SMBs should outsource everything and vendors must adjust

SMBs should outsource everything and vendors must adjust

Summary: Yesterday was EMC day for me. I spent a pretty good chunk of the day in Bedford, MA at RSA Security (recently acquired by EMC) and then, by pure coincidence, last night, I attended an EMC-hosted dinner at Sauciety: a restaurant in the lobby of Boston's Waterfront Westin Hotel.

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TOPICS: Storage
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Yesterday was EMC day for me. I spent a pretty good chunk of the day in Bedford, MA at RSA Security (recently acquired by EMC) and then, by pure coincidence, last night, I attended an EMC-hosted dinner at Sauciety: a restaurant in the lobby of Boston's Waterfront Westin Hotel. The RSA visit was divided into two chunks. The first involved a demonstration of the company's usability lab and the second chunk was a candid conversation with RSA senior vp of consumer solutions Chris Young and one of RSA's banking industry customers regarding the evolving state of security when it comes to online banking (one of RSA's sweet spots ever since the company acquired Cyota and Passmark).  I'll be posting that conversation as a podcast later today. But for now, I've posted some pictures I took of RSA's usability lab as well as a usability test in progress as an image gallery here on ZDNet (along with some long captions to explain what's going on). 

The dinner was an opportunity for a few members of the Boston--based press (me, the Boston Globe's Hiawatha Bray, eWeek's Eric Lundquist,  ComputerWorld's Lucas Mearian and others) to catch up with EMC's top technical brass: executive vp/chief development officer Mark Lewis (who just launched EMC's first executive blog) and CTO Jeff Nick (who, if you ask me, really gets it). As is usually the case at dinners like this, the people at the ends of the table break off into separate conversations and the people in the middle swing back and forth, trying to figure out which conversation to tune into.  Lewis was on one end and Nick was on the other and I was sitting on Nick's end. We talked about a lot of industry and non-industry stuff (and strangely, never got to talk about EMC's acquisition of Network Intelligence, announced earlier this week). But eventually, our conversation found its way to the hotly contested small/medium business (SMB) infrastructure market -- a market in which EMC is very active. So too are EMC's competitors like HP which, just two days ago, claimed to "dramatically simplify network storage" for SMBs.

Call me crazy. But, it seems to me that the industry has finally evolved to a point where selling infrastructure (including storage) to SMBs should be like selling regular gasoline to the driver of a truck that runs on diesel fuel.  Whether you're at an existing SMB or about to start one up, it makes almost no sense to insource any IT. Especially IT infrastucture like servers and storage.  Right now, some of you are saying "David, you're just an armchair quarterback. What do you know?" But I'm practicing what I preach. Recently, Doug Gold and I started migrating the infrastructure for Mashup Camp to Appsite's hosting center in Atlanta.  For all intents and purposes, running Mashup Camp isn't much different from running a small business. But for the life of me, I can't imagine having to make decisions about low-level stuff like servers and storage. 

Not only don't I know what manufacturer's storage Mashup Camp's data is residing on, I don't care. I happen to know that the servers we're using are Dell's. But, quite frankly, I don't care about that either. Nor should I have to. What I care about is that it (the data) is there when I need it, delivered by the application of my choosing (eg: a Web server, a wiki, etc). In fact, most things that SMBs care about when it comes to their technology infrastructure can be codified in to a service level agreement (SLA) in a way that completely abstracts the underlying infrastructure issues from the managers of an SMB, once they decide to outsource their IT. 

Think about it. Salesforce.com is growing like gangbusters. Salesforce automation, like storage and servers, is undoubtedly mission critical.  But from one SMB to the next (and for a great many enterprises), SFA, storage, and servers are not differentiators in terms of the products and services they deliver.  I'm willing to bet that most of salesforce.com's customers haven't a clue as to what's running under the hood at Salesforce.  They don't know what servers Salesforce runs on.  They don't know what storage all the data is residing in.  They don't know what the operating system is.  All they need to know is that when they launch their browsers, the data they need is there, in the legible format they expect it in. And that's the way it should be. 

This was the subject of my conversation with EMC's Nick who triggered the discussion with a comment about how most all IT functionality should be delivered as a service.  By the end of the conversation, Nick was talking about how EMC's long term focus (in terms of selling infrastructure) should not be to push storage on SMBs themselves, but rather, to help make the service providers to which those SMBs should be outsourcing their IT more successful at providing those services.  To me, that's what a true partner to SMBs should do.  Sure, HP, EMC and the whole lot of them that want to sell you SMBs out there storage infrastructure can make a quick buck when you come looking to buy storage (or whatever other infrastructure they need).

But a real IT partner should say "Well, we'd be happy to sell you that storage, but perhaps there's a different way you should be thinking about your IT."  Along the way, outfits like EMC could instead, recommend EMC-outfitted hosting providers instead.  Just like with Salesforce, when a service provider can spread the cost of it's infrastructure across a lot of customers, the customer can actually end up saving money over running their own IT.  Not to mention the headaches that go away. Earlier this summer, Salesforce customers were put through the ringer (I say this jokingly) when it came time to upgrade to the company's Summer 2006 edition.  They had to press the refresh buttons on their browsers.

This doesn't mean that some SMBs won't be the exception to the rule. In other words, there are those businesses that can probably justify insourcing their infrastructure. But those businesses are fewer and farther between and if you ask me, sales in the SMB infrastructure channel are basically surviving on a myth: the myth that SMBs should be insourcing.

 

Topic: Storage

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16 comments
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  • You are so right, but there are so many that want that shiny data center to

    show how high tech they are. But, in reality, they are just showing how stupid they are. All of the issues arround acquiring a data center including selecting the hardware, selecting the software, hiring the employees to run it and do the programming, keep the systems patched and secure, making you have 24x7 coverage, is just one huge distraction and headache.
    DonnieBoy
  • The "S" stands for Small...

    I agree with this article if the discussion is restricted to medium businesses only, or only to businesses in sales. However, small businesses are not typical consumers of SANs, in my experience as a consultant. In many markets (accounting, for one) the case can be made easily for a single server with a reliable backup solution. This does not require full time in-house staff, and although it does not promise the uptime of externally hosted solutions, it allows the business to keep closer tabs on privacy and information protection, and over the course a one to three years, the cost of duplicate backup hardware (the whole server) is likely to be recouped.

    All the other infrastructure outside the office (ISP connectivity, power, etc) is equally or more of a factor when your data and servers are outside of your office. At least with the server in house, you can continue to operate some aspects of your business if your ISP has a problem or some backhoe cuts your connection...
    CTSTechs.com
    • It would be more reliable to pay a service provider to maintain that server

      You even admitted that an inhouse solution would not promise the uptime of externally hosted solutions, then later try to say you can't rely on the internet connection. But, as you admitted, you can only carry on "some" of you normal business operations when the network is down. What is the value of that?

      Better to put you money into a backup network connection and make your internet connection even more reliable than the electricity. And, remember, those service providers have back-up power that you can not afford, and 24x7 staff you can not afford.

      Yes, consultants will be trying to sell medium size businesses on glitzy data centers for some time to come.
      DonnieBoy
      • I tend to agree

        I'll bet if someone did a study that compared SMB IT downtime for insourced vs. outsourced configurations, you'd find that the insourced configurations end up with more annual downtime.

        And the whole privacy thing (mentioned in one of these comments) is a complete herring. A business' customer list, contact history, etc. is its lifeline and look at how many people are entrusting that incredibly sensitive information to Salesforce.com.

        db
        dberlind
        • And, all of that sensitive information is much safer at Salesforce where

          they have people working 24x7 on keeping the servers secure. A midsize business just can not come even close. Midsize companies should not be sweating bullets over sensitive data stored locally, they should be focusing on running the business!!!
          DonnieBoy
          • Unless of course...

            Your business happens to be anything >vaguely< medical related, in which case, if you do not "sweat bullets over your sensitive data stored locally" or otherwise fail to follow the HIPAA compliancy regulations spelled out in Title 45 of the Code of Federal Regulations (CFR) you will find your business endeavors, invariably, cut short. And you may even get a paid vacation to a federally funded resort with conjugal visits from some big guy you don't want one from.

            Not to mention the fact that no medical/dental services provider wants to risk being severed from their EMR systems for more than a few seconds, nor are they typically inclined to buy redundant connections. In the short run, its not cost effective, and in most cases it's not in the long run either. Small practices can't afford to throw tons of discretionary income around on things that don't make fiscal sense. New autoclaves or EKGs? Sure. Redundant telecom connections? Not likely. Besides, if the data is local, there's no reason for a redundnat connection. The data is in house so if the link dies, its still business as usual. Not to mention the fact that HIPAA requirements do not allow one to host/store EMR data on third party hardware unless a whole host of really expensive encryption devices are used and maintained. Again, fiscally illogical, and operationally dubious and fraught with peril. And believe me, medical professionals don't want that kind of peril. Not even a little bit.

            v/r
            USMC8541
      • I also agree

        I have a small consulting firm and we all work remotely. There is just no realistic way to set up our own infrastructure in a cost-effective manner, much less maintain it with no IT staff. I would love nothing more than for improved offerings for small businesses like mine. When it comes to storage, a few products are coming out that really make sense. E.g., we've been looking at Joyent's BingoDisk and StrongSpace as potential solutions for keeping all our documents in one easily-accessible, secure place. Of course you do need reliable internet access, but we really can't get a whole lot done without that, anyway. Besides, if my home office access goes down, I can always use DUN on my EVDO smartphone in a pinch! In this manner (and with some use of portable flash drives), I can get my work done almost anywhere without even bringing a laptop.
        curtiscarmack
        • The Nail Head - Working Remotely

          Curtis hit the biggest point for SMBs to outsource this type of IT infrastructure: most of these businesses are going (and will continue to go) towards remote workforces, who will need things like a VPN to access servers.

          Just like the server infrastructure, it is far better to have a hosting firm set-up and manage that infrastructure. They can accomplish so much more than a small firm can. We do it now and it only costs us about $400 a month, with backups and everything. We could barely buy the equipment for that price, let alone hire the person to manage the network.
          Paul C.
      • I think you misunderstand...

        The "some of normal business operations" I was referring to was everything except internet dependant activity, which in the case of outsourcing is EVERYTHING, but in the case of insourcing is web and possibly email.

        Some locations (like my accounting client) are in locations where an alternate internet connection would be $300 (no DSL or Cable available) not counting cost of router (with auto failover, etc) just to have email and browsing while the primary internet connection is fixed? We are talking about 10 people in the office. The cost/benefit is not there.

        I was talking about Small businesses, if you would bother to reread my comment. One other big factor is the fact that accounting businesses often use market-specific packages that are not available "as a service" unless you collocate a server, which still adds internet connectivity as a single point of failure, and would cost a lot more per month than insourcing the same thing, when spread out over say 3 years.

        Plus, most small businesses do not operate 24/7, so the support being available outside business hours is a no value argument.
        CTSTechs.com
  • Dumb idea

    Let's outsource everything! A call center answers the phone. Pay roll, accounting, accounts payable, accounts receivable, all external. External sales reps and distributors. Contract manufacturing. If there's any actual shipping & receiving (seems unlikely at this point) Kinko's is the place. Also the place for printing, since why bother with an oh-so-complicated $50 ink-jet. Heck, they've got the computers, too, so no need to have those. Hey! No computers and no people means no office! A cell phone and a car. A RENTED car! There's no HR at this point, because there are no employees!

    Except your customers can't get anything useful out of the Bangledeshi call center. Your web site hasn't been updated in months, because the contract engineers haven't sent the data to contract Web developers, which is fine since they haven't figured out how to implement on the out-sourced IT hardware. The contract manufacturer made 100,000 widgets without realizing that one of the dimensions had been incorrectly transferred from the engineers' CAD system to the production machines, so they're all useless. But they've already all been shipped, and the customers have been invoiced. In fact, they're getting annoying phone calls from accounts receivable about paying their bills for useless products. And your credit score just went to hell because the Accounts Payable folks accidentally sent a check for $10,000 that was supposed to be $100.00 so all your checks bounced, and accounting didn't notice until the end-of-month statements arrived. So the rental company just picked up the car and your cell phone service got cut off, which means you can't even get this mess straightend out.

    Oh, and did I mention that you are paying roughly 50% more for these "services" than if you just hired someone? (People think outsourcing is cheaper, but in the real world paying a minimum 4 hour call-out at $150/hour for a maintenance tech to come open a window is money down the drain.)

    Outsourcing has its place; no SMB can do everything. But "Outsource everything without question!" is not a business plan.
    James@...
    • Which also begs the question

      After you've outsourced everything, what is it that you, as a company, actually >DO<? What are you actually providing you your "customers"?

      Its kind like that guy who walks up to you and asks you for a smoke, then he asks for a light and you are left asking yourself, 'do you want me to smoke it for you too?!'

      v/r
      USMC8541
  • SMB Outsourcing

    David, my firm helps companies through outsourcing decisions. My advice: selective outsourcing is best. Certain segments of the IT market are mature and offer economies of scale like mail hosting, others such as enterprise apps hosting still do not. The problem with the statement "Outsource everthing" is it typically forces you in to the bigger vendor camp - IBM, HP, EDS, Accenture, CSC, ACS, Cap and the like and they soak up close to $ 200 billion in outsourcing dollars and are far from delivering their economies.

    EDS has over 100,000 employees. The average Fortune 500 CIO has 500 IT employees (and the average SMB much elss). Infosys has delivered over 18,000 projects using its Global delivery model. The average CIO has done fewer than 10. Yet these vendors cannot price their products or deliver performance on a utility scale model - How much more scale do they need?
    vmirchan
  • Give the SMBs Options....

    Thought provoking post and great comments. In the end, it's all about giving SMBs what they need and not what the vendors only want to sell them. It's also not an all or nothing proposition of outsource everything or keep it all in house either.

    My company works primarily with SMBs and we found that trying to stovepipe SMB customers one way or the other just doesn't work. We got started offering SMBs outsourced data protection services (i.e. backup and recovery), but since the SMB market is diverse with very different needs depending on size and industry, we found that the best approach is to offer them maximum flexibility.

    We still offer SMBs outsourced services, but also sell licensed software if their data protection requirements grow beyond what is economically feasible from an outsourcing standpoint. In addition, we offer a hybrid model where we'll manage their hardware and software environment for them.

    Options are key. What's good for a healthcare SMB is not the same as for a law firm. So instead of trying to pigeonhole all SMBs into one box, maybe we should give them options to best suit their needs?
    JohnatEVault
  • Been There, Done That

    An interesting article, with some interesting points! However...

    We tried outsourcing a good bit of our IT infrastructure a few years back with almost disastrous results. We have since brought almost everything back in house, and I sleep so much better at night!

    We use Salesforce.com, but we handle our 20 web sites and related databases ourselves.

    For many medium-sized companies, web sites and corporate databases are essentially a large set of inter-related applications. Changes have to be carefully coordinated, and development projects often affect many parts of the puzzle in complex ways. Outsourcing this is complex and risky, and requires substantial in-house resources just to coordinate activities. This is an absolutely crucial part of our company, and NO ONE wants to see this outsourced.

    On the hardware and OS side, I'm also very glad we're handling it in-house. This is because I know that our disaster recovery plans are complete and are constantly being updated with changes in our applications, database sizes, server loads, etc.

    I know this could be outsourced, but when I see how closely our developers, DBA's, and SysAdmins work together to keep everything running smoothly, I am VERY reluctant to break up part of that team. The whole is definitely greater than the sum of the parts.

    We would pay two or three times more to get the same effectiveness from an outsourcing company that we get out of our in-house staff. We would also be "betting our company" on the outsourcing company, and I don't think that is a wise direction for us to take.
    ted@...
  • Outsourcing is great in theory

    and for the company that does it, it's great money!

    I am hardly unbiased. Being in IT, I have lost many jobs to outsourcing over seas. And being a system administrator I admit to being a bit of a control freak when it comes to my network. With the affordablity of Linux, there is little reason to outsource the computer side.

    The best bet is to rent administrators and techs as needed, possibly keeping one mid level tech on part time. A well built network needs very little administration. Having built a couple and worked on many, you only need a tech to come out occasionally for maintainence, and that can usually be done when a problem arises.

    Outsourcing your web server needs only makes sense if you are not dependent on the web servers for your income. That is it's there for informational needs. IF your SMB (Super Mario Brothers?) is dependent on web traffic/purchases, I would question how wise it is to outsource that. (admitting that yahoo stores was a very good setup when it was around.)

    As has been posted here already, it all depends. You can buy a very affordable "toaster" that does everything you need most servers to do. Access can be locked down by password, and it can be stored on site with no maintainence needs.

    >plink< >plink<
    (apologies for spelling)
    Airwolph
    • You are way off...

      What an outsourcing provider can supply for the Small/Medium business is the failover capabilites at a lower cost.

      If your server generates sales and income, you would need to have a failover server, router firewall and intenet connection. Plus patch maintainance, Disaster Recovery, security and all that other annoying stuff it's much better for a smaller company to outsource all that stuff.
      Komplex