MSPs Face Hard Questions About Software

Managed service providers with software-hungry enterprises in their sites face a tough decision: partner with the big software vendors or compete against them.

Some say the future is in entering the software business and taking on the big vendors such as BMC Software, Concord Communications, Hewlett-Packard and IBM. But other MSPs are positioning themselves as partners, aiding software-on-demand schemes as application service providers did before them.

"Personally speaking, we have not heard about migration of MSPs into software business," says Todd Clayton, TriActives vice president of marketing and president of the 112-member MSP Association.

Most MSPs expertise lies in supplying a mechanism to implement a new business process, Clayton says, so most are behaving as conduits, delivering software as a service in partnership with the big vendors.

"There are some large companies that we are in discussions with - Intel would be one of them - that continue to receive requests from customers to be able to deliver what they are doing from a software perspective in an appliance model," says Robert Klotz, SilverBack Technologies co-founder and vice president of business development. "We look at this delivery mechanism that we created as a way to revolutionize the way software is created."

Although the number of MSPs evolving into software vendors is growing, the number of MSPs joining with established software vendors to compete against their former cohorts is growing faster.

But how much differentiation can an MSP offer when all it has at its core are business processes and off-the-shelf software? The truth is that if an MSP has intellectual property that is unique, it should be able to go head-to-head with the like of BMC and win, says Paul Santinelli, founder and president of NOCpulse.

Thats a risky theory, but NOCpulse is making it work. About 18 months ago, the nascent company exited the MSP business to become a software vendor, selling monitoring and reporting tools. NOCpulse recently beat out IBMs Tivoli Systems and BMCs Patrol for a lucrative contract with Sprints E-Services unit - proof that its intellectual property is worth something.

"There are a ton of managed service providers all trying to carve one little niche, so there is no business to be had," Santinelli says. "You are either everything or nothing, and to be everything, you have to have raised $200 [million] or $300 million in capital by September 2000."

Other executives who are just testing the post-MSP software waters - including Metapa CEO Scott Yara - agree that hitting the $200 million mark was necessary to gain the market share to weather the current chaos.

Metapa, which launched as an MSP aiding companies with streaming technologies, is in the process of repositioning itself as a vendor. The company plans to make a splash this month, unveiling new software and services, and explaining its new business plan.

"I think this is the reality: The MSP business model would work only for the largest MSPs, like Totality," Yara says.