Management service providers feast on challenges

By Denise Dubie
Network World, 06/04/01

LAS VEGAS - Network World last month treated four top executives from management service providers to a free meal in exchange for some inside information on the state of their nascent market.

The upshot? The roughly year-old market - which centers around the outsourcing of network, systems and applications management - has changed a lot even since we held our first such gathering back in September 2000.

According to our guests - Yash Shah of InteQ, John Igoe of SilverBack Technologies, Michael Manos of Nuclio and Bo Lasater of Totality - the big changes revolve around the fall of the dot-coms, a renewed focus on traditional enterprise customers and the development of new service delivery models.

The night started a bit slow, with Shah and Igoe, co-panelists at an MSP session at NetWorld+Interop earlier that day, arriving first to Nero's at Caesar's Palace in Las Vegas. The two felt comfortable at center stage, joking that they welcomed the opportunity for us to write a huge story on just their respective companies.

Bo Lasater

But that dream died quickly when Manos and Lasater hurried in from a party being held across the street by the MSP Association, an organization that now boasts 104 members. With the wine ordered and bread on the table, the MSP executives dug into the challenges they currently face.

The first issue: the dot-bomb industry. Having come into being at the height of the dot-com hype, many MSPs quickly won customer accounts because the low-entry cost and subscription-payment model appealed to upstart companies.

Unfortunately, many of those start-ups couldn't pay their bills and some MSPs lost their shirts. The smart MSP refocused its sales force on the enterprise customer, Lasater said.

"We filled up on dot-coms early, and they were easy. We didn't realize it at the time, but they were the only people willing to turn over mission-critical parts of their operations to an unproven company," he said. "They had so many other risks they were taking, and they had a pocketful of money. They had to get to market fast and had real management and bandwidth issues.

"Now, we go after more enterprise accounts. It's a very different sale," Lasater said. "Now you've got to sell [return on investment]."

Lasater said having some big name customers among his 20 brick-and-mortar accounts as examples has helped his company win more business. Among the company's high-profile clients is Martha Stewart Living, for which Totality manages the Web infrastructure.

Nuclio's Manos said his company, a subsidiary of Forsythe Technology, never went the dot-com route, but agreed that the death of many dot-coms has changed the face of the MSP market.

He said customers now want to hear how an MSP will make their internal IT processes better and improve how they deal with the "traditional, ugly" network issues.

"We've changed how we sell our service," Manos said. "We don't go in there offering ease of use, ease of management. Now it's more of a focus on quality processes and procedures on the back end."

With internal IT managers spending so much of their time fixing problems as they arise, InteQ's Shah said it makes sense for MSPs to focus on processes such as change and configuration management that are often ignored.

He claimed InteQ has had a process focus all along, basing its service offerings on the Infrastructure Technology Information Library, a publicly available set of guidelines for "best practice" IT services management. "Now the MSP market is catching up with us," boasted Shah, whose company closed a $57 million second round of venture funding in May, and has about 100 customers.

SilverBack's Igoe said most customers seem interested more in functionality than pure technology, but noted that some companies are interested in buying SilverBack's management technology outright, something he said the company won't be doing. But when Nuclio's Manos pointed out his interest in SilverBack technology products, Igoe joked: "You bring me some of that cash, and I'll bring the technology." His company has collected $22.5 million in two rounds of funding.

At least one other MSP, NOCpulse, sells its technology stand-alone or with services.

But others said selling out-of-the-box technology isn't what's going to differentiate an upstart MSP.

"The 24-7 monitoring, the automation, the efficiency, the one-to-many model that the MSP offers cannot be achieved with out-of-the-box technology," Shah said.

Igoe said that despite the fact that the term MSP is "a moniker for an old idea - outsourcing," one challenge that remains for MSPs is convincing IT departments to give up control. However, the education process has progressed in the past year, he said.

"Last year, customers were kicking the tires, taking us for a test drive. Now, they come into a meeting and say 'OK, what are you going to do for me and how?'" Igoe said.

SilverBack's 30 customers get their services much like one would purchase cable TV, Igoe said. They can start with a base package, see if they like it and add on simply by making a phone call and paying a bit more per month. He claimed that the way SilverBack delivers technology will be how it's done by everyone within the next 10 years.

John Igoe

Igoe expects his major competition to come not necessarily from his dinner mates. "The AT&Ts, the WorldComs and the traditional outsourcers will get into this market and be the big players," he said.

Totality's Lasater strongly disagreed.

"No, I think there will be experts in the area, and the big boys won't be able to deliver the expertise the pure-play MSP can," said Lasater, whose company has raised $122 million in funding.

Chiming in as a voice of economical reason, Manos added that most emerging markets are narrowed by the natural laws of competition. Although there was some disagreement from the group in terms of how small the market will get, all agreed it will be survival of the fittest, meaning that the number of pure MSPs will certainly fall well below 100 in coming years.

But naturally, these diners said InteQ, SilverBack, Nuclio and Totality will still be around the next time Network World offers them a free meal.