Data Network Outsourcing Losing Ground

August, 2010

The outsourcing of data network operations, which primarily entails use of managed network services, can help organizations handle rapidly escalating demands on their networks, especially as those demands increase in variety and capacity to support everything from e-commerce, Wi-Fi, and voice-over-IP to video-on-demand.

Somewhat surprisingly, however, outsourcing of data network operations is not high on the list of IT priorities for a majority of organizations. After two prior years of notable stability, the number of companies that outsource data network operations dropped off significantly last year, according to our study on Data Network Outsourcing Trends.

As shown in Figure 1, about 28% of organizations outsourced some portion of their data network operations last year, down from about one-third of organizations the prior two years.

RB Outsourcing Fig1 - Data Network Outsourcing Losing Ground

The decline, however, is in line with other outsourcing categories, many of which experienced a falloff due to the continuing stress on IT organizations to cut costs in the slow economy.

Data network outsourcers tend to fall into two categories along market segments based on organizational size. The most basic elements of data network outsourcing are monitoring, device management, and security. Providers generally charge a monthly fee for these services. The most sophisticated data network outsourcers are generally aligned with significant wide-area-network players. Along with basic managed services, they offer sophisticated IP-oriented services such as voice-over-IP and Internet video based on multiprotocol label switching (MPLS) technology.

To help IT executives understand their options, the full study examines adoption trends in the outsourcing of data network operations. We report on the percentage of organizations outsourcing data network operations (frequency), the average amount of work outsourced (level), and the change in the amount of work being outsourced (trend). We also present the cost experience, which provides insight into the risk IT organizations take in turning to outside service providers. We also show how these trends differ by organization size and sector and examine the role that offshore outsourcing plays in this market.

This Research Byte is a brief overview of our report on this subject, Data Network Outsourcing Trends. The full report is available at no charge for Computer Economics clients, or it may be purchased by non-clients directly from our website (click for pricing).