Professional Documents
Culture Documents
Vendor strategies
in the IMS ecosystem
- finding the right niche
2008 / 06
www.detecon.com
Vendor strategies in the IMS ecosystem
Table of Contents
1 Management Summary ....................................................................................... 3
2 A new market for vendors and systems integrators ............................................ 4
3 Sourcing models for a complex system .............................................................. 5
4 A glance on the current supplier market ............................................................. 7
4.1 Flexible partnering, flexible approaches...................................................... 7
4.2 The allure of end-to-end solutions............................................................... 8
4.3 The telcos’ know-how and their sourcing decisions .................................... 9
5 Ecosystem strategies ........................................................................................ 11
6 Reading on........................................................................................................ 12
7 The Authors....................................................................................................... 13
8 The Company.................................................................................................... 14
1 Management Summary
The market for the IP Multimedia Subsystem (IMS) is emerging and promises substantial
growth. Due to the modular, component-based architecture, specialized vendors can position
themselves in the market next to the established large telco suppliers and IT players. From a
network operator’s perspective the dynamic nature of the supplier market facilitates three
archetype sourcing models – direct best-of-breed sourcing, sourcing via a systems
integrator, or choosing an integrated end-to-end solution from a single supplier.
In order to understand the current nature of the IMS market, we have performed a study
among vendors and systems integrators. Our aim was to understand their partnering
behavior and go-to-market approaches. Combining our findings with recent academic
research, we can draw conclusions about the future dynamics of the IMS ecosystem.
Vendors and systems integrators interviewed in our survey show a very flexible approach to
partnering, supporting all three sourcing models. The current utilization of their sales
channels, however, suggests that due to a lack of IMS know-how, operators favor end-to-
end solutions, frequently provided by one of the experienced large network equipment
providers.
As the operators’ IMS knowledge grows, the vendor ecosystem is expected to evolve from
its current tightly coupled constellation towards more flexible solutions based on tactical
vendor partnerships and quick component interoperability. In the long-term, however, the
telcos’ sourcing preferences are assumed to stabilize around loosely coupled ecosystems
centered on a few large vendors and SIs.
The IP Multimedia Subsystem (IMS) finally seems to become reality. After years of ongoing
standardization and early trials, first real installations seem to be at hand and the forecasts
for the market for the telcos’ new signaling architecture show significant growth over the next
few years. The IMS is supposed to be the intelligent control center of next generation
networks (NGN) for telcos and shall serve many purposes.
Charging
components
component
vendors
Which kind of sourcing model does this situation imply from a telco’s perspective? Three
“archetype”-like scenarios are conceivable for the IMS (see figure 2):
• Direct sourcing of IMS components by telcos is one end of the spectrum.
Operators choose their favorite component vendors with a best-of-breed
approach and perform the systems integration themselves. The upsides of
this scenario are clear – telcos can avoid dependencies and source from
the top performing vendor. The flexibility of direct sourcing is maximal.
However, integration work is complex and requires a significant level of
knowledge about the IMS. The operator bears the risk of interoperability
problems between the different vendors.
1
Dosi, Giovanni; Hobday, Mike; Marengo, Luigi; Prencipe, Andrea: The economics of
Systems Integration - Towards an Evolutionary Interpretation. In: The Business of Systems
Integration. Oxford Scholarship Online, Monographs, 2003, p. 100
Note that the boundaries between the SI model and the OEM model are blurred. A systems
integrator that rigidly integrates 3rd party components with proprietary interfaces in exclusive
relationships is acting similar to a NEP with OEM contracts. On the other hand, NEPs can
also work as systems integrators and pursue a more flexible approach.
In order to keep the promise of flexibility, the direct sourcing and systems integration model
require the players on the market to also pursue flexible partnering habits. Partnerships
between component vendors and systems integrators must be non-exclusive in order to
have the freedom of choice for each deployment. Also, establishing new relationships should
be quick and easy to facilitate new vendor constellations. If telcos perform direct sourcing, it
is especially important that the components of different vendors work together well and that
interoperability testing is performed on a regular basis. Standards compliance for component
interfaces is especially important in this case.
2
Satisficing is a combination of "satisfy" and "suffice". The term was coined by the American
sociologist Herbert Simon and describes a strategy of just meeting the necessary
requirements rather than finding an optimal solution, also see Ireland (1999)
3
See Iansiti and Levien (2004)
In a recent study among vendors and systems integrators, we wanted to understand the
current status of this ecosystem from the suppliers’ perspective. To this effect we have
asked vendors and systems integrators in the emerging IMS market about their partnering
habits, standards compliance and flexibility concerning component choice. The sample
comprised several companies of different sizes, which are all acting in an international
market. All of the participating vendors use or have been involved in many or all of the above
archetype sourcing models for some part of their portfolio. They have many direct sales
presences with telcos, contacts to systems integrators and OEM contracts with large NEPs.
In telephone interviews with the vendors and systems integrators, we found that the nature
of the existing relationships between the players promote a high flexibility of the current
vendor ecosystem. Ties between component vendors and systems integrators are all non-
exclusive and most players have multiple relationships and see no incentives for more
exclusive relations. One of the systems integrators stated: “None of these partnerships are
exclusive. On such an immature market, [...] we definitely not want to commit ourselves
exclusively”. Our results show that besides safeguarding strategic flexibility, the multitude of
relations among vendors and systems integrators is an outcome of the limited geographical
reach of smaller players that partner with local SIs to expand their market.
4
Component vendor
demand and to deploying a customized system with tactical partners. The integration service
seems to be of higher value to the SIs than the marketing of in-house components – there
were examples where they exchanged their own components with those of a competitor in
order to satisfy the operator’s wishes.
For component vendors, the effort of creating new ties differs with the sales channels.
Establishing ties to other component vendors is regarded as a relatively easy task, especially
to vendors with a complementary portfolio. Much harder is the connection to systems
integrators, as they have the freedom of choice between many component vendors and are
thus harder to convince from a vendor’s perspective. The most complex relations are those
that lead to a OEM relationship (“the most arduous you can imagine”). Such relationships
have to cover all possible details and are not directed towards one or a few customer
installations but aim on integrating the OEMs component into the NEPs portfolio. Most
participants stated that technical questions were easily smoothed out and that commercial
questions are the main bottleneck for partnerships of any kind.
In sum, the direct results from the study support the notion that a best-of-breed sourcing
market is available for operators that want to stem the task of in-house integration. Also, all
prerequisites for the SI model to be flexible are given. Exclusivity is rejected, diversity and
flexibility are praised. The lack of standards and the resulting proprietary tweaks are
compensated by frequent interoperability tests and the commitment of vendors to open up
their interfaces.
The current utilization of the sales channels, however, sheds a different light on the market
(see figure 3). While most vendors use all three channels to sell their non-IMS components,
the balance is significantly shifted towards large NEPs for the new system. All smaller
vendors are cooperating with the large NEPs like Alcatel-Lucent, Ericsson or Nokia Siemens
Networks either by becoming an OEM vendor or using the NEP as a systems integrator.
Operators deploying the new technology seem to prefer having one of the large, experienced
players on board. As one of the component vendors puts it: “Only the large companies that
offer systems integration services as well as components [...] are able to move at this point in
100
% of respondents
Vendors‘ usual
sales channels
Vendors‘ IMS
sales channels
time with comprehensive solutions - with the drawback that these are to some extent
vertically integrated.” As anticipated, the shift towards integrated end-to-end solutions entails
the risk of lock-in effects in proprietary islands again, as many vendors report the large NEPs
to be reluctant to reveal their proprietary interfaces.
From a supplier’s perspective, the market seems to by ready for best-of-breed – why are
operators turning towards end-to-end solutions anyway, despite the obvious drawbacks of
this path? An important reason to rely on any solution is a lack of viable alternatives. To use
a best-of-breed approach, it is necessary to discriminate between the different options.
Having a significant amount of know-how is absolutely mandatory to take this path. The IMS,
however, is complex and new and hands-on experience with live implementations is rare for
telcos. The promising option of plugging together a tailored system could just be out of reach
for most operators with limited R&D budget and equally limited IMS skills. And building an
IMS is still far from being an easy task, as a high amount of customization is necessary and
interoperability of components from different vendors remains a challenge. One of the
component vendors stated: “Almost every installation that we do throws up some new
difference or feature or Y-tweak that we need to do in order to get it working well”
A recent academic study 5 about the impact of a company’s know-how on sourcing decisions
supports the results of this snapshot of the market. Researchers have found out that the
technology expertise of a company has a U-shaped impact on its sourcing preferences (see
figure 4). Assuming that the IMS-specific know-how of the telcos will grow over time, the
model forecasts how the vendor ecosystem could evolve as the IMS matures.
Preference Single
sourcing over
multiple
sourcing
Know-how
Outsourcing
over in-house
Non- systems
preference integration
A B C
5
Stremersch et al 2004
• In the current, early phase of the market (phase A of figure 4), telcos do not possess
significant knowledge about the new, complex system IMS. Although they would like
to acquire knowledge and are therefore open for in-house systems integration, they
cannot easily discriminate between many vendors and therefore prefer to source the
entire system from a single vendor. As specialized vendors are unable to offer such
a complete solution, the telcos are falling back on their traditional, knowledgeable
partners – large NEPs that provide integrated end-to-end solutions.
• Once operators have collected some experience with the technology, they are finally
able to discriminate between different vendors’ components which will reduce their
single sourcing preference (phase B). Also, they will have collected enough know-
how to effectively control an external systems integrator to build the system for them.
This is the time for real best-of-breed systems – if the proprietary walls have not
grown too big by then to prevent telcos from breaking out again.
• By the time the IMS is mature and installed industry-wide, network operators will be
experienced with its technology, the interworking of the components and the
sourcing possibilities (phase C). Because they possess this knowledge, they could
easily use it and thus have a strong preference for in-house systems integration of
components. However, their need to look around on the market and acquire more
information declines as they face little task uncertainty in a more homogeneous
market. They will therefore prefer to source from a single vendor with the best
overall solution. Systems integrators that performed particularly well in the second
phase and built a reputation of excellence have a good chance of becoming the
keystone players coordinating and integrating the specialized niche vendors in the
maturity phase 6 .
6
cf. Iansiti and Levien (2004)
5 Ecosystem strategies
The current status of the IMS vendor ecosystem gives operators in principle the possibility to
flexibly source their IMS from different vendors or let a systems integrator deploy a
customized system for them. Vendors and systems integrators are committed to stay diverse
in their partnerships and emphasize their flexible approach. Nevertheless, most IMS
installations take place with the direct involvement of a large Network Equipment Provider –
often with component vendors as OEM contractors. Many telcos seem to install the end-to-
end solutions because they simply cannot benefit from the flexibility yet because they lack
the experience with the new, complex system.
As time goes by, operators acquire know-how about the IMS and their sourcing preferences
will change. For vendors and systems integrators, it is therefore crucial to have the right
ecosystem strategy at the right time.
• Short term: For vendors and independent SIs the short term message is simple:
you may be ready for best-of-breed market – the operators and perhaps the
technology are not. To stay in the market, some kind of cooperation with the large
players is inevitable. However, it is equally important for operators and vendors to
stay in touch with each other to prevent the large companies from becoming too
strong and exploit their ecosystem status. One of the vendors stated that already
today, some NEPs propose prices for licenses “that [vendors] just cannot accept for
the sake of rationality”.
In the early phase, independent systems integrators have to offer IMS systems with
an end-to-end feeling. They should take advantage of the telcos’ preferences and
address their desire for learning by offering them to participate in the integration
processes and actively support their IMS skills.
• Mid-term: Operators will be ready for a more diverse sourcing strategy once they
have learned their basic IMS lessons. Vendors and independent systems integrators
should lay the foundations for this second, more diverse phase by establishing and
maintaining a multitude of relations and keeping up the intense interoperability
testing. Once the operators are ready for best-of-breed, it is important that your
offering is ready, too.
• Long term: As the telcos’ preferences swing back towards single sourcing and in-
house systems integration once they are experienced, vendors and SIs have to find
their long-term position in a stable and successful ecosystem. Those ecosystems
are expected to break down into several subsystems or niches, each led by a large
keystone player surrounded by smaller strategic partners.
A work of caution about the above strategies is necessary when considering the trend
towards managed services. If the large NEPs and SIs continue their downstream movement
along the value chain and telcos move towards sourcing services rather then networks, the
market could turn towards more stable and defined ecosystems much faster. In this case, it
is especially important for vendors to find the right keystone player in time – your competitors
could become your customers one day.
6 Reading on
O Iansiti, Marco; Levien, Roy: Strategy as Ecology; Harvard Business Review (2004)
O Ireland, Paul: Satisficing dependent customers: on the power of suppliers in IT
systems integration supply chains; Supply Chain Management (1999)
O Stremersch, Stefan; Weiss, Allen M.; Dellart, Benedict G.; Frambach, Ruud T.:
Buying Modular Systems in Technology-Intensive Markets; Journal of Marketing
Research (2003)
7 The Authors
The authors wish to thank Falk Schröder and Stefan Berg for valuable comments to their
work.
8 The Company
Detecon International GmbH
Detecon offers both horizontal services that are oriented towards all industries and can entail
architecture, marketing or purchasing strategies, for example, as well as vertical consulting
services that presuppose extensive industry knowledge. Detecon's particular strength in the
ICT industry is documented by numerous domestic and international projects for
telecommunications providers, mobile operators and regulatory authorities that focused on
the development of networks and markets, evaluation of technologies and standards or
support during the merger and acquisition process.