The Yankee Group Research Notes


 Covering the week of May 21, 2002

The Yankee Group's Weekly Analysis of the Hottest Topics in the Information Technology and Communications Industries
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Table of Contents

1.   RealNames Ceases Operations after Microsoft Declines to Renew Contract

2.

  As Good as It Gets: Competitive Telecom Services Providers Gain a Sigh of Relief from the Supreme Court Ruling
3.   IBM Selects Presence Online for ISV Program

4.

  SONICblue Lawsuit Offers Early Evidence of Brewing Threat to Existing Advertising Model
5.   Cisco Accelerates Its Focus in the Storage Market
6.   Japanese Government Opens the Door to Entrants to the Optical Fiber Lease Business

7.

  Different Approaches to E-Learning

8.

  Coax Cable: Out of the Home and into the Business

9.

  Matsushita Communications' Next Frontier: The European Handset Market

10.

  Web Services Mature but Interoperability Remains Core Concern

11.

  Siemens and Nokia to Collaborate on Mobile Terminal Software 
     
    Publications for the week of May 21, 2002
    Audio Conferences
    Conference Information
    About the Yankee Group

1. RealNames Ceases Operations after Microsoft Declines to Renew Contract

Internet Business Strategies
by Paul Ritter

Event Summary

RealNames, the technology firm that operates the widely used keyword system of direct Web navigation, announced on May 14 that the company is shutting down operations because Microsoft decided not to renew its contract with the firm, which expires June 30, 2002. Keywords sold by RealNames allow Internet users to find Web sites by typing in the keywords, such as "Toyota Camry," directly into the address bar in the Microsoft Internet Explorer (IE) browser. Reasons given by Microsoft for not renewing the contract included its preference in using effective search technology, which it can control, as opposed to the use of keywords, which are subject to human approval. It also indicated it did not believe the results from generic keywords that have been sold have always resulted in intuitive search results for its users.

Market Impact

The ramifications of shutting off the RealNames keyword technology are far-reaching and have significant global impact, especially in China and Japan, where the technology is the only means by which Internet users can navigate in Chinese through a Web browser. Many corporations, including Procter & Gamble, General Motors, and Philip Morris, that have dozens or hundreds of different brands utilize Keywords from RealNames to help consumers interested in a particular brand (Tide, Corvette, and Kool Aid are keyword examples, respectively) find the appropriate Web site for that brand. At the moment, Web searchers need only type in the word "corvette" into the Internet Explorer browser to be taken automatically to the proper GM-owned Web site, rather than having to navigate to a more lengthy and less intuitive URL, such as http://www.chevrolet.com/corvette/index.htm, to get there. The functionality of such keywords for direct navigation will be turned off effective June 28, 2002, according to Microsoft and RealNames. It has not been announced how, following this date, Web searches will resolve when keywords are entered into the IE browser, or on other sites within which the technology has been enabled. Microsoft's decision not to renew the RealNames contract is likely to result in far greater repercussions and negative feedback from corporate keyword owners, Internet users, and even entire countries, than the software giant anticipated.

Conclusions and Recommendations

Companies that have been utilizing keywords from RealNames will need to seek alternative methods of assisting Web searchers in finding the appropriate destination. It's not clear that all RealNames customers will succeed in finding an alternative that is as affordable or as effective in directly navigating users to the correct site. Alternatives for driving customers to branded sites, from highest to lowest overall cost, include:

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2. As Good as It Gets: Competitive Telecom Services Providers Gain a Sigh of Relief from the Supreme Court Ruling

Consumer Technologies & Services, Small and Medium Business Technologies, Telecommunications Strategies
by Imran Khan, Mike Lauricella, Courtney Quinn

Trend

On May 13, the U.S. Supreme Court affirmed the system that the Federal Communications Commission (FCC) established to determine wholesale rates that the incumbent phone companies, specifically the regional Bell operating companies (RBOCs), can charge rivals for unbundled network elements (UNEs). The wholesale pricing system, commonly referred to as Total Element Long Run Incremental Cost (TELRIC), was adopted by the state commissions for calculating UNE prices after the Telecom Act of 1996. The Supreme Court further required the RBOCs to combine certain network elements—that were previously uncombined—at the request of the wholesale UNE buyer, creating a UNE platform (UNE-P).

Market Impact

While the Supreme Court ruling certainly breathes life into UNE-based providers, overall this ruling will not significantly increase the number of competitors in the marketplace. The tight capital markets and greater competition from cable operators and the RBOCs will lead to entry barriers for new players. Among the existing players MCI and AT&T Local will become more active in their provision of local voice services. Both MCI and AT&T have historically complained about the difficulties in the business viability of UNE-based offerings due to higher wholesale prices. AT&T specifically asserted the need to "own" the last-mile infrastructure and purchased cable assets to deliver facilities-based services to consumers. With the decline in wholesale prices, "owning" the last mile has in fact become less attractive for carriers such as AT&T and MCI (due to capital constraints). For instance, in April MCI launched its "Neighborhood" integrated local and long-distance offering in 32-states utilizing the UNE platform. Overall, lower wholesale prices may be the only way consumers will ever see a choice in competition in the near term as the squeezing capital markets limit network buildout.

Conclusions

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3. IBM Selects Presence Online for ISV Program

Australasian Market Strategies, Networked Business Strategies Asia-Pacific
by Michael Kelleher

Event Summary

IBM has entered into a global marketing alliance with small Australian software firm Presence Online. The three-year deal will see IBM bundle Presence Online's Aptrix Multi-Platform content management (CM) product with its Lotus, WebSphere, and DB2 product offering.

Market Impact

In November 1999, IBM launched its strategic alliance independent software vendor (ISV) program as a result of its decision to get out of the applications business and partner with ISVs, instead of competing against them.

IBM's deal with Presence Online is another example of the ISV program except this is the first of its kind in the Asia-Pacific region. Under the program, IBM delivers sales, marketing, and technical resources to a partner ISV and provides integration expertise.

The deal will help the little-known Aptrix product compete on a global scale against CM heavyweights Vignette, Broadvision, and Interwoven. Although Presence Online had expanded into markets such as the United States, Mexico, and Europe, the agreement with IBM substantially builds on previous distribution efforts.

Presence has now discarded its Sydney-based sales staff, basing its sales and marketing strategy solely behind IBM. Furthermore, Presence developers will now work with IBM's R&D unit to develop an e-business solution for the financial services sector.

Aptrix will be combined with Lotus Web Content Management Solution to provide library services, workflow, team rooms, templating, and content creation.

Recommendations/Conclusions

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4. SONICblue Lawsuit Offers Early Evidence of Brewing Threat to Existing Advertising Model

Media & Entertainment Strategies
by Adi Kishore

Event Summary

On Wednesday, May 15, digital video recorder company SONICblue was granted a stay in its request to reverse an order that would force it to monitor the viewing habits of its customers. A federal magistrate had previously ordered SONICblue to develop software to monitor the viewing habits of its ReplayTV set-top box owners. This was in response to a complaint of copyright infringement filed by a group of TV programmers including AOL Time Warner, MGM, Disney, and the big three TV networks. The order also required SONICblue to hand that information over to the plaintiffs.

Market Impact

SONICblue's ReplayTV 4000 has an ad-skip button allowing viewers to advance the programming 30 seconds at a time. This feature has become a flashpoint for content companies, concerned about the impact of time-shifting and video-on-demand (VOD) on their advertising-led business model. In addition, the ReplayTV 4000 unit allows viewers to e-mail recorded TV shows and movies to other ReplayTV 4000 units, even if they are copyrighted. As these technologies develop, allowing consumers greater control over their TV viewing, TV commercials as we know them will offer no value to advertisers. This, in turn, completely subverts the existing, advertising-sponsored, free-to-air television business model.

Recommendations

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5. Cisco Accelerates Its Focus in the Storage Market

Enterprise Computing & Networking
by Jamie Gruener

Event Summary

On May 14, Cisco announced its second product for the storage market, a storage router that combines Fibre Channel with emerging networking standard iSCSI. The announcement is significant for its support of Fibre Channel, now the mainstream network architecture large and mid-sized enterprises have used to build Storage Area Networks (SANs) in recent years. But, by combining it with the promised ease-of-use provided by iSCSI, Cisco has targeted the growing workgroup SAN market, an area of the storage market that has been largely untapped by most of the traditional storage networking vendors.

Market Impact

SANs have been largely deployed in Fortune 2000 enterprises because of the significant costs and expertise associated with deploying storage networks. But as more companies find ways to improve efficiencies of storage, SANs have begun to migrate to mid-sized and smaller companies, giving Cisco a window of opportunity to enter the storage networking market. By leveraging iSCSI ports on the front end, enterprises can connect servers to the Cisco SN 5428 Storage Router using IP networks and take advantage of Fibre Channel to connect to storage subsystems behind the router. Cisco licensed Fibre Channel technology from QLogic, a pact that was announced just weeks after a similar agreement between Cisco and Fibre Channel network leader Brocade fell apart. Cisco's new product announcement comes at a time when the storage industry is facing two divergent trends. First, growth of the storage networking market continues to remain sluggish as enterprises conserve IT spending. This in turn puts pricing pressure on storage subsystem pricing, which will force OEMs to lower their markup of SAN infrastructure equipment and cause street prices to fall faster than factory prices. That could spell an opportunity for Cisco, which has been one the driving forces behind emerging storage networking standard iSCSI, a networking technology that promises to be less costly, easier to deploy and manage than Fibre Channel. Second, iSCSI remains a nascent market based on a standard that won't be finalized until the second half of 2002, limiting the number of products available to customers today. Additionally, first generation products have proven to not be as easy to deploy as existing IP networks. Customers deploying workgroup and departmental SANs are less willing to be early adopters of technology, making iSCSI a hard sell in the short term until products mature and expand in management and deployment features.

Conclusions

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6. Japanese Government Opens the Door to Entrants to the Optical Fiber Lease Business

Convergent Communications Asia-Pacific, Japan Market Strategies
by James Walsh

Event Summary

On May 9, Japan's regulator, the Ministry of Public Management, Home Affairs, Posts and Telecommunications (MPHPT) announced revisions to the "Regulations for Enforcement of the Telecommunications Business Law" and the "Examination Standards." The aim of the changes is to streamline procedures for entrants to offer dark fiber and other wholesale telecommunications services to carriers. In a parallel move, the Ministry of Land, Infrastructure and Transport (MLIT) announced plans to rent unused portions of fiber cables which run along national roads and waterways to private sector companies at an annual charge of ¥11-16 (US$0.08-US$0.12) per fiber core per meter, less than one third the current market price. This service will start within the year.

Market Impact

Local incumbents NTT East and NTT West first liberalized their dark fiber in December 2000, a move that has facilitated the construction of Gigabit class metropolitan area networks (MAN) by a wide variety of Type I operators. For example, ADSL operators, such as ACCA Networks and eAccess are now building out MANs to aggregate traffic from their access lines. Operating their own backbone networks will enable them to save costs, while giving them better control over service quality. On the other hand, long-distance providers such as KDDI and Cable & Wireless IDC are positioning their new MANs as a means of garnering new revenue streams by offering corporate clients services such as Gigabit Ethernet and high-speed Internet access without having to lease capacity from local carriers. The revisions made by the two ministries will allow railroad and utilities companies—in addition to Type I carriers—to offer not only dark fiber, but also wavelength services. This paves the way for retail operators to offer various broadband services, and gives a boost to emerging carriers without their own optical fiber lines.

Conclusions/Recommendations

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7. Different Approaches to E-Learning

Technology Management Strategies
by Andy Efstathiou

Event Summary

As end users have attempted to implement e-learning solutions in order to improve their effectiveness at handling rising employee turnover rates, the increasing pace of technology change, and more rapid development cycles, they have been met by competing claims from e-learning vendors about what they are buying and what it will do for them. This has led to general dissatisfaction and distrust from enterprise users of e-learning solutions. Given the lack of clarity in the marketplace, users have often bought solutions expecting something else and ended up disappointed.

The Yankee Group believes that e-learning players break down into six categories: learning management systems, content providers, authoring software, presentation tools, end-to-end solutions, implementers and integrators. In today's marketplace, however, the lines are merging between the various categories above. For example, Accenture, a well-known integrator, has started a firm called Indeliq. Indeliq offers an end-to-end solution that is built from components provided by best-of-breed providers within their skill sets. In contrast, Deloitte's e-learning offering is "externally assembled" (i.e., Deloitte will architect a solution for a customer, but hands it over to the customer to implement by finding the right partners).

Market Impact

The plethora of competing solutions in the e-learning marketplace—which not only has no clear leaders, but also does not have a clear winning business model—has placed end users on edge. The microcomputer field was the same before the arrival of Microsoft. We believe that the e-learning field will cast around for a while until a leading business model begins to emerge in the next few years that will set the paradigm for the industry going forward. At that point, the market will start to rapidly consolidate and a few providers—clear leaders—will be left. The stakes will be huge as the enterprise market demand for e-learning is growing and insistent. We will continue to monitor this space closely.

Recommendations

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8. Coax Cable: Out of the Home and into the Business

Broadband Access Technologies
by Lindsay Schroth

Report Summary

Cable multiple system operators (MSOs) have recognized that the hybrid fiber/coax (HFC) networks that they have spent billions of dollars building can supply them with a greater source of revenue if they move beyond only providing traditional video and data offerings to the consumer. As a result, these operators are looking into new solutions and technologies that will allow them to utilize the existing infrastructure to provide large bandwidth dedicated access. In a forthcoming Report by Broadband Access Technologies, the Yankee Group evaluates vendors and the technologies that they have developed to help MSOs expand into the business market and offer advanced carrier grade telecommunications services, while having no impact on traditional cable delivered services.

Market Impact

Noting the downfall of the U.S. CLECs, the unstable regulatory environment, the excessive problems related to DSL rollout, and the overall inertia of the telcos, MSOs have recognized that the time is ripe to both become a viable contender to the ILECs in the broadband business market, and to generate more revenue per subscriber. Most of the large cable operators have already committed to strategies like deploying new all fiber-based services, splitting nodes for greater bandwidth, and upgrading to Data Over Cable Service Interface Specification 1.1 (DOCSIS 1.1). But, the only way to deliver dedicated, symmetrical multi-megabit connections is through expensive fiber to the building deployments. This is why the solutions that have been developed by ARRIS, Narad Networks, and Advent Networks, which utilize existing infrastructure to create dedicated big bandwidth pipes, provide a viable alternative for cable MSOs that want an immediate means to serve all segments of the business market, and to compete with the ILECs for big pipe services like T1 and T3. Using these types of solutions for the deployment of business services would provide MSOs with a quick ROI, have no affect on current services, and in the long term, could also provide a framework for the delivery of bandwidth-intensive applications such as VoD or interactive gaming for the consumer.

Recommendations

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9. Matsushita Communications' Next Frontier: The European Handset Market

Japan Market Strategies, Wireless/Mobile Asia-Pacific
by George Hoffman

Event Summary

Matsushita Communications (MCI) recently announced its plans to reinforce its wireless handset production and distribution businesses in the European market. By developing mobile Internet handsets for the European user, the manufacturer aims to increase its global market share from 3% to 4%, amounting to 16.72 million of the estimated 2002 total market size of 418 million shipment units. In addition, the company is aiming to regain and increase its domestic market size to a 26% share (shipment units) by the end of fiscal year 2002.

Market Impact

This move by MCI is based on two major factors. First, the anticipated future growth in demand for packet-based mobile data services in Europe; and second, the recent introduction of NTT DoCoMo's i-mode services in selected European markets by NTT DoCoMo's partner, KPN Mobile. The i-mode service was introduced in Germany last March by KPN Mobile affiliate E-Plus. Service deployment is to be followed in the Netherlands (by KPN Mobile NL), and then in Belgium (by KPN Orange) before the end of June 2002.

MCI's announcement is more or less a reflection of a trend among leading Japanese handset vendors. As the domestic market for PDC handsets become saturated, and since demand for W-CDMA 3G handsets has yet to make significant impact, the manufacturers are exploring new opportunities in overseas markets by leveraging both their relationship with the leading Japanese wireless operator, and their experience and technology in mobile Internet handset development. Among these vendors are NEC, Sony, Fujitsu, and Mitsubishi Electric, most of which have little know-how on how to effectively market their handsets to the European user.

Recommendations

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10. Web Services Mature but Interoperability Remains Core Concern

Application Infrastructure & Software Platforms
by Robert Perry

Trend Summary

After 18 months of hype, vendors and IT are beginning to understand XML Web services and the value this loosely coupled integration capability offers. The vision of applications as a composite of varied Internet hosted Web services is now a faint, though lingering, memory as the focus has turned using Web services to ease application integration. Yet, integration requires interoperability and making Web services interoperable is becoming today's major concern.

Market Summary

The computing infrastructures of corporations are heterogeneous mixes of platforms including distributed systems running various versions of Unix, Intel boxes running NT and the ever-present mainframe. Most IT organizations, while choosing standards for future deployments, are realistic about the impossibility of reaching a homogenous infrastructure. In fact most executives see value in not becoming overly dependent on a single vendor.

Middleware has sought to bridge these systems, but for the most part has simply raised the server stack from the OS to the application or application server. J2EE, CORBA, and COM have all become viable platforms for managing and invoking application components but simply sit on top of their OS silos.

The XML-based standards behind SOAP and WSDL offer the promise that Web services will be interoperable, meaning that a SOAP request from a .NET application can invoke an EJB component on a J2EE application server exposed as a Web service. The standards and the loose coupling of Web services can enable this flexibility. Yet, SOAP and WSDL are specifications and as such are open to much interpretation during implementation and interpretations can vary among vendors creating a threat to the promise of true interoperability.

Conclusions and Recommendations

The adoption of Web services depends on their ability to interoperate. Vendors seem to understand this and Microsoft and IBM have formed the Web Services Interoperability (WS-I) group to identify and define truly interoperable implementations.

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11. Siemens and Nokia to Collaborate on Mobile Terminal Software

Wireless/Mobile Europe
by Philip Taylor

Event Summary

On Thursday May 16, two of Europe's largest wireless players, Nokia and Siemens, announced that they had agreed upon a framework for future collaboration on the development of mobile terminal software. As a first step in this relationship, Siemens has licensed Nokia Mobile Software's Series 60 platform to sit alongside the Symbian OS in forthcoming top-end Siemens devices.

Market Impact

The collaboration does not, of course, signal the end of competition between these perennial mobile phone rivals. The nature of their competitive differentiation will, however, be altered substantially. Nokia and Siemens will continue to fight for market share, but this will be done at what was described as "the implementation layer," including design, brand, and customer service. Underneath their casing, an increasing number of phones in Europe will be supported by the same platform, bringing increased user interface conformity to consumers and a broader user base for applications developers to aim toward. How broad will this user base be and in what time frame? Well, unsurprisingly, Siemens was not persuaded to disclose when we might expect to see a C60-based device in its portfolio, nor the speed with which C60 might be integrated across its product range. The Nokia 7650 will still be the first C60 device on the market when it appears toward the end of this quarter.

Conclusions

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Publications for the week of May 21, 2002

Giant Steps: Microsoft Rolling Up the SMB, Midmarket, and Enterprise Software Market
bac/smbt, Report, May 2002, by Lisa Williams and Helen Chan

Service Level Agreements in Brazil
bms/ccla, Report, May 2002, by Adriana Menezes and Fernando Cardoso

SME Asia-Pacific 2002: Anticipating a Technology Revamp
ccap, Report, May 2002, by Agatha Poon

VoIP Peering: Bridging the Gap Between Public and Private Networks
cni, Report, May 2002, by Christin Flynn and Joe Gagan

North American IP VPN Services: The 22 to Watch
ecn, Report, May 2002, by David Rohde and Zeus Kerravala

To InfiniBand and Beyond: A Market Overview
ecn, Report, May 2002, by Jamie Gruener

Wireless LANs: An Alternative to By-pass 2G-Based Networks?
wmla/bms, Report, May 2002, by Luis Minoru Shibata

Measurement vs. Analysis: Why You Should Be Tracking Customer Behavior Online, Part 1
ibs, Web Content, May 2002, by Lisa Melsted

Networked Entertainment: Operations Impact of Connectivity Technology Selection
mes, Report, May 2002, by Dominic Ainscough

SMBs and E-Commerce: Strategies for Success
smbt, Report, May 2002, by Helen Chan

Service Quality Management: An Emerging Source of Competitive Advantage
tss, Report, May 2002, by Sanjay Mewada, Rob Rich, and David Hawley

Mobilizing Field Services
wmec/crm, Report, May 2002, by Eugene Signorini, Brian Jones, and Sheryl Kingstone

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Audio Conferences

May 23, 2002

A Convergent Communications Europe Audio Conference
The European Global Network Strategies Survey

May 28, 2002

A Convergent Communications Asia-Pacific Audio Conference
Lessons for SMEs' ITC Development and Beyond in Asia-Pacific

May 29, 2002

A Networked Business Strategies Asia Pacific Audio Conference
Asia-Pacific SMEs and the Web: Small Expectations, Medium-Sized Demand

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Conferences

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