During the past few weeks, I’ve attended various industry events, and it’s clear that vendors are becoming increasingly sophisticated – as well as ambitious – in terms of providing a complete solution to business customers. This trend has been unfolding for about two years now, and in my mind became real last year when Unified Communications (News - Alert) was the big story. Building on that, I see two other strong trends taking hold this year – SIP Trunking and the cloud.

On its own, Unified Communications offers a lot of value – both in terms of lower costs and soft benefits related to productivity. There is still a lot of room here for service providers to make a difference. However, when you factor the current trends into the picture, this window becomes smaller. SIP Trunking is a real threat to the bread and butter PRI business of incumbents, and the cloud has the potential to cut out the telco altogether. Virtually all vendors of substance who have a stake in the business communications market have a UC story now, and many have gone much further by wrapping that around SIP Trunking and/or the cloud.

Earlier this month, I attended ADTRAN’s analyst event, and in my view, they are typical of these larger trends. While not a household name, this is a profitable company with an extensive product line catering to both service providers and enterprises. They are still a hardware-centric company, so they’re not as far along the 2.0 curve as, say, Cisco or Avaya (News - Alert). Without a doubt, the most interesting aspect of the event was the launch of their entry into Unified Communications – NetVanta. We got a pre-press briefing and demo, and the news just went public this week.

ADTRAN recognizes the need to move beyond boxes and into solutions, and to do so, they made a strategic acquisition of Ottawa-based Objectworld (News - Alert). They have the means to acquire the expertise they lack, and this gives them a foundation to stay more competitive with vendors who have already shifted to applications and hosted services. Being late to this market, it’s hard to tell where their niche will lie, but the point is they need to keep pace and move up the value chain that until recently was the domain of service providers. At this point in time, there are few vendors left who are not in some way treading on this ground.

Continuing along this spectrum, I attended Cisco’s Collaboration Summit last month, and they are several steps ahead of ADTRAN. I don’t see many vendors – if any – taking things as far as Cisco, but they represent a potential scenario that leaves little room for service providers to grow beyond basic connectivity and dial tone. It could even be argued that their vision leaves little room for other vendors either, so this will not be everyone’s cup of tea. Just as some vendors are touting the CaaS mantra – communications as a service – Cisco is taking things one step further with “everything as a service”.

That’s reaching pretty far, but in Cisco’s view, once the network has put the right pieces together, virtually any type of service can be created, provisioned, delivered, hosted and billed by the network. To Cisco’s credit, they have long moved from being hardware-centric to network-centric, a term that encompasses the vast array of solutions we saw at this summit. Whether it’s voice, data or video, Cisco has a solution, and more importantly, they have an integrated platform to interwork them all – small scale or large scale.

What stood out the most for me their launch of Cisco hosted email, which is very much meant to compete with Outlook, Notes, Yahoo, Gmail, etc. A year ago it might be hard to imagine Cisco offering email, but just as ADTRAN understands the need to move beyond hardware, they recognize the primacy of email as the gateway for so many of the 2.0 applications supported by their other solutions. The demo was in fact, quite good, and as with Google (News - Alert) Wave, they have tried – and succeeded – to build the best of today’s technologies into a re-vamped version of a lifeline application that has evolved little in recent years. In short, they’ve made email a better experience, and one that is highly intuitive to anyone using today’s 2.0 communications tools.

The details are really not that important for this article. What I see as being important is how Cisco has long shifted from a passive hardware vendor to a proactive solutions provider. They know that plumbing is boring and the upside for growth and profits is limited. With all their recent forays into security, telepresence, Web-based collaboration, virtualization, etc., Cisco is building a stronger value proposition. By putting tools in the hands of end users and developers, they are not just creating competitive advantage against other vendors, but are taking great ownership of the relationship with enterprises at the expense of the carrier. Just like whoever owns the address book wins in IM, whoever owns the email environment wins at the desktop – it remains the hub of everyday communications and getting work done for many if not most end users.

Fast forward to today, and looking at the consumer world, we have Google launching their own phone. They intend to be every bit as disruptive in the smartphone space as Apple. Unlike Apple, however, they have the Android (News - Alert) open platform, and are in an even stronger position to dictate terms to carrier partners.

In all these cases, innovation and value creation is coming from the vendors, not the service providers. The worst case scenario of “fat, dumb pipes” is not as far off as you might think, and I really don’t see this trend changing any time soon. This brings us to the title of my article – how can service providers add value? There is no simple answer, but from my perspective, it’s clear that the balance of power is shifting away from them to the vendors. I’ve provided three examples of this here, but many others are worth exploring, and my point here is that this trend should be of prime concern to service providers. This topic warrants more exploration, and this article set the stage for future columns in that vein.  Until then, I welcome you to share your thoughts.