In previous columns, we've discussed the importance of building a market ecosystem and the steps required. In this column, we will look at how a particular industry can partner with application providers to create meaningful and focused solutions for its customers. While demand is high for virtual private networks (VPNs), use is actually low compared to the potential market across large, medium and small businesses. VPN vendors can partner very effectively with applications/solutions providers to increase adoption in targeted markets.

In a recent survey conducted by Qualitative Marketing, telcos and service providers agreed that demand for VPNs is strong and anticipate tremendous growth within the next few years. Seventy-five percent of the respondents said they were already experiencing strong demand. One of the problems inhibiting VPN use is customer concern about speed, security and reliability. The biggest objection is the lack of guaranteed service. Telcos and service providers cannot guarantee the quality of service for data delivered over a VPN established on the public Internet.

Telcos and other VPN providers believe that security and reliability are not yet possible. They cannot provide the level many customers expect. They also believe the customers' expectations – to receive the same level of security and reliability they get with the phone – are just not realistic.

The telcos and service providers are also concerned about providing competitive, differentiating capabilities. The competitive landscape is, in part, driving this push to provide VPNs to the customers. However, most VPN providers are focused on developing the technology for business in general. In doing so, they are not focused on specific industries and those applications most valuable to the customers in the industries (for example, the transfer of medical documents, such as x-rays, between doctors and hospitals).

Ironically, the companies that are most likely to adopt VPNs first are those that must move huge volumes of data and do so in a secure manner. Healthcare companies require patient confidentiality when transferring their large files and are concerned that they will not find this security in VPNs.

Partnering to Increase Adoption.

The need for a partnership between the telcos and the VPN vendors has never been greater. Yet, most respondents to the survey (70 percent) said they were targeting general business. When probed for information on which industry segments or types of businesses, typical responses, such as that from PacWest Telecom, lacked any meaningful focus: "From small to medium and large businesses, there are a lot of opportunities to sell VPN applications."

What's also ironic about the VPN providers' perceptions is that there are, in fact, companies they can work with that provide the capabilities customers expect.

A valuable way for VPNs to benefit from the strong demand and overcome existing challenges is to establish partnerships with vendors that support VPN applications. Such partnerships will add the technology needed to deliver the reliability and security that customers expect, bring the applications to market that will motivate people to change their behavior (i.e., life-blood applications for a specific industry segment).

Telcos have traditionally offered end-to-end solutions, through acquisition if necessary, to make this possible. However, the Internet makes the landscape much more complex; and the number of partnerships required makes purchasing less feasible as an option. In order to bring VPNs to market, the telcos are engaging in an extraordinary number of outside partnerships. "At least 45 percent of the respondents are working with partners. Another 18 percent are considering a partnership," says Noelia Vazquez, research analyst for Qualitative Marketing.

Benefits of Partnering

Although most of the telcos interviewed do not believe that they can guarantee a high level of service, reliability and security over the Internet, there is at least one vendor that provides telcos and other service providers the ability to achieve what they call "guaranteed quality of service" for their VPN offerings. According to Martin King, president and CEO of Quick Com, "VPNs will allow companies to have access to cost-effective peer-to-peer serverless communications technology. Quick Com has created a model for VPN providers to offer guaranteed quality of service, high-level security and multicasting while recouping their costs from existing infrastructure." This is the kind of functionality that will build the market ecosystem and increase VPN adoption.

Partnering also creates meaningful and focused applications for target markets. Another company we found, CyberSentry, Inc., is developing an application for the medical community that supports the transmission of records between remote locations and users. A major medical institution can transfer patient records to another institution or doctor. According to a company spokesperson, their software ensures delivery by tracking the sender and receiver time, location, destination and user ID, and issues reports.

These are just two examples of how partnerships with application providers can overcome the challenges hindering adoption faced by the telcos. Figure 1 lists a few of the benefits each group receives from these types of partnerships. The conclusion: Everyone gets what they most need to succeed from partnering.

Figure 1: Benefits Received from Partnerships with Application Providers

This column addresses the supply side of the market ecosystem. April's column will discuss working with associations to build and support the demand side of the market ecosystem.

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