MSPs in Transition

Many managed service providers are making the leap to new markets to survive.

Its no surprise that the crisis slowly engulfing managed service providers is barely evident. MSPs lack the cachet of dot-coms and the sex appeal of massive telecom construction projects.

But the hundred or so companies that crowd the space today are expected to merge, go bankrupt or be snapped up by wealthier players interested in developing managed services expertise. They may be working to untangle data center operations from providing services, or they may branch out from a straight-out professional services model to include a colocation play. But all will transition from supporting only plain flavors of Web hosting to include more complex enterprise applications.

All this morphing may be for naught. Executives and analysts alike say that by 2003 only a handful of freestanding MSPs will remain.

There have already been casualties: Xuma flopped spectacularly, and AppGenesys, eManage, Intira and Logictier have all gone belly-up. Observers say the remaining players had to have launched by 1999 and needed about $200 million in capital to maintain a meaningful market share today. Potential buyers for the rest of the crowd include old-line systems integrators like Accenture and EDS, service providers like WorldCom and Web hosters like Exodus Communications.

This looming consolidation is the seamy underbelly of the MSP crisis. For every MSP that goes under or merges, theres a business pledging to never again trust its mission-critical processes to a startup. What will follow is a crisis of trust between corporate America and new outsourcers that will result in a flight back to the safe haven of familiar brands, established relationships and 20th century technology.

This special report will help I-managers distinguish the subtle differences in how MSPs handle the delivery and management of network-based services, applications and equipment, and how they are evolving to meet customer demands. One hint: Pick your partners as if you were getting married again.