Do CSPs know what enterprises want from NaaS?

Remember the Microsoft Zune? New Coke? Harley Davidson cologne? Some products just don’t take off — especially when they don’t meet the market’s needs. If communications service providers (CSPs) are going to grab their share of the $15 billion Network-as-a-Service (NaaS) opportunity, they’ll need to get clear on what’s in demand.

The public cloud has turned out to be one of those rare “everybody wins” situations. Businesses get compute and storage on a subscription basis, lifting the burden from their IT teams. Cloud providers profit from unprecedented economies of scale and can continually spin up new value-added (and highly profitable) services.

NaaS definitely falls into that lucrative category. A recent IDC report projects overall enterprise network infrastructure spending will hit $45 billion in the next four years, with NaaS accounting for $15 billion of that — a full third of the total.

Like the public cloud, NaaS promises mutual benefits: cloud-like, consumable network services for enterprises and an onramp for CSPs into the coveted enterprise space. Many CSPs, such as Verizon, are already running with the NaaS ball.

“This is a phenomenon that's happening, so we’ve got to get on that bandwagon”

Aamir Hussain, Senior VP, Business Products Verizon Business Group

“We provide networking, we provide security, we have automation through our software-defined networking, now we're bringing it all together in the form of our secure networks-as-a-service,” says Aamir Hussain, Senior Vice President of Business Products for Verizon Business Group. “We think by 2024, 40 to 50 percent of our customers will adopt [our NaaS offerings]. This is a phenomenon that's happening, so we’ve got to get on that bandwagon.”

Verizon’s projected timeframe aligns pretty closely with IDC’s estimates. No wonder 78 percent of CSPs in a recent Nokia survey said NaaS is either an active offering or part of their near-term plans.

But what exactly do those offerings consist of? And are they aligned with what enterprises want most?

A matter of demand and supply

If the Nokia survey is any indication, there’s a sizable disconnect between what CSPs aim to offer with NaaS and what enterprise customers are seeking.

CSPs seem to think enterprises care most about lowering operating costs and shifting from CAPEX to OPEX spending models. Enterprises say their top NaaS priority is security. Nearly half of the CSPs surveyed say they plan to roll out private LAN/WAN as a NaaS offering, but only 26 percent of enterprises are interested.

In some cases, gap-closing will require CSPs to rethink their NaaS plans. In others, it will be about overcoming what’s keeping enterprises from embracing NaaS. “Unproven or unconvincing business benefits” and “lack of support or maintenance by their CSP” were the top barriers cited in the Nokia survey.

“The two even have different ideas about how NaaS should be bought and sold,” says Jason Elliott, Head of CSP Solutions and Partner Marketing at Nokia. “You’ve got enterprises saying they want to buy directly from the CSP sales team or a reseller while the CSPs aim to sell through branded web portals. The opportunity is big, but CSPs need to close the gaps to capture it.”

What’s the ROI of NaaS?

For enterprises
NaaS could cut network costs by 30%
For CSPs
After three years, CSPs can expect to break even on their NaaS investments and five years should attain a 23% rate of return

Source: IDC, 2021

CSPs can knock these down with proactive customer education, strong marketing messages and sales support tools that show a persuasive return on investment (ROI).

Misalignment between CSPs and enterprises

Naas business article graph

What enterprises want

Looking at the survey results, it’s clear enterprises find network security, bandwidth-on-demand (BoD) and virtual private network services (which are already established as-a-service offerings) most appealing when it comes to NaaS.

This is telling because many CSPs would not consider network security or BoD “true” NaaS: they’re not core connectivity services, they’re add-ons. But in the spirit of “the customer is always right”, they’re add-ons CSPs can deliver on top of a core connectivity offering, so they’re worth consideration. And demand for them is strong.

87 percent of enterprise respondents to the Nokia survey ranked network security as either a moderately or significantly important NaaS benefit, and today’s $27 billion security services market is expected to grow by more than 15 percent CAGR between 2021 and 2026. Not having a security offering could actually limit a CSP’s overall NaaS prospects.

Getting ready to deliver will take some investment because it requires, among other things, 24/7 expert monitoring, a security information and event management system (SIEM), a comprehensive infrastructure for gathering threat intelligence and more. Fortunately, there are managed security service providers and outsourced solutions available for CSPs to partner with for a faster and more affordable path to market.

When it comes to BoD, CSPs and enterprises both stand to gain. It’s a solution that gives enterprises a dynamic way to get the throughput they need at every point in the business cycle without spending on over-capacity. But it doesn’t have to be the CSP’s core offering. BoD can be bundled into other enhanced services that require certain levels of throughput — creating opportunities for providers to sell value-added offerings and profit from guaranteeing the right bandwidth is in place.

Enterprise NaaS Survey

Nokia surveyed technology leaders from 100 enterprises in the Pulse community to understand the benefits they expect from NaaS and the top services they would likely purchase.

Almost 50% of enterprises surveyed plan to purchase NaaS to achieve business benefits
The most appealing NaaS features are network security (74%) and bandwidth-on-demand (47%)

To get all the survey insights, click here

What enterprises need

Even though they didn’t rank as highly in the Nokia survey, there are some core connectivity services that make strong NaaS offerings and that enterprises need — especially in certain industries. The task for CSPs will be to convince them of the benefits.

Private SD-WAN may be the most obvious example, and in some ways the archetypal NaaS offering: easy to deploy and with low costs. Many CSPs have already built managed service capabilities into their SD-WAN solutions, so with some relatively simple changes to capital equipment ownership, subscription coverage, service-level agreements (SLAs) and support models, they could easily evolve to the NaaS model. Where there’s no underlying wireline broadband connectivity, NaaS SD-WAN can be enabled by high-speed fixed wireless access (FWA).

Bringing enterprise and network together with APIs

With organizations such as 3GPP and TM Forum publishing specifications for network application programming interfaces (APIs) — and with enterprise applications already using the 3GPP Network Exposure Function to receive device and user information — it’s easy to imagine CSPs one day offering compound, industry-specific APIs that essentially constitute a new, collaborative services platform.

It’s a business model that has created some of the most valuable companies on the planet. While it will require robust infrastructure upgrades, those are in line with most CSPs’ digital transformations, with 51 percent of CSPs in the Nokia survey planning to invest in IT-facing service APIs.

More than a quarter of enterprises in the Nokia survey put private LAN/WAN at the top of their “most appealing NaaS offerings” lists, and analysts predict a 38.6 percent compound annual growth rate (CAGR) for SD-WAN within the current decade. With some outreach and education, CSPs could open up this area of opportunity.

Private wireless networking is a similar case. Heavy industries like mining and manufacturing are coming to the conclusion there’s no digital transformation without it, and while Wi-Fi is still being touted as an option, it can’t keep up with the performance of private cellular, which is right in the CSP wheelhouse and set to reach $2.1 billion globally by 2026.

Even broader than private wireless is the internet of things (IoT). Virtually every enterprise can benefit from some kind of IoT application, and as companies’ IoT footprints grow beyond the coverage of any single CSP, they’re going to need a more distributed solution. Right now, they have to source that themselves, but CSPs can simplify things for enterprises by offering global device connectivity as a service via any number of worldwide SIM connectivity platforms.

IoT application and industrial automation developers who want to reduce their data transmission burden and application latency might be interested in another NaaS offering: mobile edge computing. This is a rapidly expanding market, expected to grow by 37 percent CAGR to 2027 from a $3.5 billion baseline in 2019.

CSPs are natural hosts for edge computing thanks to their central offices, local interconnects and points of presence. Several have forged highly public partnerships with public cloud providers, benefiting from their mutual strengths. Technology in this space is evolving fast, which may call for a “watch-and-see” strategy, but CSPs with good edge real estate could find premium enterprise revenues when enterprise edge computing goes mainstream.

Getting started

To win at NaaS, CSPs will need to choose the right initial targets. IDC suggests starting with small and medium-sized businesses that have new offices and less complex networking needs. They’ll also need to think beyond appealing only to the IT department. Pretty much the whole of the enterprise has something to gain from NaaS offers, according to Nokia survey findings.

"There’s a lot to think about with NaaS: pricing, billing, ownership of customer premises equipment (CPE), sufficient customer care, SLAs, getting the network security story right," says Elliott. “The CSP business has to be as ready as the network.”

And what about return on investment? NaaS could mean a 30 percent cost saving for enterprises, with nearly half of that from reduced hardware and software costs, according to IDC. And over a five year time period, CSPs reach break even in year three, with margins exceeding 23 percent in year five.

By starting with feasible solutions, planning for high-value add-ons, focusing on their strengths and what enterprises want, CSPs’ NaaS offerings can avoid the fate of ill-conceived products like New Coke, Sony Betamax or the infamous Ford Edsel — and position themselves to win a sizable piece of the $15 billion NaaS market. Of course, having the right strategy is just part of the equation. CSPs also need to make sure their networks and operations are ready to deliver what NaaS demands.