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The managed services provider space in India is witnessing a revolution of sorts. While a recent news article in a leading English daily named IBM as the biggest outsourcing vendor in the domestic market, the limelight has now also started shifting to the tier-II MSP players. This segment includes those channel partners who have, over a period of time, moved on from being simply channel partners to also offering their services (as a managed services player) to various clients.

The segment has truly evolved over the years. Earlier, managed services were bundled with network integration. However, over the years, pure MSP companies have evolved and are now mushrooming every day. These though are primarily spin-offs of established network integration companies-hived off as separate business entities as revenues from this business grew. The players predict a growth in excess of 35-40% annually and will continue to grow at a steady clip. As complete outsourcing is a new trend, it will take some time for the segment to hit maturity.

The tier-II MSP space 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 business models and cost structures.

Skeptics, however, point out that it is too early to talk about evolution as the segment has been there for only a brief period of time. Nonetheless, it is evolving fast, driven by changing user needs and market shifts.

Who is an MSP?
Standard business terminology defines a Managed Service Provider, also known as a Management Service Provider, as a company that manages information technology services for other companies via the Internet. Some of the common services provided by MSPs include remote network, desktop and security monitoring, patch management and remote data back-up, as well as technical assistance. Most MSPs provide these services on a monthly basis.

But the MSP players define themselves as "ones who typically provide end-to-end network integration and management services to their clients. It is a more evolved form of a traditional network integrator who has been assigned, or has taken upon himself, a greater responsibility. Logically, it is the next step in his learning, business ability and evolution process," says Balwinder Singh, director, Targus Technologies.

Ranjan Chopra, chairman and managing director of Team Computers has a more elaborate definition of MSPs: "Increasing reliance on IT and focus on uptime of IT assets has led to the growth of businesses which are focused on uptime assurance. The organizations that provide uptime assurance for a wide range of IT services have come to be known as managed service providers. MSPs take care of IT infrastructure, applications, and database networks, and assume overall ownership to ensure availability."

Managed service providers essentially sell managed services and offer several different price structures. The most commonly used model is a per-month fee, but MSPs can also charge a time and material model as well as price per desktop, server, or network device. They promise to monitor their client's IT infrastructure and resolve any issues that arise within it. This provides comfort of mind to the client, as well as predictable recurring revenues for the MSP. Managed services give small and medium sized businesses an option to have their IT needs taken care of instead of paying an on-site staff.

The New Image
A few years back 'channels' was something that was used by hardware vendors for box pushing. It would have been something unimaginable for a channel player to do network integration or provide managed services.

But, after a certain time, the channels started facing a completely different set of demands from their own customers who grew big in terms of IT implementation owing to organic growth over the years. This made the channel realize the opportunity and the fact that they would miss the bus if they did not turn into value added sellers. They wanted to encash the relationship that they had built with the customers all along.

Some of them got into product implementation or system integration and managed services offerings as well. On the other hand, there were pure system integrators, also clubbed in with the channel player category in the past, who realized the business opportunity in offering managed services every time they implemented a turnkey solution.

The earlier business model behind managed services was developed as the traditional computer VAR model, continually providing lower profit margins. With the passage of time, lower margins on hardware/software reselling, competition from big direct PC vendors as well as the unpredictable revenues from a reactive, break-fix method of technical support led to the need for a new model.

Teevra Bose, chief operating officer, Celerity Networks (a yet-to-be launched MSP) agrees that "the traditional business model is now no longer lucrative and since IT managed services is still a niche market, one, predictably, does well since there are lesser number of players operating." Agrees Singh of Targus Technologies: "The shrinking margins in the distribution space is a major trigger to the evolution of the channel players into managed service providers in recent times."

But while Teevra and Singh may agree with the concept of shrinking margins prompting channel players to venture into this space, a majority of tier MSPs refuse to agree with him. P Rangarajan, CEO, Vitage Technologies says, "The trend towards being a managed service solution provider is not necessitated by shrinking margins in the distribution space. Instead it is driven by the tremendous opportunity presented by managed services-both in the domestic as well as the international market. The last is a key factor since in the distribution business, getting global might not be an easy task."

NCI India, a wannabe entrant in the MSP space, has for long been specializing in the IT and telecom infrastructure building using both wireless and wired media. "I see this as a natural evolution of players like it has happened in so many other technology segments so far. To us, as our relationships evolve and our expertise grows, getting into the managed services space will automatically happen, though one cannot specify the timeframe," says Tarun Panda, founder and CEO, NCI. The same holds true for Frontier Business Systems as well, as AS Prasad, business head, Information Security Consulting, Frontier Business Systems, says, "It has been a strategic move to get a larger share of the customer spends on IT and IT Services. Also owing to our positioning in the market, it has been but obvious to offer a single window to the complete set of IT infrastructure solutions and services needed by enterprise customers."

Why MSPs?
Having outsourced their business processes successfully, enterprises are now outsourcing their network management functions as well. CIO/CTOs are now responsible for ensuring good returns on investment, and also need to manage risk. Also, outsourcing the network management services to MSPs results in huge savings in terms of bandwidth costs, manpower costs etc.

For organizations that depend heavily on business applications that run on networks, such as the airlines reservation system, online transactions on a B2C portal, fund transfers amidst banks etc, network outages can be fatal and, therefore, an effective network management needs to be in place. "There is need for real time monitoring and alerting for possible network failures," says Singh of Targus. There is increasing pressure on the network as the number of locations and users is growing by the day, and asset and configuration management have become critical.

"Most importantly, most organizations wish to circumvent issues like technical manpower retention, capacity management, etc and concentrate on their core business activity. Therefore, they are going in for managed service providers," says Singh.

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