MSPs: The New Hosts

Managed service providers add customization to the old ASP model.

In 2002, Black & Veatch Corp. signed on with an outside service provider to run and maintain its procurement software. But as business grew at the engineering consulting and construction firm, so did the demands of its partners and clients. They wanted access to documents that could help them with the procurement process without having to pass through B&V's firewall. They also wanted to collaborate with one another on projects via the Internet -- a big request that's not usually handled by a traditional application service provider. But it's one of the many types of added services offered by the next generation of service provider -- the MSP, or managed service provider.

MSPs have emerged over the past five years as an alternative to traditional application service providers.

Because the roles of ASPs and MSPs overlap, analysts differ in how they distinguish between the two categories, but most agree that with an MSP, the commodity-based model of the ASP has been replaced by an organic partnership.

The Icing

Traditional ASPs host standard applications with little customization on their servers for a monthly fee per user. Some might offer limited extra services. An MSP will offer customized applications and throw in business processes, as well as engineering, security, maintenance, and monitoring and reporting of network servers. In a fully outsourced network management arrangement, an MSP can manage advanced features like IP telephony, messaging, call centers and virtual private networks.

"Hosting Web sites is literally a commodity on the market today," says Michael Lamb, director of e-business and Internet service at Overland Park, Kan.-based Black & Veatch. "It's very difficult to find a company that understands our business, what our true business requirements are and really tries to help us fix things with our clients."

LoadSpring Solutions Inc. in Lawrence, Mass., was able to grant B&V's partners and vendors access to designated procurement documents, as well as host a separate Internet-based collaborative environment for project management where participants can securely share information, schedules and designs. "We can collaborate with those clients without opening the security door. That's really where they're providing the most valuable service for us," Lamb adds.

Business growth, demands for custom systems, concerns about security, budget constraints and limited workforces are among the many reasons why companies are becoming more interested in MSPs.

American Airlines Inc., for instance, chose San Francisco-based Totality Corp. to host its Web site, contact center and voice self-service systems after realizing it would need to hire teams of elite engineers to manage complex new technologies that recognize voice commands or automatically forward flight information to wireless devices. What's more, technical issues were becoming customer experience issues, and the slow advancement of online systems began affecting business relationships with customers.

"We needed the ability to manage not only our infrastructure, but also our customer-facing processes in an integrated fashion," Scott Hyden, American's managing director of interactive marketing, wrote on Totality's Web site.

Like American Airlines, many companies "needed to step back and really do some engineering of how the whole site is put together and how the servers are put together," explains Henry Howard, project director at TPI Inc., a Dallas-based outsourcing consultancy. Concern about fail-over issues and hackers added to their dilemma. MSPs sprung up offering value-added services to address those concerns.

So when does an application or proc-ess warrant the help of an MSP?

"Some things lend themselves well to the ASP model," says Adam Braunstein, an analyst at Robert Frances Group Inc., an IT business advisory firm in Westport, Conn. If a midsize company's customer relationship management application requires a tweak to the business process flow, an ASP can work.

"But if you had what you thought was super [business] process flow... more often than not that couldn't be mapped" by an ASP, he adds. "While some sophisticated ASPs exist today, they won't offer the comprehensive services that an MSP provides, generally to top-tier client sites."

"I see some incremental growth in certain types of MSP offerings," says Art Schoeller, an analyst at Boston-based Yankee Group Research Inc. "Hosted voice self-service, CRM software, call center technology, hosted workforce management -- each slice has its own dynamic in terms of how it's evolving." But even so, he says, "it's more single-digit change of market share."

Companies are becoming interested in managed virtual private networks as their needs for nationwide access and protocol management grow, Schoeller says. Security as a managed service, such as virus protection on VPNs, is also attractive "because it's a hot topic" and qualified staffers are hard to find, he adds. Hosted contact center and voice self-service systems are also gaining strength as companies find that these technologies require specialized staff.

Pay More, Get More

Yes, companies are going to pay a premium for MSP services, but the risk mitigation might be worth it.

Black & Veatch won't divulge the monthly and annual fees paid to its MSP, but Lamb says the price beats the alternative. "Looking at what it would take to train your people and buy the internal system, that's the amount of cost we were trying to avoid. They can provide it more readily and cheaply than we could do ourselves," he says.

When it comes to hosting complex customer Web sites, MSPs provide insurance and confidence in the infra-structure.

"The major airlines and electronics retailers with a major presence on the Web will tell you -- if that Web site takes a hit, particularly during a holiday season, you're losing huge amounts of money. They just can't do that," says TPI's Howard. What's more, "these are cream-of-the-crop engineers," he adds. "You're going to pay a premium."

The scalability alone that an MSP can provide is worth the price, says -David O'Connell, a senior analyst at Nucleus Research Inc. in Wellesley, Mass. Insurance companies, for instance, have hundreds of claims adjusters in the Gulf Coast area taking care of clients affected by hurricanes Katrina and Rita. Those companies' systems need the scalability to handle the rush of activity.

"You don't want to be the company that's getting written up in The Wall Street Journal because your claims adjusters are walking around Louisiana with handhelds that aren't working. They should be transmitting to the home office," O'Connell says. Worse than that, companies have to be concerned about their reputations on the ground, which can be ruined if "your agents weren't able to cut checks off these handheld systems that were supported by the back office."

How can they afford it? Some of these MSPs have cut sweet deals with clients to get their logos on major retailers' Web sites, Howard says. For others, it's simply a matter of deciding where the expense will be posted on the corporate balance sheet.

"I advise folks to look at managed services vs. equipment," says Yankee Group's Schoeller. "How much of the asset do you want on your books? How much of the staff do you want on your books? It's still on your books, but it's just another line item on your P&L."

Collett is a Computerworld contributing writer. Contact her at

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