xSP, MSP and infrastructure support
- Posted:
- 00:00 20 Mar 2002
- Topics:
- Active Server Pages (asp) | e-commerce & e-business
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Introduction
The difficulty of defining the wide variety of Application Service Providers (ASPs) has been apparent for some time now, and most users are recognising the move towards xSP - defined as any type of Service Provider. This industry is increasing on a daily basis - at Butler Group we have been talking about ASPs for some time now and there are others such as Managed Service Providers (MSPs), Storage Service Providers (SSPs), and Enterprise Service Providers (ESPs).
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In this Concept Paper, we have elected to discuss the up-and-coming xSP term. We will also be looking at one of the major elements of the xSP scene; that of infrastructure support providers, commonly referred to as MSPs. These manage all or part of the infrastructure of a business and provide associated Service Level Agreements (SLAs) to the customer organisation.
xSP
The term xSP is not used to provide a definition, but more to outline an industry area. It is more than simply a matter of stating "an xSP is"; it is a whole (and sizeable) market comprising differentiated players in terms of the services provided. It is fair to say that all of these players would charge for their services on a per usage- or seat-based model, and that a one-to-many delivery method is standard. It could be argued that there are a number of other factors that should come into the equation, such as delivery over the Web, although at Butler Group we have found this not always to be the case. Some
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The boundaries between the various xSPs can be indistinct, as frequently one cannot exist without the other. For example, ASPs utilise Hosting Service Providers (HSPs) and Internet Service Providers (ISPs) to deliver the applications. To assist the marketplace and increase the potential of gaining customers, these various providers must make it clear exactly where they fit in the xSP chain, as part of the entire delivery.
It appears that the xSP business model is going to achieve greater market acceptance than its ASP forebears. This is possibly because the market is much more defined and understands what it can deliver. Partnerships are more important than ever - players are able to deliver more flexible solutions.
Taking ASP as an example, the value chain could, at one extreme, become an intricate network of providers delivering solutions via pure-play ASPs.
In this paradigm it is possible for different organisations to be involved at every stage of the value chain. The ASP need not host the application, run the help desk, or even do the billing; other dedicated Service Providers can undertake these tasks in line with an SLA. This allows the ASP to provide the end-customer with access to a variety of applications, which are in turn provided from a range of hosting companies. A host may provide a range of applications for a variety of ASPs. Of course, it is entirely feasible that there will be more elements to this as the market evolves and customers accept, or decline, these models. This is indicative of the importance of partnerships in the xSP arena.
The original outsourcing concept of the early 1990s has added value through the location of equipment off the customer site (in most cases). By having a centrally managed service, the xSP is able to deliver the service to the customer more efficiently and cost-effectively. This is achieved by utilising a centralised pool of skilled IT personnel, expertise in a specific area and better relationships with partners and suppliers.
The customer realises the benefits of utilising third parties through being able to concentrate on its core competencies - which is not always delivering IT. Furthermore, benefit is gained through two financial avenues - the real cost savings and the improvements to the company's bottom line. The first considers the cost of purchasing/developing and maintaining an equivalent service in-house compared to sourcing outside the organisation. The second is where the net effect of having such a service is an increase to the company's bottom-line profits.
At Butler Group, we expect the xSP market to partially follow the same pattern as ASP in terms of consolidation, industry mergers and failures. However, the ASP market promised a lot more than it could initially deliver and was hyped out of all proportion. We expect many of these xSPs to have learned the lessons demonstrated by the ASP market. As such they will not promise unrealistic services and results, not only to specific customers but also to the business world at large. With common sense being brought into the equation, there is more realism for customers (but still a little of the marketing hype) to enable them to make an informed decision on using an xSP.
Of course, xSPs will not be the best choice for every business. Security is still a big concern, be it over access to data or corporate applications. Customers do not want any part of their network to be accessed by intruders, and although 80% of security breaches occur in-house, external hackers and viruses are considered to be a major threat. This is where the breakdown of xSP can be very useful to customers. Companies in the Finance, Banking, and Insurance (FBI) sector are extremely reluctant to use third parties to store their data or deliver applications (SSPs and ASPs respectively). However, these companies are becoming more confident in MSPs, who do not actually take anything away from the customer except the management of its infrastructure. Undoubtedly there will be cases for utilising the different xSPs in different vertical and horizontal sectors.
Another concern is reliability - external companies are perceived by some customers as being unlikely to place the same emphasis on service delivery as their in-house counterparts would. Butler Group believes this to be untrue; the xSP would lose business if it did not deliver, and market share and profitability are its main business drivers. Additionally, the SLA is becoming part and parcel of the contract between customer and service provider, and this SLA will include performance and availability (and consequently reliability) guarantees. If these agreements are not met, the SLA would include clauses to recompense the customer.
Customers are more interested in the SLA from the point of view of guaranteed availability, although they view punitive damages as an incentive for the xSP.
Today, xSPs will be suitable for some companies, and as the market and technology matures, more companies will find themselves able to use this model. Current examples of utilisation include individual projects in large organisations, and also businesses that have used xSPs for non-core functionality. Today, outsourcing is generally not taking place where the service is business-critical, loss of control is a major concern, or savings in excess of 5% are not achievable. It is not wise to jump into using third-party providers because of the short-term gain; long-term loss could be the outcome. As such, going through the usual business-case process is important to ensure this does not happen.
One thing that xSPs agree on is that in the vast majority of cases, it is not possible for a customer to simply make an overnight switch to using a service provider, particularly where e-business is involved. Use of business processes is vital to ensure success, and this needs to be thoroughly analysed before any transfer takes place. We expect that the current business processes would be tailored to fit the new processes (if a change is required) in advance of implementation. This is an area that many potential customers are not aware of and the xSPs must make it clear at the outset.
Overall, xSPs present a new way forward for the IT industry to support the needs of business. The economic slowdown in the US is filtering across to Europe and it is becoming increasingly necessary to focus on costs and how they can be reduced. In many cases, xSPs offer an opportunity for the Total Cost of Ownership (TCO) to be reduced, and this is something which Butler Group expects to drive the industry.
Managed Service Providers (MSPs)
Managed Service Provision is a fast-growing industry, providing system (and possibly application) management as a hosted or remotely managed service. Even MSPs can be split into further sub-categories according to the services they supply, such as e-business, enterprise, and desktop MSPs. However, for the purposes of this Concept Paper we will look at the group as a whole.
Why is infrastructure so important? Many companies have survived, and even thrived, on delivering and managing their own IT infrastructure. Butler Group regards the advances that Internet technology have given business as all-important - no longer is it simply sufficient to have a Website, an online catalogue and an e-mail contact system. The technology available allows companies (mainly large and enterprise-class to date) to use the Web to reconstruct their business processes, and a number are grasping this opportunity. The infrastructure that is in place, and the availability of that infrastructure, is vital to ensure these Web-based processes will be successful.
There are three significant levels an organisation needs to have in place to use the Web to reconstruct its business. These are:
Infrastructure - The hardware and basic software, plus location and maintenance. Examples include the Web server and database server, as well as any security deployed.
Applications - Software and services, such as content management, transaction engines and customer support.
Integration - Taking existing business processes, such as applications, sales and supply, and drawing them together via the Web.
MSPs are designed to address the various components of the Infrastructure level. Examples include the hosting of the service, the various server types involved, and any load-balancing and caching requirements. The one thing which is apparent from this is that infrastructure is becoming more of a minefield as company emphasis moves towards e-business. It is increasingly difficult for businesses to provide the necessary infrastructure and support in-house, not least because of the complexity of the requirements coupled with the lack of availability of appropriately skilled staff.
MSPs recognised this gap in the marketplace and have rapidly moved to fill it. As we said earlier, there is still some hype in the xSP market - we consider it is vital that xSPs, specifically MSPs, can deliver on the promises made. Without this delivery the market will become even more sceptical and could take a long time to turn around. As previously stated, MSPs can be defined in various sub-categories, and because of this the services offered by each one must be clearly defined and deliverable.
When MSPs are managing a company's infrastructure, this increases the availability and reliability to the business, and its customers, in a number of ways. By monitoring any potential problems, these can often be fixed proactively before any impact is felt. If a system does fail, then speedy recognition of the problem, coupled with either the MSP fixing the problem itself, or targeting the appropriate administrator to fix it, ensures the system is back up and running as soon as possible. When e-business and/or the infrastructure is vital to a company's success, then constant availability and continuous reliability become equally important.
Additionally, if such a management solution were to be implemented and deployed in-house, it would require either 24-hour surveillance by skilled IT professionals or the installation of an automated system that pages the appropriate administrator to fix any problems. The former is obviously expensive: skilled IT staff are costly and difficult to obtain. The latter is a system that could break down, thus not achieving the desired results of high availability and reliability.
Furthermore, an in-house management solution is expensive to purchase. Network monitoring tools, such as Unicenter from CA, and Tivoli, must be bought and installed, and in-house expertise is required to run them. A number of MSPs use these (and other) management tools on a one-to-many basis and consequently can deliver this as a service at a lower cost. The expertise lies with the MSP, and its skilled staff can be used to manage multiple customers, therefore lowering the cost.
Of course, not every MSP uses such network management tools; many have built their own. These use the Simple Network Management Protocol (SNMP), often require fewer overhauls of a customer's systems and can be implemented extremely quickly. The argument for using proprietary solutions is strengthened by the fact that commercially available management applications are not suitable for use over the Web. The case for this remains to be proven; many of these commercial applications are in use already, with successful results.
One configuration which we are increasingly seeing is the model where a server is located on the customer's site to capture information. As such, if the link between the MSP and its customer fails for any reason, the data is still being collected. Although this does not allow for remote management, it does ensure that any differences between the monitoring before and after the link failed can be accessed by the MSP and appropriate action taken where necessary.
Generally, if an organisation is considering outsourcing its infrastructure, going through the service and associated SLA in fine detail is vital. The SLA will contain information regarding a number of different areas, and these are generally the same across different MSPs. For example, the service level can be defined in terms of monthly and/or annual availability, with any exclusions specified. Also, any downtime is going to be tracked by the MSP, and how this occurs should be stated in the SLA. There are many other elements that go into the composition of an SLA and a number of guides are available for both customers and xSPs.
Customers should, however, be aware of exclusion clauses. For example, some MSPs will not remotely manage a system if the customer can influence that management through access to the system. Some other providers may not include certain hours of the day or week as downtime, even if the system is unavailable. The availability of a service will always be defined in the SLA.
Our research indicates that there is significant variation between the allowable down time on what seem to be small variations on performance levels. Of course, the customer will be charged more to have a 99.99% guaranteed availability level than 99.9% and, as such, it is a trade-off for the customer. For example, an organisation is guaranteed an extra 39.42 minutes per month if it chooses 99.99% availability over 99.9% availability. However, this extra performance will cost more per month.
SLAs often include access to a help desk. Again, running a help desk in-house can be expensive, and having front-line support from an MSP, although not eliminating the need for an internal help desk, will certainly reduce the staffing requirements. The methods of contact are specified in the SLA, as are the response times, resolution times and any escalation processes. At Butler Group, we consider help desks to be a valuable addition to the service offered.
By utilising an MSP the savings can be quite dramatic. One company, with its headquarters in the US and satellite offices around the world, required 24x7 availability of its network. To implement in-house would have required approximately $1.5m (£1.07m) in hardware, software and skilled personnel costs. For less than $10,000 per month this same company utilised an MSP that offered remote management and a response-and-fix service.
MSP Association - buyers guide
The MSP Association has recently launched its "buyers' guide", and this is split at the highest level between e-business and Enterprise MSP services. The association's Website describes e-business solutions as supporting "a company's transaction-intensive, Internet-based business capabilities Web servers, storage and performance management". Enterprise solutions are defined as supporting "a company's internal IT-managed infrastructure desktops, servers, networks". The association also makes a differentiation between self-service and outsourcing. Self-service is where the monitoring is performed by the MSP and the customer manages arising issues, whereas outsourcing is when the MSP also resolves the issues.
Butler Group considers that although this is useful as a starting point, the enterprise and its e-business operations are converging more than ever. In the buyers' guide, five of the eight categories (for example, network) appear on both the enterprise and e-business list. However, upon using the guide and searching on both sides for MSPs that can support servers on an outsourced model, there was only a one-third crossover; that is, approximately one-third of the MSPs that appeared on the e-business list also appeared on the Enterprise list. This further emphasises the earlier point that there are a number of ways of defining MSPs and the services they offer.
An extension of this is that MSPs are likely to partner in order to deliver the requirements of their customers. Butler Group is of the opinion that this will be vital in order for these MSPs to achieve what many of their customers will require in the near future.
It could be suggested that MSPs should expand their range of services to cover as many eventualities as possible, but we would not advocate such a move. This would reduce the specific expertise inherent in an individual MSP and only the very largest players could carry this off. The other side of the argument is that it is likely that aggregation and consolidation could be a result of customer requirements for multiple MSPs. Therefore, as customers require more varied services, niche MSPs might suffer and consequently be acquired by the larger players.
Conclusion
The xSP market is now becoming more defined and looks to be here to stay. We still believe the ASP model to be a viable business proposition, although this is likely to be only a small part of the overall xSP market. Understanding has now been built into the equation - that is, xSPs understand what they can deliver, and the potential customers are beginning to understand all aspects of using an xSP.
The benefits of the model include financial ones, and we consider that many customers will seize upon the potential for an increase in bottom-line profits. This is going to become increasingly important as the world's largest economy, the United States, suffers an economic downturn that is already rippling across to Europe. Competition is extremely strong today as many customers compete on a global basis, and any additional foothold that can be gained will be grasped swiftly.
Of course, it is not only the large and enterprise class companies that can benefit from xSPs. Many Small to Medium-size Enterprises (SMEs) could also benefit, for example by using commodity applications through an ASP, or Website hosting through an HSP. There are many opportunities for a wide variety of businesses to take advantage of this model.
However, Service Provision is not going to be suitable for every company, and some companies may elect not to take advantage at all. Companies in the FBI industry are noticeably reluctant to involve third parties in the delivery of any part of their business as a result of concerns over security and loss of control. Individual businesses need to take stock of their individual circumstances when considering committing part of their business to a Service Provider. This should not take place as a one-off consideration, but be revisited regularly as improvements are made.
MSPs are certainly one area of the xSP model that have seen significant take-up in recent months. Part of this is because of the advancement of e-business: no longer is the Web a separate trading channel, it is now being used to conduct a company's business. Therefore, any customer organisation with a reliance on e-business could consider outsourcing the infrastructure support to an MSP. At the same time, it is important to ensure that any MSP selected can either provide, or work with another MSP to provide, the necessary infrastructure management within the enterprise.
This leads us towards the final conclusion that xSP, as a whole, is a combination of providers that will have to work together to achieve the requirements of their customers. It is unlikely that one type of Service Provider will survive without using others - we have already demonstrated that ISPs are used by ASPs and are also used by many other providers. Partnerships are an important part of the IT industry, and vital for xSPs.
