> Opinion Paper

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

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 Vendor strategies in the IMS ecosystem

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.

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 Vendor strategies in the IMS ecosystem

2 A new market for vendors and systems integrators

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.

Linking easily created, innovative multimedia The IP Multimedia Subsystem

services with converged access and transport
networks, the IMS serves as the flexible
signaling core between the upper and lower The goal of the IMS is to have a
layers of NGNs. The promises for operators are converged, IP-based network
manifold. On the one hand, the IMS shall be the architecture for both voice and data
single, efficient IP-based signaling network. On services. Access independence is
the other hand, it is supposed to help network achieved by using the same underlying
operators avoid being the bit-pipes in a margin- signaling architecture for different wireline
squeezing battle for the cheapest access and wireless access modes. Services on
provision. With an IMS in place, telcos have a top of the IMS profit from the unified
platform to compete against the flurry of architecture and allow the users to
communication services delivered via the open experience seamless mobility. The IMS
Internet. shall replace the current multitude of
service-specific stovepipes which often
comprise many redundant functions.
Driven by operators embracing IMS, the
emerging market for IMS components is highly The architecture of the IMS is layered
dynamic and new players are entering the and modular. Access-, transport- and
arena. Many vendors have IMS components signaling network, and the other
and services in their portfolio, among them not subsystems such as application platforms
just traditional telecom suppliers but also IT- and user databases constitute
based companies. To set a strategic course in components with standardized interfaces.
the new surroundings, it is important for vendors
and systems integrators to assess the forming IMS vendor ecosystem. Which players are in
the arena? How do they work together? Who dominates the value network? In this Detecon
Opinion Paper we will propose possible ecosystem models, present the results of a recent
study among vendors and systems integrators in the market, and discuss the implications for
IMS vendors and systems integrators.

IMS and components

Charging
components

Application User profile

platform(s) server

QoS / policy IMS core components

Other IMS /
components (SIP-based signaling heart of IMS)
PSTN
networks
User Access network- Transport network-
Device related components related components

Figure 1: IMS and components

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 Vendor strategies in the IMS ecosystem

3 Sourcing models for a complex system

The modular, component-based architecture of the IMS enables vendors to focus on a

certain part of the system. With the components’ interfaces defined by 3GPP and other
standardization bodies, the specialization enables component evolution while maintaining
interworking functionality. In addition to a multitude of specialized vendors (among them
many young companies), the large Network Equipment Providers (NEPs) have positioned
themselves with rich IMS portfolios comprising many components in end-to-end solutions.
The overall complexity of the IMS and the well-known fact that “product decomposability
does not necessarily entail knowledge decomposability” 1 renders integration services
necessary – someone must put the pieces back together.

Sourcing models for IMS components

Telco Telco Telco

Systems Integrator NEP

component
vendors

Direct model SI model OEM model

Figure 2: Sourcing model archetypes

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

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 Vendor strategies in the IMS ecosystem

• Systems integration model: The integration work is performed by an

independent systems integrator (SI) for the operator. The SI helps the
operator choose the best-suited component vendors matching the latters’
requirements. As the single point of contact for the operator, the SI takes
responsibility for the deployment and the proper interworking of the
components. The SI’s expertise and experience with past installations
lower the telco’s risk of failure but can limit the flexibility of vendor choice.
Depending on the SI’s strategy, this model can still offer a great deal of
flexibility to the operator. Sometimes, systems integrators also have in-
house components and partner with other vendors to offer a complete
portfolio.
• OEM model: In the Original Equipment Manufacturer (OEM) model, a
vertically integrated NEP integrates its own components with those of
typically smaller vendors to form an end-to-end solution. With a proven
record and intense testing, end-to-end solutions provide maximum
reliability for a new technology like the IMS. The flexibility for the telco to
react to component innovation is very limited, as components cannot be
exchanged easily and proprietary interfaces within the NEP’s own “black
box” offering can be used to lock the customer in.

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.

The position of the systems integrator – either performed by a dedicated SI or by a NEP – is

particularly strong in the value network. Especially if information asymmetries are present
and operators do not possess significant IMS knowledge, the risk of being “satisficed“ by the
systems integrator grows 2 . If they dominate the system and fleece both operators and
vendors, the innovation potential of the whole ecosystem that originally comes from the
specialized vendors can be undermined 3 .

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)

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 Vendor strategies in the IMS ecosystem

4 A glance on the current supplier market

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.

4.1 Flexible partnering, flexible approaches

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.

We found that interaction among component An ecosystem snapshot

vendors is very frequent. All players perform
intense interoperability testing to maximize the
• Partnerships among component
compatibility of their components with other
vendors and systems integrators are
vendors’ equipment. These test sessions are
typically numerous and non-exclusive
needed and necessary, because the standards
compliance is restricted by the fact that the • All interviewed players want to stay
standards are still “lacking an awful lot of flexible in the dynamic environment
features that the carriers actually want when
implementing IMS” 4 . Due to this lack, vendors • In the opinion of the study
and integrators are forced to use semi- participants, the IMS standards are
proprietary interfaces limiting the current level of still insufficient to a great extent.
interoperability. However, most study Thus, proprietary extensions are
participants indicated their willingness to frequent. Interoperability is still a
improve upon this situation by opening up their major concern and testing is
proprietary interfaces or feeding them back into performed on a regular basis
the standardization bodies.
• The interviewed systems integrators
The participating systems integrators are committed to offer flexible
emphasized their flexible approach for the solutions to the operators
ecosystem. While they maintain strategic
partners for some components, they are open to working with other partners on customer

4
Component vendor

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 Vendor strategies in the IMS ecosystem

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.

4.2 The allure of end-to-end solutions

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

Sales channel utilization

100
% of respondents

Vendors‘ usual
sales channels

Vendors‘ IMS
sales channels

Direct SI model OEM/NEP

sourcing model
Source: Detecon Market study

Figure 3: Sales channel utilization

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 Vendor strategies in the IMS ecosystem

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”

4.3 The telcos’ know-how and their sourcing decisions

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.

Know-how and sourcing decisions

Preference Single
sourcing over
multiple
sourcing

Know-how

Outsourcing
over in-house
Non- systems
preference integration
A B C

Source: adapted from Stremersch et al 2004

Figure 4: Know-how and sourcing decisions

5
Stremersch et al 2004

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 Vendor strategies in the IMS ecosystem

• 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)

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 Vendor strategies in the IMS ecosystem

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.

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 Vendor strategies in the IMS ecosystem

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)

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 Vendor strategies in the IMS ecosystem

7 The Authors

Malte Probst has studied information systems (Wirtschaftsinformatik) at

the University of Mannheim and the University of Connecticut until spring
2008. Within Deutsche Telekom’s wholesale department he collected
experience on the design, implementation and management of convergent
services in the international telecommunication market. He wrote his
master’s thesis “The Impact of the IP Multimedia Subsystem on the Telco
Supplier Market” in close cooperation with Detecon International.

He can be reached at: malte.probst@gmail.com

Dr. Volker Rieger leads the Technology Portfolio Strategy competence

group within Detecon and also Detecon’s Center of Excellence on Global
Technology Intelligence. He has more than ten years of professional
experience in the markets of information and communication technologies.
His main areas of expertise are business and technology strategies in
these markets. His clients include network operators, ICT vendors and
users of telecommunication services. A special focus of his recent work has
been business transformation strategies in the ICT vertical.

He can be reached at: +49 228 700 1920 or volker.rieger@detecon.com

The authors wish to thank Falk Schröder and Stefan Berg for valuable comments to their
work.

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8 The Company
Detecon International GmbH

Detecon International is a leading worldwide company for integrated management and

technology consulting founded in 2002 from the merger of consulting firms DETECON and
Diebold. Based on its comprehensive expertise in information and communication
technology (ICT), Detecon provides consulting services to customers from all key industries.
The company's focus is on the development of new business models, optimization of
existing strategies and increase of corporate efficiency through strategy, organization and
process improvements. This combined with Detecon's exceptional technological expertise
enables us to provide consulting services along our customers' entire value-added chain.
The industry know-how of our consultants and the knowledge we have gained from
successful management and ICT projects in over 100 countries forms the foundation of our
services. Detecon is a subsidiary of T-Systems, the business customers brand of Deutsche
Telekom.

Integrated Management and Technology Competence

We possess an excellent capability to translate our technological expertise and

comprehensive industry and procedural knowledge into concrete strategies and solutions.
From analysis to design and implementation, we use integrated, systematic and customer-
oriented consulting approaches. These entail, among other things, the evaluation of core
competencies, modular design of services, value-oriented client management and the
development of efficient structures in order to be able to distinguish oneself on the market
with innovative products. All of this makes companies in the global era more flexible and
faster – at lower costs.

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.

Detecon International GmbH

Oberkasselerstr. 2
53227 Bonn
Telefon: +49 228 700 0
E-Mail: info@detecon.com
Internet: www.detecon.com

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