Management Service Providers: The Evolution Continues

Management Service Provider (MSP) offerings are still infants among incarnations of the service provider business model. Though relatively immature, the MSP offerings are undergoing the same rapid change characterizing the rest of the service provider landscape. Since hitting the scene just a little more than a year ago, (just as the dot com bubble was bursting, which forced some quick strategy adjustments) things are maturing nicely.

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One of the first changes is that the term MSP does not properly represent a vendor any longer, but rather a business model. An MSP offering is a vendor providing, on a subscription basis, management technology where the vendor assumes ongoing responsibility for deployment and management of technology (as part of purchase).

The vendor often also uses that technology to manage client systems themselves, assuming ongoing responsibility for executing the management processes. It is an alternative to purchasing management technology and doing management in house and can be embraced at many levels (from entire outsourcing to remote monitoring only).

Though we have seen some vendors fail already (e.g., Isharp, ManageIT), the MSP model is here to stay; it just makes too much sense. The core elements of a successful MSP offering (people, processes and technology) have become well-known and the proper combinations of those alone no longer distinguish services from one another. In addition, the relative low entry cost to market a basic service has caused lots of vendors to enter the market (e.g., a consulting firm now adopting the MSP model). To distinguish among the offerings, users are being forced to look at maturing selection criteria when making their vendor choice.

The vast majority of vendors offering MSP services are start-ups. That means that for the next year the key criteria in selecting a vendor will be vendor stability. Large organizations are very concerned about vendor failure and for good reasons. Companies have every right to request information on a vendor's stability, their cash situation (they should be able to demonstrate that they will live through the life of the contract), and the commitment of their venture backers.

Next Comes Tech
Once vendor stability is established, most services currently distinguish themselves on what technology they support (e.g., what servers, what Web applications, what databases), what partner data centers they have relationships with, their geographic location (giving away their relative size), and what technology they use to manage. Also, all vendors profess strong management processes, which on the surface makes them indistinguishable. Request proof that the processes are strong (through a trip to the operations center, or viewing run books) and evaluate it for yourself.

While it is important that the correct technology, geography, and so on are covered, that is just the start of the investigation and enlightened customers will dig more into the vendor's customer orientation. This is expressed through customer service metrics (e.g., mean time to notification, reduced failure rates, reduction in recurring problems). While most vendors do not yet measure these items, by the end of 2002, all will have to not only measure them, but share aggregate numbers externally, and commit to them in service level agreements (SLAs).

Also, companies should seek vendors that measure customer satisfaction. While some external rating of the vendors will be available, we foresee many vendors conducting internal ratings. It is critical to evaluate how satisfaction ratings are collected and if vendor staff compensation is based on such a rating (which is required to ensure customer service is instilled within the organization's culture).

A measure of how well vendors execute on these criteria can be culled from their customer retention rate and conversations with references. Currently, most MSP services are new; therefore, they do not have long client histories. By 2003, this will be demanded as a common metric, and used as an indicator of the service levels delivered to their install base. Buyers should be wary of vendors who do not share this information.

Make Way for SLAs
SLAs are not part of most current MSP services, but will be by the end of 2002. Those that do offer SLAs are typically adding MSP services to hosting contracts, building SLA around the hosting agreement. While that practice will continue, we also foresee SLAs for pure MSP services surrounding the aforementioned customer-service metrics, with financial penalties for nonperformance.

Some vendors will use SLAs and penalties as innovation points, and we will see some commitments to system availability for systems the vendor does not host coupled with punitive financial penalties (penalties above the cost of the service). However, while both are customer centric, we do not see either as part of a sustainable business model.

This market will mature and it is critical that MSPs move past simple criteria and justify to end users how they will get results.

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