By John Humphreys, VP of sales and marketing, Egenera
By some estimates, there are 30,000 managed services providers (MSPs) worldwide. Many have built their businesses providing remote support for the computing infrastructure of small and medium enterprises (SMEs). Others do IT consulting and one-off IT projects.
In all cases, the cloud is forcing them to reexamine their business models and rethink how they deliver IT services. This is happening because their SME customers are turning to the cloud for both applications and infrastructure, threatening the MSP business model. A recent Gartner analysis estimated that global spending on public cloud services will almost double in size from 2012 to 2016, reaching $210B in 2016 — with Infrastructure-as-a-Service (IaaS) projected to grow the fastest at more than 40 percent CAGR.
Many MSPs are looking for new sources of revenue, especially recurring revenue, to offset the decline in product-based transactions and project-based fees. Others are turning to cloud solutions, adding it to their own catalog of services.
Below are five key criteria to consider before choosing and implementing cloud solutions into your service offerings:
Over the past few years Amazon has cut prices of their cloud instances about 25 times. With Amazon’s economies of scale, it is nearly impossible for an MSP to compete on price, and trying to do so makes it a race to the bottom. This is not a sustainable business model for MSPs.
Instead, to compete in today’s cloud world, MSPs needs to differentiate their services. Providing value-added services or specialized cloud offerings could make the difference. As the cloud services market has matured it has evolved from a one-size-fits-all to specialty clouds like Disaster Recovery-as-a-Service, Desktop-as-a-Service, Backup-as-a-Service, and more. Consider offering such specialized services to your customers, or focusing on particular vertical markets or customer segments that match your expertise and experience. Moving up the food chain to application services also means you can charge more and drive more revenue.
Most cloud offerings also provide only virtual instances, which may limit their ability to host databases, performance-intensive applications and applications that are not easily virtualized. Providing cloud services that can support physical and virtual resources can differentiate your service. Similarly, giving customers the ability to include both private and public cloud resources in their resource pool can expand their use of your services.
In 2013 TechTarget surveyed more than 1,000 IT professionals about their priorities. In terms of cloud services, responses indicated that while only 25 percent of companies were considering securing cloud services from pure-play cloud providers, 55 percent preferred working with an MSP. Why is this, and what is the important message to MSPs?
MSPs know their customers. They have met with them. Their customers TRUST them. What's more, an MSP usually has advantages that a pure play cloud provider doesn’t. You can create customized services that perfectly dovetail with your customer’s requirements — and don’t include things your customers don’t want. You can deliver in-person services to help a customer migrate a set of applications to the cloud or integrate with other services like disaster recovery or backup. You can help educate your customers on the benefits — and potential drawbacks — of moving particular applications to the cloud.
What this means is that often MSPs will get the first shot at a customer’s cloud business. This is a great advantage as long as you have the products and services your customers want at a reasonable price. This doesn’t mean your services will be cheaper than a generic instance from Amazon. Focus on the value you can provide to customers who already trust you. If you are reselling infrastructure from a larger service provider, it is incumbent on you to make sure it provides the high level of security, availability and flexibility your customers demand. You have worked hard to secure your customers trust, so be sure to keep it as you move to the cloud.
MSPs typically fall into one of two categories in terms of their “internal business DNA.” When you really boil it down, the first group is software developers. The vast majority, however, are operation service providers, with expertise in monitoring, supporting, and troubleshooting infrastructure.
Depending on what services an MSP already offers, adding cloud services to the mix may require expertise and resources they don’t have, especially in terms of building a cloud offering and integrating it with business systems. In order for a cloud offering to be successful from a profitability standpoint, it must have a high degree of automation and process efficiency. It must enable their customers to self-provision services and automatically track usage and bill, and it must be a very repeatable process.
For MSPs who now provide services that require a high degree of engineering, automated cloud services can also drive down labor costs and enhance profitability.
If you find that you don’t have the right hardware or employee resources to match up with what’s needed, there is an emerging model that might fit the bill. Some of the larger datacenter operators are looking to partner with MSPs who can leverage their strong customer relationships to promote cloud services. Finding the right partner with complementary skills is a great way to put your foot in the water with cloud services.
Often the MSPs whose DNA is skewed toward software development want to build their own cloud platforms, while those whose expertise is managing operations are better off using a turn key solution. In my experience, operations-focused MSPs can quickly get mired in the complexity involved with software development projects when using build-it-yourself cloud tools like Openstack. While ease of use improvements are coming, right now it may be more of a science project — and MSPs risk burning through dollars and ending up right back where they started.
Achieving the necessary level of automation requires a comprehensive cloud provisioning and management platform. It should include a lot more functionality than just letting users self-provision IT infrastructure. Here is a checklist to consider:
Hybrid. Are physical, virtual, and public cloud infrastructure all available from a service catalog?
Beyond infrastructure. Ideally these resources can also include other key resources such as applications and even third party services like back up.
User self-provisioning functionality. Modern visualization techniques make it easy for users to self-provision their required resources.
Ability to provision physical, virtual, and public cloud resource. Also consider whether it can provision full application stacks.
Real-time pricing. This can be helpful when it’s displayed to users as they build environments
Automated quoting and contracting. Does it provide flexible usage-based billing options?
Billing approval workflows. This built-in feature accommodates users’ corporate approval processes.
Central management interface.
Comprehensive monitoring and alerting engine. With views for individual customers and for your staff.
A trouble ticketing system.
Additional capabilities to look for that are helpful to resellers and other channel partners include support, like multi-tier pricing/billing/margin analysis, white labeling capabilities, and a multi-tier approach to the service catalog.
If you decide that cloud services are attractive add-ons to your business, start small. Before you spend a million dollars or more on high-priced cloud provisioning solutions, do your homework. Build a checklist of the most important capabilities your business needs.
You might look for a packaged “cloud in a box” solution that includes hardware, software, and professional services that can get you to market quickly. Or, as noted above, find a good partner who provides the hardware infrastructure and colo space.
Putting together a cloud service, and targeting a subset of your customer base while you gain valuable experience, will help you get it right. It’s time to get started, and by spending time researching cloud management software solutions you will find that there are a lot of options, and they don’t need to be high priced. Find solutions that let you scale as your business grows.