Fact 1: SMBs are showing greater interest in managed services.
Fact 2: Analysts and Vendors believe that the managed service provider market is set to boom.
Fact 3: Enterprising resellers are moving from pushing products to a service-oriented business model.

Taken apart, these facts are critical. But, together they suggest a game-changing opportunity that you could tap into.
 
The MSP Genre
Most of the common definitions describe MSPs as channel companies that offer continuous outsourcing of an IT function and work on a recurring revenue model. These functions are then monitored by the MSPs who fix things proactively through the Internet, rather than having to work hands-on at a client’s office. The managed IT services provided by system integrators and solution providers is gaining prominence in comparison to the enterprises doing it themselves as it reduces the pressure on the IT heads, apart from providing reliability and performance to IT management. In addition, enterprises can concentrate on their core business without worrying about the IT issues.

Kaustubh Dhavse, Program Manager, ICT Practice, Frost & Sullivan, South Asia & Middle East predicts tremendous growth in this segment, which primarily is being driven by large organizations who have the capability to leverage their scale and provide more cost competitive contracts. According to him, some services are seeing more than 100 percent growth and others are still evolving. P J Nath, Executive President, Sify Enterprise Solutions, which recently announced its end-to-end managed security services, informs that Managed Security Services are one of the fastest growing services in India, with a market size of about Rs 181 crore last year. The company expects robust growth in demand over the next five to six years with many more companies moving towards online processes and storage, or enhancing their current capabilities.

Srinivasan Thukkaram, Director – Services Sales, Nortel India too believes that the managed services provider space in India is witnessing a revolution of sorts. “Earlier, managed services were far and few, with the local companies focused mostly towards the overseas market. However, over the years, several MSP companies have evolved and more are coming in. These though are primarily spin-offs of established network integration companies-hived off as separate business units as revenues from this business started to grow,” says Thukkaram. He feels that this market is expected to grow in excess of 35-40 percent annually and will continue to grow at a steady clip. “With outsourcing becoming a new trend, it will take some time for the segment to hit maturity,” he adds.

Nirupam Chaudhuri, Research Manager with AMI Partners says Managed IT services constitute a good chunk of the overall IT services package, which is growing faster than average market growth. According to him, in India, the competition among vendors in desktop management and routine network management services is huge. “The number of deals in applications management engagements, which entails SLA driven reactive /proactive application maintenance, applications optimization, upgrades automation services, is growing,” says Chaudhuri.

Servicing the SMB
While the domestic IT outsourcing business looks promising, industry pundits feel that the current growth in managed services is coming from the SMB segment, which in turn is throwing up a host of newer service opportunities for the channels. According to Chaudhuri, small and medium businesses in India have spent over US $975 million in IT services in 2007 - this spending, include both product support and professional services is up by more than 17 percent from 2006. “Managed Services forms a considerable portion of this IT Services spend and managed services contracts, such as application and network management, desktop and server management and managed hosting services, are becoming mainstays for Indian SMBs now,” says Chaudhuri.

The analyst informs that in most cases, the primary point of contact for SMBs is the IT channel partner where a system integrator doubles up as the managed services vendor. “A good working relationship needs to be established first. The CIO or IT head of an SMB ideally wants to have a single point of contact while dealing with various issues related to IT infrastructure and facilities,” says Chaudhuri. He feels that the SMBs expect clear SLAs from services providers, including network uptime, adherence to SLA clauses, and fault-free integration, with existing business and IT processes and applications. Cost reduction, ROI and openness to out-tasking are becoming important driving factors for such engagements, according to Chaudhuri.

Vendor Speak
Secure Synergy’s infrastructure services portfolio is built around innovative offerings in managed services, skills transfer, process re-engineering, lifecycle services as well as products and services to deliver a predictable, secure infrastructure. Its managed security practice offers log analysis, anti virus, firewall, VA/VM, audits, managed mail protection, encrypted mail services and more. The vendor feels that outsourcing managed security services is often a good solution for transferring information security responsibility and operations although the organization still owns information security risk and business risk, contracting with an MSSP allows it to share risk management and mitigation approaches. According to Ajit Pathak, Country Manager - Sales Operations, Secure Synergy there are several drivers for MSS some of which include expertise across platforms since security is a fragmented space with several vendors and continuous monitoring, which will be difficult for individual companies to implement, more proactive alert mechanism and awareness of mitigation steps, lower cost of ownership and usage of advanced technologies. Pathak informs that vulnerability scanning, log management, content security are areas of significant growth and Secure will continue to focus on those areas with a slew of new offerings.

Meanwhile, Nortel which provides managed services even in the telepresence space and has three full-fledged 24x7 NOCs across the world positioned strategically in different regions (US, UK and India) in addition to eight Multi-media NOCs that focus on delivering Multi-media Services to the global customers feels that there are certain major influencers in this practice. According to Thukkaram, a partner’s track record and demonstrated ability to deliver, vision and focus on this line of business and understanding of customers’ business and business goals are some of the influencers affecting the practice. The tier-II MSP space according to Thukkaram 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 focus areas, business models and cost structures,” says Thukkaram.

Shubhomoy Biswas, Country Manager, SonicWall India, feels that with IT infrastructures becoming more complex and the corresponding updated expertise needed to manage them not available organizations are increasingly finding it difficult to recruit, train and retain sufficient number of qualified personnel. “Managed service providers (MSPs) given their IT infrastructure are in a position to pass on their expertise to the organization hiring their services in a cost effective way,” says Biswas. He informs that there is a potential growth opportunity for VARs, system integrators and solution providers, especially the small and medium enterprises who demand sophisticated IT solutions and networks, but who lack the expertise to support it.

SonicWALL’s MSSP program offers providers and VARs a platform for meeting the needs of their clients. Besides technology, SonicWALL also equips MSPs with sales tools and collateral, training, account management support, co-branding, and joint programs.  Talking about the business benefits of managed services, Biswas says it lowers the TCO, reduces exposure to risk through robust client security and management and improves reliability which in turn leads to increased productivity.

The Performing Stars
The managed service provider industry is on an upswing and many from the channel community have been fast to cash in on it. A Gururaj, Senior Vice President, Value Point Technologies has experienced an almost 200 percent year on year growth in the MSP space. The company saw great opportunity in verticals like IT / ITES Government Education healthcare and Hospitality and intends to add more verticals to its kitty next year.

According to Gururaj, Value Point possesses sound infrastructure including call center, call tracking mechanism, in-house repair services, qualified tech support guys. Certifications from industry leaders, 16 years of experience and well defined processes for each stream which has enabled it to grow as an MSP.

Chetan Shah, Managing Director, Xpress Computers recently launched its managed service program and found the initial response very encouraging. As a service provider, Shah is focusing on the mid-sized & enterprise customer segments across various industry verticals and has set up its NOC (Network Operating Center) with a dedicated small team. As far as the customer base is concerned Shah feels that the potential is huge and it’s just a matter of reaching and showcasing the business benefits to the customers.

Allied Digital Services too has witnessed great success in this space. Sunil Bhatt, Chief Technology Officer, Allied Digital Services informed that the company’s offerings are suitable to any mid-size organization to large enterprises leading to broad-based market penetration.

Balwinder Singh, Director of Targus Technologies has been offering managed services with a systematic approach, qualified and experienced manpower. We constantly evaluate our lineup of services & determine how we can maintain a competitive advantage to outperform new market entrants & differentiate ourselves in the minds of potential customers,” says Singh. To reap benefits as a service provider, Singh has ensured experienced manpower, dedicated account manager, efficient help desk, regular service reviews and customer interaction.

The Benefits and the Barriers
Like any other business venture for the channel, being an MSP has its own ups and downs. While the benefits vary from a wide customer base, profits and inoculation against market conditions to recurring monthly or annual revenues, predictable income flow and higher utilization rates of staff and technicians, the problems are also a plenty.  Right from gaining the trust of potential customers to fighting the larger and bigger players, there remain some persistent goliath tasks for the channel partners to overcome.

According to Gururaj, there are primary problems like people retention, cost escalation, understanding client problems and offering apt solutions. Also struggling with longer sales cycle, smaller scale contracts and less up selling opportunities are all part of the game and one needs to be clear about it, says Gururaj. Talking about the competition from tier-I players Gururaj says that it has its own advantages. “They are big in financial terms and are more process oriented. We win on big players based on our commitment, hands on experience and addressing their needs rather then pushing some processes which might not be required by the customer,” says Gururaj.

According to Dhavse, SLA Management is a key area of concern and the inability to take the customer from satisfaction to delight, which is more internal and an organizational issue depending on factors like ability to ramp up, talent crunch and recursive training. Bhatt feels that most of the IT services Companies are entering the bandwagon of Managed Services without creating the valuable differentiator which will derive significant business benefit to their potential customers. Providing differentiated services is key challenge faced by MSPs today, according to him. “MSPs need to rebuild their service delivery model which includes redefinition of Escalation Process and Matrix Driven SLAs. MSPs need to restructure their revenue models to suite MSP business. This is the only way to show business benefit to potential customers like fixed monthly fees and streamlining their budgets,” says Bhatt. According to him most large-scale enterprise and SMB decision-makers are still uncomfortable “out-tasking” part of their IT management responsibilities to an outside vendor/provider, especially one that performs the management function remotely. He however suggests that Managed Services should be sold to Business Owners in SMBs and CXOs in large enterprises instead of IT Heads. “Only key stakeholders of the organization will be able to realize the value of Managed Services. If an MSP can ensure security and confidentiality of customer information, chances of winning customers are high,” adds Bhatt.

For Chetan Shah, there is the struggle to gain broad-based market penetration, which is definitely a challenge as the market for MSP services is still immature. Singh feels that there are too many problems that persist, such as fast changing technology, lack of awareness and familiarity with the services that are available, customer satisfaction and HR challenges like finding qualified employee, ineffective service management and lack of resources to name a few.

“There are enough selling opportunities but the business case has to be developed and this is where most companies seem to struggle, says Dhavse. “It is important to go to your customer and not only show him savings, but also stress on the value additions which you may be able to offer,” he adds.

Marching Ahead
As the MSPs continue to see the sunshine days ahead, the prospective MSPs will be required to transit from break-fix model to a managed service model. According to Dhavse, the defining factor for Tier-II MSPs is going to be the ability to manage a contract and past record in terms of meeting or exceeding SLAs.  He feels that Tier-II MSPs have a slight cost advantage and one will see them concentrated at the lower end which requires supplying warm bodies and very less transaction. This, as per him, will be the first ladder and many small city organizations have grown out of this level, learnt the business better and are now moving up the value chain.

“Tier-I players have set their eyes on large deals. They have no profitability in smaller contracts and do not wish to touch them at least in this scenario when the demand is high,” says Dhavse. He also anticipates a low cost model for the SMB segment and informs that the pay per use model has already been introduced by several companies in this space. “Hosted Call Centers are now very active. A more comprehensive offering is expected which will command a large pie of the Client business and provide more value per transaction,” he adds. Also verticals like BFSI, manufacturing and healthcare will see maximum traction. “The traction is natural because regulatory compliance deadlines are shorter than the time needed to implement and incorporate such changes in the existing systems, thereby creating demand for pre-packaged outsourced solutions,” informs Dhavse.

Finally, managed service providers will need to make sure they keep their finger on the pulse of their customer’s ongoing needs. As the SMB market further matures in its IT consumption, managed services will continue to ensure hay days to the solution providers who must show better performance records and realize the potential benefits.