MANAGEMENT SERVICE PROVIDERS: READY FOR PRIME TIME?

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1 INFORMATION MANAGEMENT: STRATEGY, SYSTEMS, AND TECHNOLOGIES MANAGEMENT SERVICE PROVIDERS: READY FOR PRIME TIME? Gopan Madathil INSIDE MSP versus ASP; Why Use an MSP?; Segmenting the MSP Market; Managed Services versus MSPs; What Are MSPs Managing?; Can Anyone Become an MSP?; What Is in Store for the Future?; A Word of Caution INTRODUCTION The MSP Association defines a management service provider (MSP) as a company that delivers information technology infrastructure management services over a network to multiple customers on a subscription basis. Before the Internet became a commodity, organizations leased private networks from major communication service providers that managed those networks for a fee. In recent years, many organizations, such as hospitals, universities, and other businesses small, medium, and large alike have outsourced the management of their corporate networks to third parties, which provide day-to-day management of these networks. MSP VERSUS ASP An application service provider (ASP) is a company that provides remotely hosted software and other computer-based services to users over the Internet or other wide area networks (WANs) on a subscription basis. An MSP tailors the ASP model to provide remotely hosted network management solutions, adding something that ASPs do not offer: the network operations staff to control the software to manage the end-user s network. An MSP is a company that provides remote information technology (IT) infrastructure man- PAYOFF IDEA Since February 2000, when the MSP Association was officially launched, the term management service provider (MSP) has grown in popularity and is more widely recognized in the xsp market space. Independent Software Vendors (ISVs) and service providers alike are jumping into the fray both calling themselves MSPs. To help organizations determine how MSPs can help them, this article examines what is in store for both MSPs and their customers, along with some trends and events that are likely to follow. Auerbach Publications 2001 CRC Press LLC

2 INFORMATION MANAGEMENT: STRATEGY, SYSTEMS, AND TECHNOLOGIES agement services over a WAN, most commonly the Internet, on a subscription basis. WHY USE AN MSP? MSPs offer a compelling value proposition to organizations whose core business activity does not include the management and maintenance of their networks. Every organization that decides to outsource the management of its IT infrastructure stands to reap the following benefits: The organization can focus on its core competency. No dedicated Network Operations Center (NOC) or IT staff is required, eliminating the overhead associated with the retention and training of network analysts and engineers. There are no infrastructure (software and hardware) costs, and the challenges of performing backups and upgrading and maintaining systems on a routine basis are eliminated. Above all, the unique value of outsourcing predictable costs is a significant benefit to anyone considering using an MSP. Start-up organizations will have a shorter path to implementation, enabling core services to be up and running rapidly. It is critical that both start-ups and other companies seriously consider network and systems management for detecting and even avoiding possible operational glitches that may result in lost revenue. In addition, customer churn, negative publicity, and a tarnished brand image can all be minimized or prevented by expert systems management. The end result without such management tools a drop in market capitalization, for example could be very costly. In the past few months, a variety of different organizations have started calling themselves MSPs, each one providing different types of services. The following segmentation will help the reader understand their value propositions. SEGMENTING THE MSP MARKET Analysts expectations of the MSP market wary widely and range from under $100 million today to several billions of dollars by the year Although a detailed breakdown of these market projections is not yet available, it is clear that there are two broad segments of MSPs that exist today: NOC-in-a-box and NOC-for-hire. An NOC-in-a-box MSP provides the management application on a lease basis to the end customer, similar to an ASP leased model. The MSP hosts the management application and handles maintenance, backups, and upgrades. However, the customer manages its own networks, systems, and applications using the tool provided by the MSP. In this model,

3 MANAGEMENT SERVICE PROVIDERS: READY FOR PRIME TIME? the MSP lowers the cost and complexity for the end customers because they do not have to purchase and implement the tools themselves. In addition, this can reduce the total number of people required to do the job. The customer no longer needs a highly paid network analyst, but only needs an operator to monitor the screens for alarms. An NOC-for-hire is a full-service MSP providing all the benefits mentioned above. It also provides the operations staff and monitors the customer s network at the MSP s own network operations center. This reduces, if not eliminates, almost all of the day-to-day operational tasks for the customer. The monthly subscription charge is higher for this type of service but it provides significantly higher value. Some MSPs offer both types of services mentioned above. The monthly subscription fee for service ranges from $20 to $2500 or more, depending on a variety of factors, including type of service, number of elements managed, 24 7 help desk support, and, in certain cases, even the type of transactions to be monitored or managed. Some MSPs, on the other hand, charge a flat fee per month for managing an entire network. MANAGED SERVICES VERSUS MSPs Application infrastructure providers (AIPs), or hosting companies as they are otherwise known, offer an outsourced managed service that should not be confused with the management service provider model. The AIP managed service provider typically provides a complete turnkey solution that includes hosting the application (e.g., Web server) inside its data center and managing the hosted server as a part of its offering. While these are also managed services, they are not managing your corporate IT network, but rather what is hosted in their environment. Examples of such companies include Exodus, LoudCloud, Telegis, Telenisus, MimEcom, FirstWorld Communications, etc. This article does not focus on such managed hosting service vendors. WHAT ARE MSPs MANAGING? A study of MSPs currently offering service indicates that they typically target one of the following types of organizations: Enterprise. Organizations including hospitals, universities, banks, brokerages, non-profit organizations that want to outsource their corporate computing (LAN/WAN) infrastructure. MSPs can manage their computers, network devices, applications, storage, and even security firewalls on a monthly subscription basis. E-business. The availability and performance of E-business Web sites are critical to organizations that conduct a major portion of their business through electronic commerce and are keenly interested in making sure that their Web sites are continuously up and running. Many

4 INFORMATION MANAGEMENT: STRATEGY, SYSTEMS, AND TECHNOLOGIES of these companies are betting their business on their Internet presence, which forces them to look seriously at managing their Web sites proactively. MSPs typically monitor sites for availability, performance (response times), load and capacity testing, monitoring business transactions, and even intrusion detection. In addition, considering that E-businesses are also enterprises, their network and computing infrastructure needs to be managed so an MSP could eventually manage the entire IT infrastructure, rather than just the Web site. CSPs. Communications (voice, data, and video) service providers are looking at outsourcing parts of their network infrastructure. Start-up, data, and voice CLECs turn to MSPs to help them get to market fast. Large CSPs may look at outsourcing network management of their dying legacy networks; for example, the replacement of circuitswitched networks by packet-switched networks. As broadband becomes a ubiquitous way of accessing the Internet, many companies are moving quickly to provide this type of transmission method. In doing so, they are looking to MSPs for help in various ways, including outsourcing their network provisioning, management, and even help desk services. ASPs. The ASP market is still in its infancy, but many start-ups are looking to MSPs to manage their computing infrastructure, allowing them to concentrate on their core business applications and delivery of those applications. Because ASPs own the end customer, they may still retain the help desk staff to provide a single point of contact for their end customer but may not be opposed to someone else managing their computing and system infrastructure. This may be particularly true of ASPs starting up, which typically do not have funding for infrastructure management software and personnel. CAN ANYONE BECOME AN MSP? To be a successful MSP, organizations need network and systems management expertise, knowledge of the tools they plan to use, and a service-oriented mentality. Considering that they have the expertise or can buy the expertise to start a managed service operation, the next decision potential MSPs need to make relates to their software and hardware infrastructure. There are several options available today. To get to market quickly, a key factor in determining market share, the recommended approach is to use a third-party network and systems management tool. It is often tempting for an organization to develop its own tools, but historically this has proven costly over the long term. Payroll, human resources, and sales order processing applications developed (internally) years ago are good examples of

5 MANAGEMENT SERVICE PROVIDERS: READY FOR PRIME TIME? EXHIBIT 1 Representative MSP Profiles NOC-in-a-Box (ASP Model) NOC-for-Hire Enterprise E-business (WebPartner) SiteRock Silverback Triactive Envive Nuclio WebPartner PatchLink Mercury Interactive isharp AIPs doing Managed Services INTEQ NextNOC FusionStorm MCI Managed Services 2 nd Wave Nuclio Manage IT Bangalore Labs Keynote PointForward SiteAngel SiteRock SiteSmith Mercury Interactive Atesto Telco Network OSS WFI CommTech what seemed like good investments then, but have turned out to be costly mistakes in judgment. Today, only a very small percentage of organizations develop such applications in-house. Many of those that have developed such applications are in the process of moving directly to third-party packaged software, or doing so indirectly through an ASP. The same holds true for management tools. It is essential to choose a tool that provides an organization with the flexibility to develop its own additions and extensions, such as developing a customer portal as an interface for end customers, in order to view the health of their infrastructure. To keep costs low and get to market fast, an AIP can supply hosting and bandwidth needs. This not only gives an organization the ability to focus on its service, but also frees it from having to maintain and manage its own data center with racks of computers and network equipment. With data center space becoming a commodity, it will prove to be a very inexpensive way to get started. Profiles of companies entering the MSP market space include (see also Exhibit 1): 1. Systems integrators (SIs). SIs that have been working with systems and network management tool vendors have accumulated a wealth of experience, not only with the application, but also in the industry.

6 INFORMATION MANAGEMENT: STRATEGY, SYSTEMS, AND TECHNOLOGIES This makes them ideally suited to become an MSP. Examples of some SIs that have done this are NextNOC, Inteq, and Envive. 2. Independent software vendors (ISVs). In the same way, many ISVs that have gained recognition with their management tools are also looking at becoming MSPs. Some recent examples include PointForward (Compuware), Keynote Systems, and Mercury Interactive. 3. Infrastructure providers. Telecommunication providers or data center AIPs that have gained experience by managing their infrastructure are now looking to manage other networks, thereby providing another source of revenue to their organizations. This is a natural extension of their line of business. Examples of MSPs that fall into this category include Nupremis and Qwest. 4. New-breed MSPs. Companies that are starting out as MSPs include the likes Triactive, and Silverback. WHAT IS IN STORE FOR THE FUTURE? As with any industry in the initial stages of customer adoption, the MSP market also has a long way to go toward acceptance and maturity. For example, quality-of-service guarantees are either nonexistent or weak. As the market matures, more MSPs will be able to offer stronger service level agreements (SLAs); but until then, reasonable expectations should be set. Some trends that are likely to occur in the next few years include: 1. More infrastructure and telco service providers may enter the MSP business. They have bandwidth, infrastructure, and the business expertise necessary to get started. 2. New CLEC, wireless, and broadband service providers may look at outsourcing the management of their networks to get to market quickly and save costs. 3. MSPs are likely to find broader acceptance in price-sensitive markets such as Asia, where the outright purchase of management tools is not easily justified. 4. The MSP market will eventually go through a phase of consolidation, with its share of mergers, bankruptcies, and acquisitions. 5. Web-based customers views of their infrastructure s health will become common, even in a full-service MSP environment, thus helping users gain confidence in the MSP model. A WORD OF CAUTION Although the MSP market provides a compelling value with many opportunities, it is still maturing. Hence, selecting an MSP with which to have a long-term relationship may prove to be a daunting task. Most MSPs are still private and in the start-up stage of their business. A closer look may reveal that most MSPs are not profitable. It is important for an MSP to

7 MANAGEMENT SERVICE PROVIDERS: READY FOR PRIME TIME? have strong partnerships to adequately host software and deliver service. Additionally, the MSP must have a strong management team to sustain growth to profitability. IT managers considering outsourcing their network and systems management to an MSP should request customer references. And, at the very least, MSPs should have network and systems management experience, which should increase their likelihood of remaining in business for the long term. Most companies tend to choose their systems and network management tools as an afterthought rather than considering them during the planning phase. This is much like trying to construct a multi-story building on an inadequate foundation. Those companies with the foresight to consider using an MSP for managing their infrastructure early in the game will save money in the long run. As Director of Product Management at Agilent Technologies OSI division, Gopan Madathil is responsible for ASP/MSP product marketing. He joined OSI in 1997 and has more than ten years of experience with data communication networks and network management systems. Madathil holds a B.S. in computer engineering with distinction and frequently speaks at conferences worldwide on a wide variety of topics related to the xsp industry. He is also an active contributor to the Best Practices Committees of the ASP Industry Consortium (ASPIC) and the MSP Association.

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