Read and React

"If a vertical focus relates to the application level, for example providing management to the healthcare industry for HIPAA compliant systems, vertical plays are possible."     —Corey Ferengul, META Group Give us your feedback on MSPs and vertical markets in the ASPnews Discussion Forum

"The MSP market is as varied as the businesses that use them," said Nick Tzoumis, vice president Business Innovation at DMR Consulting, a provider of systems integration and e-commerce services and wholly owned subsidiary of Fujutsu Inc.

However, one thing that the industry does agree on is that the MSP market evolved from a demand for a more integrated set of management solutions from service providers. This demand had meant that over the last two years other industry players with roots as ISPs, value added resellers (VARs) and ASPs migrated to an MSP model.

What Exactly Is an MSP?
The first step to take in any discussion of the MSP industry is to define the term. The Global MSP Network (GMN), a worldwide association that focuses on the advancement of the outsourced MSP channel, offers this definition:

"An outsourced service provider offering end-to end IT services, which at a minimum must provide help desk services in addition to outsourced and on-site service."

A recent GMN survey set out to identify key MSP trends. Results indicate that most MSPs were formerly systems integrators or VARs (see Trends in Marketing Managed Services). Less than a third of the MSPs surveyed actually started their current businesses with an MSP focus in mind.

Lessons Learned
The early providers of subscription-based management services — like the pioneers in the application services industry — stumbled a bit out of the starting gate. And like ASPs, MSPs are learning from their mistakes.

"There were too many vendors too early in the market so supply outstripped demand," Corey Ferengul, senior program director of Service Management Strategies at META Group, told ASPnews.

"The two largest mistakes made by first-generation MSPs have been in the client selection process and implementing the 'field of dreams' theory," said Warren Utt, vice president of business development InterOPS, a Medford, Mass.-based provider of Internet operations management services.

"Those who chose dot-com customers grew quickly, but lost that momentum as the bubble burst and those who applied the theory 'if you build it, they will come,' have also suffered and face the same fate as hosting and co-location providers," Utt said.

In addition, sales and marketing strategies have also proved challenging for many MSPs.

Broadly Speaking, Horizontal Not Working
The GMN survey found that most MSPs are horizontally focused and that broadly focused marketing for brand awareness has not been effective for MSPs.

"It's difficult and expensive to create broad brand recognition in an evolving market, I suspect this is why horizontally focused marketing is not working," said Dan Atkinson, executive vice president for DirectPointe, a Provo, Utah-based subscription computing service for small- and mid-sized businesses and co-chair of the GMN survey.

META Group's Ferengul agrees: "Part of the problem was 'shotgun' large company marketing; they were trying to build fast brand and time is necessary for firms that are less than two-years-old."

"Many MSPs spent a lot of money on brand-awareness campaigns rather than building out a sustainable infrastructure. InteQ used its initial funding to build an infrastructure to support its management services," said Abe Sahla, vice president of Managed Services at InteQ, a Bedford, Mass.-based provider of application and IT infrastructure management services.

Stand Up and Be Vertical
So, if a horizontal approach to marketing has weakened some MSPs, can others succeed by differentiating themselves vertically, a focus that has so far worked well for ASPs?

Several MSPs have already transitioned organically into vertical markets. DMR Consulting, for example, provides its management services for the financial services and telecommunications sectors. "We are continuing to grow our vertical business," Tzoumis told ASPnews.

For InterOPS, serving the financial services market has been its vertical focus from the outset. The company has been built on services that, Utt said, were developed in-house at Fidelity Investments by the firm's founder.

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"Our value proposition is to provide continuous performance improvements for banks and insurance companies. InterOPS is taking a vertical direction to grow the business," Utt told ASPnews. "It make sense to specialize in industries you know."

DMR Consulting's Tzoumis said he believes that a vertical focus can work for MSPs as it has done for ASPs, as long as it works hand in hand with key industry business issues. "For example, document management in healthcare or 'straight-through processing' in the financial services area. This value-add is important to customers in complex verticals."

Ferengul argues that while management tools are not vertical in nature, verticalization can be developed through applications. "When an MSP is just doing server or network management, there is no technical ability to differentiate vertically, be it a healthcare firm or financial institution."

"But if a vertical focus relates to the application level, for example providing management to the healthcare industry for HIPAA [Health Insurance Portability and Accountability Act] compliant systems, vertical plays are possible and I have not yet seen vendors going after this in healthcare management," Ferengul told ASPnews.

Vertical Not on Every Horizon
InteQ is not taking an singular vertical direction to grow its business, according to Sahla. "We have not seen any MSPs successfully pursue a vertical market approach, but there has been a greater interest for our services in the manufacturing, financial services and retail space," he told ASPnews.

DirectPointe's Atkinson argues that a vertical focus will be most effective from a sales, marketing and support perspective. "A common value proposition will allow better focus in marketing campaigns. Commonality and standards in vertical markets will drive more efficient support processes," he said.

InterOps' Utt maintains that a vertical focus is the best way to meet customer demands. Clients today are expecting MSPs to provide expertise for their specific vertical industry. "Customers are looking to us to help manage increasingly complex and changing environments."