MSP Business Model Gets a Major Boost

Global 2000 company Freightliner taps T-Systems for three-year pact.

The relatively unproven MSP business model got a credibility boost recently with the signing of a multimillion- dollar contract between a new management service provider and Global 2000 manufacturer Freightliner LLC.

The contract, valued at between $5 million and $10 million over three years, is one of the largest MSP contracts signed to date, and the agreement was signed with a provider operating in stealth mode for the last two years called T-Systems U.S. But the Chicago-based services organization, owned in part by DaimlerChrysler AG and Deutsche Telekom AG, will throw off its cloak of anonymity by officially launching five managed services offerings it has been quietly peddling to large and midsize organizations such as Bank of America Corp. and Deutsche Lufthansa AG.

T-Systems, formed through a complex series of moves out of the services and systems integration arm of DaimlerBenz AG, created five MSP offerings—consisting of network, server, storage, desktop and application management services—to cover a range of IT infrastructure management.

Freightliner, which had worked with T-Systems under a previous services contract, signed a new contract for T-Systems network management services covering the deployment and ongoing support of a new nationwide network connecting 300 or more dealers for its Western Star and Sterling truck and bus lines.

Although T-Systems—formerly called Debis, for DaimlerBenz Interservices—had a leg up on the competition by virtue of being a sister company to Freightliner, it was more than just joint ownership that helped the company win the contract, according to Rob Hassell, CIO at Freightliner, in Portland, Ore.

"They came forward with a not-so-traditional approach," Hassell said. "They were thinking out of the box—not just reselling phone company technology."

Once it is completed, T-Systems will own the dealer network it is deploying for Freightliner. "Theyll be providing services to our dealers, providing the technology and some backup help desk functions—level two/level three from a hardware standpoint," Hassell said.

T-Systems will offer the network infrastructure to between 350 and 400 Western Star and Sterling dealers, although Freightliner said it believes about 200 will go with the upgraded network.

"They are building us a frame relay, fractional T-1 network using Cisco [Systems Inc. 3600] routers," said Doug Vakoc, director of Freightliner software. "The network will be used to connect various applications, all of which are being reprogrammed into Web style from client/server and will be used by dealers who have multiple locations [to connect those together]." Vakoc is responsible for Freightliner dealer systems. T-Systems will also provide dealers with Internet access.

The network is an extension of an upgrade that T-Systems did for the existing Freightliner dealer network. Freightliner went outside for help with the network because it wanted to control costs but still provide a high level of service to its dealers.

"We wanted to focus our internal resources where we add value and where somebody on the outside could manage the network as good or even better than we can," Vakoc said. "And we needed someone to support it in each of these locations. That would be too much for our resources."

The desire to control costs and use internal resources where they offer the greatest value was a good fit with T-Systems business model. "Our approach is to take over their infrastructure costs as they are and as we apply our managed service infrastructure; over time, we drive the cost down and begin to create savings," said Andrew Borgstrom, CEO at T-Systems.

"We start billing them for their cost from Day One—taking over their existing contracts and assets—and then apply our service model," Borgstrom said. "Customers love that approach because it provides skin in the game."

True to the MSP model, T-Systems takes on the upfront risk of creating the management and support infrastructures for the clients systems, and the client is billed for the service on a monthly basis. "It puts zero risk on the customer and puts all the burden on us," Borgstrom said. "We do a very detailed assessment and make sure that we can achieve savings through our process, people, tools and subcontractors."

"There are some clients where we think we can guarantee we can save them 40 percent on infrastructure costs," he said. "If a customer has a decent infrastructure, we think we can drive costs out materially and do so in a gain-sharing approach."

As MSPs such as T-Systems prove their mettle, they are gaining the attention of Fortune 2000 organizations.

"Were seeing a lot more investigation in [the MSP model] from Global 2000-type organizations. Were not seeing wholesale MSP initiatives, but were seeing departmental-level decisions," said Corey Ferengul, an analyst at Meta Group Inc., in Chicago.