MSP at your service

Stuti Das

The managed services provider space in India is witnessing a revolution of sorts. While a recent news article in a leading English daily named IBM as the biggest outsourcing vendor in the domestic market, the limelight has now also started shifting to the tier-II MSP players. This segment includes those channel partners who have, over a period of time, moved on from being simply channel partners to also offering their services (as a managed services player) to various clients.

The segment has truly evolved over the years. Earlier, managed services were bundled with network integration. However, over the years, pure MSP companies have evolved and are now mushrooming every day. These though are primarily spin-offs of established network integration companies-hived off as separate business entities as revenues from this business grew. The players predict a growth in excess of 35-40% annually and will continue to grow at a steady clip. As complete outsourcing is a new trend, it will take some time for the segment to hit maturity.

The tier-II MSP space is now moving from simply being contract services (also known as body shopping or facility management) to SLA-based managed services over the last few years. As the segment is still evolving, outsourcing is a very small fraction of the total IT services utilized by organizations. The segment also has multiple service providers working at different maturity levels, with various business models and cost structures.

Skeptics, however, point out that it is too early to talk about evolution as the segment has been there for only a brief period of time. Nonetheless, it is evolving fast, driven by changing user needs and market shifts.

Who is an MSP?
Standard business terminology defines a Managed Service Provider, also known as a Management Service Provider, as a company that manages information technology services for other companies via the Internet. Some of the common services provided by MSPs include remote network, desktop and security monitoring, patch management and remote data back-up, as well as technical assistance. Most MSPs provide these services on a monthly basis.

But the MSP players define themselves as "ones who typically provide end-to-end network integration and management services to their clients. It is a more evolved form of a traditional network integrator who has been assigned, or has taken upon himself, a greater responsibility. Logically, it is the next step in his learning, business ability and evolution process," says Balwinder Singh, director, Targus Technologies.

Ranjan Chopra, chairman and managing director of Team Computers has a more elaborate definition of MSPs: "Increasing reliance on IT and focus on uptime of IT assets has led to the growth of businesses which are focused on uptime assurance. The organizations that provide uptime assurance for a wide range of IT services have come to be known as managed service providers. MSPs take care of IT infrastructure, applications, and database networks, and assume overall ownership to ensure availability."

Managed service providers essentially sell managed services and offer several different price structures. The most commonly used model is a per-month fee, but MSPs can also charge a time and material model as well as price per desktop, server, or network device. They promise to monitor their client's IT infrastructure and resolve any issues that arise within it. This provides comfort of mind to the client, as well as predictable recurring revenues for the MSP. Managed services give small and medium sized businesses an option to have their IT needs taken care of instead of paying an on-site staff.

The New Image
A few years back 'channels' was something that was used by hardware vendors for box pushing. It would have been something unimaginable for a channel player to do network integration or provide managed services.

But, after a certain time, the channels started facing a completely different set of demands from their own customers who grew big in terms of IT implementation owing to organic growth over the years. This made the channel realize the opportunity and the fact that they would miss the bus if they did not turn into value added sellers. They wanted to encash the relationship that they had built with the customers all along.

Some of them got into product implementation or system integration and managed services offerings as well. On the other hand, there were pure system integrators, also clubbed in with the channel player category in the past, who realized the business opportunity in offering managed services every time they implemented a turnkey solution.

Advantages over the Big Guys
The difference between the bigger MSPs and the smaller is not in the variety and number of services they have on offer but in the volumes they are managing. A bigger MSP like IBM manages Bharti networks while the tier-II MSP manages the networks of companies smaller than that. Advantages on offer:

• Flexibility, focus and agility which will be important considering how critical the IT infrastructure is to most companies

• Customer made offerings rather than trying to force-fit broad-based service offerings to customers

• Most large players further outsource services that is their authorized service provider may be the one providing onsite support

The earlier business model behind managed services was developed as the traditional computer VAR model, continually providing lower profit margins. With the passage of time, lower margins on hardware/software reselling, competition from big direct PC vendors as well as the unpredictable revenues from a reactive, break-fix method of technical support led to the need for a new model.

Teevra Bose, chief operating officer, Celerity Networks (a yet-to-be launched MSP) agrees that "the traditional business model is now no longer lucrative and since IT managed services is still a niche market, one, predictably, does well since there are lesser number of players operating." Agrees Singh of Targus Technologies: "The shrinking margins in the distribution space is a major trigger to the evolution of the channel players into managed service providers in recent times."

But while Teevra and Singh may agree with the concept of shrinking margins prompting channel players to venture into this space, a majority of tier MSPs refuse to agree with him. P Rangarajan, CEO, Vitage Technologies says, "The trend towards being a managed service solution provider is not necessitated by shrinking margins in the distribution space. Instead it is driven by the tremendous opportunity presented by managed services-both in the domestic as well as the international market. The last is a key factor since in the distribution business, getting global might not be an easy task."

NCI India, a wannabe entrant in the MSP space, has for long been specializing in the IT and telecom infrastructure building using both wireless and wired media. "I see this as a natural evolution of players like it has happened in so many other technology segments so far. To us, as our relationships evolve and our expertise grows, getting into the managed services space will automatically happen, though one cannot specify the timeframe," says Tarun Panda, founder and CEO, NCI. The same holds true for Frontier Business Systems as well, as AS Prasad, business head, Information Security Consulting, Frontier Business Systems, says, "It has been a strategic move to get a larger share of the customer spends on IT and IT Services. Also owing to our positioning in the market, it has been but obvious to offer a single window to the complete set of IT infrastructure solutions and services needed by enterprise customers."

Why MSPs?
Having outsourced their business processes successfully, enterprises are now outsourcing their network management functions as well. CIO/CTOs are now responsible for ensuring good returns on investment, and also need to manage risk. Also, outsourcing the network management services to MSPs results in huge savings in terms of bandwidth costs, manpower costs etc.

For organizations that depend heavily on business applications that run on networks, such as the airlines reservation system, online transactions on a B2C portal, fund transfers amidst banks etc, network outages can be fatal and, therefore, an effective network management needs to be in place. "There is need for real time monitoring and alerting for possible network failures," says Singh of Targus. There is increasing pressure on the network as the number of locations and users is growing by the day, and asset and configuration management have become critical.

"Most importantly, most organizations wish to circumvent issues like technical manpower retention, capacity management, etc and concentrate on their core business activity. Therefore, they are going in for managed service providers," says Singh.

Powering Businesses

Powering Businesses
Clients are increasingly demanding a partner who can offer end-to-end services-from consulting, project management, and integration to offering managed services. Therefore, it is not simply the case of uptime SLAs anymore. The clients now want the managed service provider to do disaster management, bandwidth management, application response time management and coordination with telcos for availability of lines and security implementation as well. The entire accountability lies with the managed services provider and, therefore, unified SLAs have become more popular in the recent past.

The most widely offered services from quite a few players are onsite infrastructure managed services (also referred to as Facility Management by some) wherein the customer outsources its IT management to third party vendors with multi party skill-sets, says Bimal Raj of Allied Digital. The remote infrastructure management model is one in which remote network application management and server management is done by the vendor, albeit remotely from a centralized location, adds he. Although the latter is being offered by some, it's still not widely adopted in India as compared to onsite
services.

Generically, the offering looks the same from every vendor, but the actual delivery, and quality processes to back the delivery vary widely between service providers. Frontier Business Systems, for example, has a structured delivery process and follows ITIL-based practices in its IMS service delivery to customers. It has a robust process-based back office with a wide set of skill-sets to monitor and manage service delivery, handle escalations and minimize infrastructure downtime.

And like all new market places, the space today has mostly MSPs who offer varied flavors of the generic network and server monitoring services. "As technology infrastructure becomes more and more critical to business, the space will witness a shift to a more value-based and domain centric offering which encompasses the entire IT stack-servers, networks storage, applications and desktops," Rangarajan believes. Vitage is keen to pioneer this shift and as a step in this direction is marketing itself as a provider of Business Service Management which bridges the gap between business processes and technology by using technology based on business process demands.

Closer Look
The trend is towards more and more organizations looking at outsourcing IT to managed service providers. The extent of outsourcing varies between organizations but the market players predict a large scale outsourcing happening over the next five years. Raj of Allied Digital believes that there is huge amount of growth in the large customers consolidating their network space.

"The big outsourcing deals that have hitherto been limited to the big players will now spread to medium sized players as well with the size of deals continuing to be significant," forecasts Rangarajan. There will also be some movement towards open source based tools, adds he.

Chopra of Team Computers predicts that Remote Infrastructure Management is one of the key offerings that is quite new. While most large companies use very expensive software, Team, on the other hand, has invested in building its own platform over a period of two years for ensuring flexibility, cost effectiveness and value to the end customer.

  Most players agree that any segment that is totally commoditized will become a volume game or a size driven market-the MSP business is still not there. Service deliverables and responsiveness backed by a decent ability to react and handle problems for customers will be the prime reason behind the relatively smaller players beating the larger ones.

However, organizations now have more stringent quality parameters and are looking at SLA-based contracts and compensation. Customers are also more discerning about quality and do differentiate between service providers based on multiple performance parameters.

While the business is expanding, existing players are improving their efficiencies and the market is quite competitive and margins can get squeezed. "On the flip side is the fact that selling and marketing costs of business acquisition or customer retention are lower, especially when one is dealing with the same customer for several other IT requirements," says Prasad. Bimal Raj, however, feels that the tier-II portfolio includes plain vanilla services like facility management and AMC, which some players are trying to include in managed services.

Most of the existing players do not host applications since most customers are reluctant and have issues in hosting their applications on MSP servers. But a small number of players have started hosting simple applications that help do their jobs better. For instance, while Vitage has started messaging applications and plans to add other business application in due course, Targus uses PatchEasy which helps in patch management and mass deployment of patches across an enterprise, and a Service desk which manages service calls (request for service from end users) and helps them manage the SLAs signed. Allied Digital too does not host applications and instead provides consultancy services to clients. Team Computers, on the other hand, apart from ofering the usual IT services that range from desktop support, network support, data centre support, application support, etc, also offers a web-based service monitoring dashboard which allows key personnel of the customer to slice and dice service delivery information on a real time basis.

Service deliverables and responsiveness backed by an ability to react and handle problems for customers are the prime reason behind the relatively smaller players beating the larger ones

On the margins front, Chopra says that these are decided depending upon the deal size, duration of the contract and deliverables. However, it is safe to say that margins are between 20-25%, he adds.

Is the Market Big Enough?
One of the key developments has been the realization that larger brands may not always be the best bet for managed services. This is because the flexibility that businesses expect IT to have is not easily deliverable when larger players are involved. So CIOs have started looking at companies that follow processes as the enabler and not as a limiter.

With the market itself growing and no single player poised to address, individually or together, the entire market segment, there is a fairly large market segment open to these tier-II MSPs to tap into.

While the big players have the advantage of several years of market presence in the services segment, the tier-II players have a single point of management and accountability. They also have good technical and management skills and service delivery capabilities are at par. The in-depth information about local requirements is another advantage that these smaller players have. "The tier-II MSPs have knowledge of the local requirement in terms of local language, each vertical having its own share of problems and cost advantage," says Raj.

Singh of Targus Technologies says that one of the sure shot ways of competing with the bigger players is to offer value additions, keeping the customers satisfied by not just honoring the SLAs but also exceeding them and being more flexible. This is an industry where referral checks work and the MSP has to build its reputation over the years.

Another way of growing in the cut-throat market is by focussing on specific vertical domain segments where these small players can deliver significant value through their technology and domain competency. "We can also register growth by focusing and building on the BSM methodology and application management," says Rangarajan.

As the needs of the organizations continously change, it is always a challenge for the MSPs to ensure that their offerings are in tune with the consistently fluid technology space. This segment too has not been spared and has its own unique set of problems. One of the major being availability of skilled and trained manpower although most players are trying to mitigate the problem by introducing trainee programs, proactive recruitment and deployment of bench strength into the system integration support process.

These problems, however, pale when one considers the quantum of growth this market is seeing. The players agree that the tier-II MSP market offers tremendous opportunity. And, most importantly, with no single big player poised to address, individually or together, the entire market segment there is room for everyone.

 Source: Dataquest