XO Targets Mid-Market With Cloud Services

XO Communications Inc. is not the first service provider to the cloud party. Larger competitors such as AT&T Inc. (NYSE: T) and Verizon Enterprise Solutions , and even other competitor providers such as Global Crossing (Nasdaq: GLBC), have been quicker to announce cloud services.

So is the challenge for XO to do something different?

Not necessarily, says Johna Till Johnson, president and senior founding partner of Nemertes Research. While XO may be launching what seems like a "me-too" offering, the company's focus on mid-market businesses may give it an edge. (See XO Launches Cloud Comms)

"They are certainly attacking larger carriers at their weak point," Johnson says.

With its most recent offering, a cloud security service based on a partnership with StillSecure that was announced Monday, XO also is adding features that are rapidly becoming table stakes for network services. (See XO Takes Security to the Cloud and XO Lands Cloud Security Partner)

"Mid-sized businesses and down -- that is where the opportunity is for cloud services," says Amy DeCarlo, principal analyst, security and data center services, for Current Analysis . "That is where XO will play very well. And in some ways, that group moves faster and has more applications to move. People talk about enterprise cloud services, but those larger companies are slower to move."

Businesses could well prefer carrier cloud options for security versus those from Google or Microsoft, Johnson says, because of the network operators' ability to stop threats before they even cross the enterprise threshold. That would work in XO's favor.

Leveraging strengths:
XO began unveiling its strategy in February by announcing cloud-based communications services that build on its existing hosted voice and SIP-based offers. The company's strength will be in selling to multi-site mid-sized clients, and in having a strong relationship with local third-party agents who provide support for these services, says Elka Popova, North American program director, unified communications and collaboration, for Frost & Sullivan .

While the company's network footprint might not reach all the locations of a multi-site business, Popova says, XO can leverage the BroadSoft Inc. platform it uses and SIP trunking to tie together all locations on an abbreviated dialing plan, one of the more attractive features of hosted or cloud-based voice.

"It's my understanding they have developed a good partnership ecosystem with all the local technical support and integrators that can work with those businesses that can really deliver a hands-on approach" that is crucial for SMBs, Popova adds.

Strategically, cloud-based services are crucial for XO's future, both as a pull-through for sales of its network services and an add-on for existing customers, says Mark Saffell, director of product management. In addition, offering cloud-based services can be more cost-effective for the service provider.

He finds customers are increasingly expecting their service providers to offer services such as managed security that goes beyond virus protection to actively secure a company's WAN and LAN from the broad spectrum of attacks.

"They don't want to talk to you without that," Saffell says.

Customers don't really care if the security or hosted voice service involves a piece of equipment that is on-premises or in a collocation spot a thousand miles away, as long as it is being managed by the service provider, Saffell adds. But it is to XO's benefit to have equipment centrally located, allowing it to make updates, changes and fixes more easily and less expensively than constantly dispatching technicians.

"It is easier for us to manage two large boxes instead of 800 small boxes," he says. "It is also easier to scale -- you don't have to do a truck roll on five new pieces of hardware, you just add them in as virtual domains on that firewall."

Hybrid options:
XO will continue to offer both premises-based managed services and cloud offerings and let customers have a choice, and it expects to be among the few that offer to integrate those approaches for the customer, Saffell adds. That way, a business can choose to have premises-based equipment at larger sites, for example, and link smaller sites in via a cloud-based offering.

XO is promising a series of announcements of future cloud offerings, rolling out over the next year, Saffell says, and won't hesitate to work with other partners to leverage their expertise. The company also has a small-business division that is specifically developing cloud products for that market, drawing on the broader portfolio.

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— Carol Wilson, Chief Editor, Events, Light Reading