during the slowdown 

Despite the ongoing slowdown of the US economy, almost all technology majors are fully aware of the implications of convergent networks and are gearing up their efforts to offer reliable infrastructure and solutions for the same. Several networking companies plan to enhance their expertise in areas like convergence application implementation, enterprise management implementation, platform consolidation, storage consolidation, etc. 

Other networking integrators believe that the US economic slowdown has had a certain amount of impact on today's networking market. But sources say that the revenue impact has been marginal as compared to segments like hardware. The slowdown seems to have effected the decision cycle of major vendors, though the demand for networking from end-users, seem to be unaffected. 

Confirming this, Srinivas of Network Solutions said, "Few decisions have certainly got delayed and this could be attributed to the US economic slowdown." According to him, the delay factor is not seen in the banking and finance segment. During the past 45 days, Network Solutions claims to have bagged two major networking projects from this segment. Though the company did not wish to disclose project details, Srinivas said that the demand has been quite normal from this segment. 

Tata Elxsi recently bagged the 1200-node campus wide network project from BHEL. The hardware comprised of more than 70 kilometers of cabling and the network involved integrating layer 2 and layer 3 switches, routers and implementation of V LANs.

Similar unchanged demand patterns have also be reported in other segments like IT-enabled services, which includes call centers, MNCs, software houses and the government sector. 

The demand in these segments is largely activated by the need for higher bandwidth, whether it is on LAN / WAN, the last mile or backbones. This is triggered by bandwidth intensive applications like multimedia computing and video streaming, which are becoming a major portion of the traffic carried by the network today. This is good news for channel partners who wish to enter the network integration arena, as they need not be bothered about the slowdown.

The bottomline

Several network integrators predict the emergence of 3G or third generation networks and new last-mile access technologies. Also, with newer trends and technologies like convergence, wireless, broadband, voice/video over IP, as well as storage/server/network consolidation, the world of networking could prove to be a valuable opportunity for network integrators, who wish to increase their margins. 

Margins in this area could vary from 20 to 40 percent depending upon the kind of projects, though entrants must keep in mind that the money is in solutions and services. With a whole lot of technologies waiting to be unleashed, network integrators and channel partners can be optimistic about climbing up the value chain and foray into niches of different growth avenues. Well, the final message is, high margins await in network integration despite the slowdown! 

Sunila Paul in Bangalore with inputs from Bobby Anthony, Mumbai and Mohit
Chhabra, Delhi

Future networks

Multiplicity of clients: The variety of clients the network has to handle would be too many. Moreover, the variety of interactions that can happen across them would also be much more complex and unpredictable. It is impossible to make a single server aware of all these varieties of client requests and interactions. It is impossible to have a single centralized controlling authority, given the number and varieties of business tasks and client requests. This completely violates the very basis of client-server computing, where the services are available in a central server and all clients come in with their requests! We are talking about a world where there is no specific 'server' that is dedicated to 'serve' client requests! This, then takes us to the next level of complexity involved in this business:

Distributed servers: When there is no central authority that is dedicated to offering a set of services, then it is automatically implied that not only the clients, but the services too, are fully distributed and not available in one place! This becomes more complex so we think of an integrated service, which in turn is dependent upon certain other services, to complete its business task! It is true that distributed computing is nothing new and we already have many applications and resources like databases on the web that are distributed. But, what is strikingly different is the absence of a central authority that co-ordinates the transactions between these distributed services.

Look-up services: When the services are distributed in a network, there obviously needs to be a place where the information about all the services that are available on the network is accessible. For example, in the Internet, we almost fully rely upon search engines to locate those sites. These kinds of look-up services are already made use of by the distributed development environments of the present day networks (they are called Naming and Directory services-IBM's LDAP being a good example of the same). All we need to do is to adopt them for the heterogeneous convergent network we would eventually be constructing. The integrated service provider will refer to these distributed services on the network to complete a requested
task.

Plug and play: In this fluid network of the near future that we are perceiving, a system or module that is capable of performing a specific business task must be able to 'Plug in' seamlessly to the existing network and its services should be easily available to the clients.

Client-service contracts: When a particular client is in need of a service or set of services, it comes into contact with the service providers scattered across the network. This client may, in turn, be a service provider also. Thus, we see that a set of clients and services join together in a network for completing their respective business tasks. This grouping is very dynamic, in the sense that a new set of clients and services keep adding onto the network on one side and old clients and services keep detaching themselves from the network on the other side. The relationship that exists between a service and client is purely temporary. At a later point of time, the client may even satisfy its needs with a new service provider, unless it has specific reasons to look out for its old pal. This dynamism is in striking contrast to the present day Internetwork, where the service provider, at least, is not so dynamic and almost all kinds of client requests are obviously from thebrowsers.