Outsourcing to a managed service provider (MSP) seems to present all the answers small-to-medium organisations (SMORGs) are looking for when it comes to managing IT. The nature of a SMORG dictates that it focuses on its core competencies - and dealing with technology is usually not one of them. If anything, clients at the lower end of town are "over technology". Instead, their main concern is that their infrastructure is 100 per cent reliable and "on-tap" round the clock. As Kent Duston, chief executive of wholesale application service provider Cavillon Systems, puts it: "They just want a service to address their technology needs so they can get on with business."
Analysts agree that service providers - which include MSPs, ASPs (application), BSPs (business) and SSPs (storage) - are maturing and becoming more reliable. While their models are not necessarily living up to wildly optimistic market projections, industry watcher Gartner claims service provision - and especially the MSP model - is achieving groundswell among Australian businesses due to the growing user demand for the simplicity and cost-effectiveness of shared services in the SME space.
Though the access-based service models currently account for only 8 per cent of all global services spending, the spend in this area is likely to increase exponentially. Last year, IDC valued the Australian managed service provider market (excluding ISPs) at around $240 million. The research group estimates the market will grow to $654 million by 2005.
Globally, both services companies and vendors have become vehement about advancing the MSP model. Vendors such as Intel, HP and Storage Networks recently banded together to form a technology and marketing alliance for MSPs called the Global MSP Network (GMN). The alliance aims to educate the IT executive about the role of MSPs, provide them with access to MSP markets, as well as to develop models and strategies to supply world-class IT services to SMEs, SOHOs and remote sites of large businesses. The main target of the GMN is to allow members to provide IT services cheaper and more efficiently to these customer sets. This organised show of support for the MSP space signals the industry's faith in the model's market potential. However, many are suggesting the road ahead is going to be tough as MSPs go head to head with business service providers in the battle for piece of the SMORG pie.
Getting down to it
Essentially, MSPs and BSPs have the same model and function, says IDC Australia's chief analyst for services, Merv Langby. They cover what IDC calls the seven layers of xSP services, including basic networking to systems-level application and content management. In an e-business environment, for instance, MSPs and BSPs are similar in that both their services are network-based within an Internet domain.
Where MSPs and BSPs differ, Langby says, is in MSPs' commodity-like focus on technical performance, relevant of course to service-level agreements, and their lack of focus on the business aspects of IT services. But as users lean more towards the business environment and become involved with the content of business processes, MSPs will need to provide more scope, value-add and differentiation of service.
Interestingly, both ASPs and technology service providers (TSPs) fit into the MSP/BSP market in terms of the "application layer" they provide in information systems (IS) management. Typically, they might develop a comprehensive billing system or application for customer churn analysis for the telecommunications or banking industries, or a large-scale asset management system for a government department. According to Langby, "There is no reason why these kinds of applications can't be delivered over a network.
"These applications require customisation, and as these products are sold to large organisations that have a competitive need for them, the MSP can therefore technically enable the client to run them."
So while it may appear that the management consultant and ASP spaces are merging, IDC believes this is not the case. However, partnering between managed service providers is likely to become the dominant trend as MSPs realise that joining forces with their services providing "brethren" is key to survival. "There are very few pure players that can cover all of the technology requirements needed from an MSP, so partnering is becoming more important, regardless of who holds the contract," Langby says.
Neil Richardson, business development manager with Dimension Data Central, an outsourced managed hosting and technical services company for SMEs and the majority-owned subsidiary of integrator Dimension Data, agrees. "Partnering will be key to local service providers' success because there is a limited number of partners available in the market," he says, "so providers should focus on their core competencies to capitalise on this reality."
Who wants an MSP
Industry pundits say there is no specific customer set for the MSP market. Whether the provider is a BSP, ASP or TSP, the nature of the application determines who your customers will be.
"Generally, MSPs apply to all kinds of markets. The key is the type of application you provide. For low-end messaging, uncomplicated generic apps like finance and HR, and less-complex versions of supply chain, e-commerce or CRM, which all address mainstream business issues, your customers are both low and high end."
However, Richardson believes there is a certain style of vertical in which MSPs are essential.
A typical client for Dimension Data Central is one with a high ratio of employee-to-systems access. For instance, services-oriented companies focused on time-based billing have found MSP services mission-critical for their productivity. "These customers don't see IT as being a revenue-generating element of business. IT is just seen as a utility," says Richardson.
Another common type of customer for the company businesses with a large remote workforce whose employees need centralised, reliable access to their schedules and critical information systems around the clock.
However, analysts like Langby are reticent about commenting on the MSP industry's success, claiming it is too early to assess their performance to date or their market potential. "There is no critical mass yet - only in the networking domain - and little sign of what proportion of users across each of the service provider levels have connectivity," he explains.
While he believes the logic of the managed service provider is sound, in order for the industry to capture more local and regional business, he says providers must focus on differentiation of service.
"It's the intangible services that address higher levels of business processes and applications that determine the MSP's success or failure. Human skills, intellectual capital base and performance measurement capabilities built into service-level agreements are the keys to success."
Richardson believes MSPs have strong potential here and will grow "substantially" in the SME space because more and more organisations need access to information in real-time, 24/7.
Where MSPs have failed so far is in their efforts to educate the SME market about the benefits of using managed or hosted IT services, he claims.
Langby agrees, arguing that large enterprises are the only ones that understand MSPs and can also afford to take more risks with their budgets. "The small end of town is still relatively confused about MSPs, mainly because the development of MSP business strategies is still in its infancy."
What skills do MSPs need to have
Richardson rates people skills as the most important quality of an MSP. "The industry is a people industry, and, yes, it's also about technology, but the communication and relationship between organisations and the ability to build trust and stability is more important. At the end of the day, SMEs aren't really interested in the technology so much as finding a reliable, trusted service provider."
He adds: "It should be a given that MSPs have well-trained, passionate people who are accountable for what they do. Also, consultants should know about their customer's industry and business to ensure they understand the client's specific needs. And MSPs need a strong relationship with a premium telco that will ensure reliable connection over the wire."
Langby views the MSP market as a highly competitive moving target that demands providers constantly build their business and technical skills to suit customers' changing needs. "MSPs are in a leap-frogging game. What they need is industry-specific skills and service-delivery skills, but beyond that, they need comprehensive tools like systems-based tools, middleware, analytics and specific application skills," he says.
But it is too early for any cracks to have appeared on the MSP industry's marketing front, and the key to its visibility rests on how well it can articulate the value proposition of its service to the market.
MSP (management service provider)
Also known as managed service providers, they deliver network, application, system and e-management services across a network to multiple enterprises using a pay-as-you-go model. A "pure play" MSP focuses on management services as its core offering. The MSP market also includes offerings from other providers like ASPs, Web hosting companies and network service providers that supplement their traditional offerings with management services.
ASP (application service provider)
An enterprise that delivers application functionality and associated services across a network to multiple customers using rental or usage-based transaction-pricing model. Gartner defines the ASP market as the delivery of standardised application software via a network, not exclusively through the Internet, but through an outsourcing contract predicated on usage-based transaction pricing. The ASP market is comprised of a mix of service providers (Web hosting and IT outsourcing), independent software vendors and network/telecomms providers.
BSP (business service provider)
A domain of enterprise application outsourcing best suited for confined processes with few, well-defined interfaces to other business processes of the enterprise. BSP is the extension of the ASP model into business process management. A BSP manages and operates standardised business processes on behalf of its customers, delivering its service across a network to multiple customers using a pay-as-you-go model.