MSPs Make Big Deals

 
 
By Paula Musich  |  Posted 2002-07-01 Print this article Print
 
 
 
 
 
 
 

As customers' needs change, small companies license software, team with larger vendors.

As MSPs mature, conflicting customer requirements make the pure-play management service provider model more difficult to sustain. Responding to customer demands, a small but growing number of MSPs are looking to benefit from the intellectual property they developed to manage customers IT infrastructures by selling that technology as packaged management software.

At the same time, a study released last week by Meta Group Inc. reveals that end-user perceptions of and customer requirements for MSPs tend to favor larger selective outsourcing providers such as IBM Global Services and Electronic Data Systems Corp.

The combination of shifting models and changing customer desires is pushing many smaller MSPs to partner with well-known brands in the services arena, according to industry insiders.

"Small companies can be selective in the areas of infrastructure they want to service, but they have to set up the right partnership for the critical mass and customer relationships," said Ray Kindiak, chairman of the MSP Associations research committee and an executive with MSP Nuvo Network Management Inc., in Ottawa. "Small companies dont have the money, but they have the expertise in the processes."

Meta Groups study, "Managed Services: Optimizing Core Competencies," also suggests that partnering is the way to go.

For example, the study found that 95 percent of respondents want an SLA (service-level agreement), while 74 percent want these SLAs to be customized to their requirements. At the same time, when asked how they wanted to interact with an MSP, only 15 percent chose an MSPs portal—suggesting that they want "that high touch," said Meta Group analyst Corey Ferengul, the studys author, in Chicago.

"A high degree of human touch with custom SLA screams lack of standardization across customers, and that conflicts with the smaller vendors," Ferengul said. "If you are a stand-alone [MSP], you will only survive if you can partner with a larger vendor that can absorb the channel costs."

Several pure-play MSPs have made such a move. SiteRock Inc. has partnered with IBM Global Services, which is using SiteRocks services as a part of its new Anywhere Services MSP offering. And InteQ Corp. partnered with Compaq Computer Corp.s Global Services (now Hewlett-Packard Co.s HP Services) to deliver remote monitoring services on a subscription basis.

In a different twist on the partnership theme, Loudcloud Inc. last month announced plans to sell its managed services business to EDS while Loudcloud pursues selling versions of its Opsware IT automation platform. EDS will help with that effort in extending the reach of the Opsware platform to manage systems, servers and network devices it does not yet support, said Loudcloud officials, in Sunnyvale, Calif.

Ironically, Meta Groups study found that while IT professionals are beginning to recognize the value of MSPs, many still equate them with traditional outsourcers such as EDS.

"Last year, recognition was under 20 percent; this year, it was over 70 percent, but people still believe its too costly, and thats a barrier to their engaging MSPs," said Ferengul. "We believe thats tied to traditional outsourcing, which is expensive."

In selling its managed services business to EDS for $63.5 million, Loudcloud concluded that its success was dependent on achieving economies of scale that EDS could reach faster and more effectively.

EDS said it intends to initially deploy the software across 50,000 servers in 14 corporate data centers. It will cross multiple service offerings, according to Jeff Kelly, president of EDS Global Hosting Services, in Plano, Texas.

At the same time, Loudcloud found demand for licensing its Opsware IT automation technologies and chose to license Opsware software directly to end users.

"Opsware is a platform that lets us incorporate domain knowledge or knowledge packs for a variety of different technologies using the same core framework," said Ben Horowitz, president and CEO of Loudcloud, which will change its name to Opsware Inc. when the deal is finalized in September. "Weve adapted it to 100 different technologies to date."

Loudcloud is not alone among MSPs in making such a move. Rival NOCpulse Inc. just announced its plans to license its software and continue offering managed services. They join others such as Euclid Corp., which is moving from providing Internet operations services to licensing its Trinity Service Manager software. MSP Silverback Technologies Inc. earlier this year announced a similar product strategy. Former MSP 2ndWave Inc., now TorchQuest Inc., is rumored to be preparing a software offering.

One NOCpulse customer found the licensing option, due later this month, a compelling choice. "Then I can manage the service the way I want," said Philippe Depallens, director of operations for video services at Logitech Inc., in San Mateo, Calif. "It also gives us more flexibility to customize their application and make our system better."

But MSPs such as NOCpulse will have a "big uphill battle" in their quest to sell licensed management software in the crowded and highly fragmented management software market, said Meta Groups Ferengul. "They are yet another point vendor in a long list of point vendors trying to manage applications. The challenge I see in services companies trying to become software companies is in marketing," he said.

 
 
 
 
 
 
 
 
 
 
 

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