The emergence of the Cloud Managed Service Provider (MSP)

The cloud is a melting pot of service providers, all striving to advance technology, service models and it has to be said “hype” marketing techniques. As the dust is settling there is a small percentage of these companies that have invested in the right areas and are creating the wake for others to follow. Over the past two years there has also been a huge surge in “me too” companies, propelled by marketing departments scurrying to rebrand their existing offerings and the rise of the term “private cloud” which I struggle to accept as a concept!

The big success has been in 2 key areas which are represented by the 2 poster children of Cloud computing; Salesforce and Amazon. These 2 companies have a very different proposition which broadly falls into: SaaS (Salesforce) & PaaS/Iaas (Amazon).

What is a Cloud MSP?

The “Cloud MSP” is a relatively new genre which fits squarely in between SaaS and PaaS providers, That being said, I strongly believe this will be one of the most lucrative areas and ultimately one which will represent the greatest potential growth.

Cloud MSP vs PaaS : A Cloud MSP offers the financial flexibility and the agile infrastructure of a company such as Amazon, but provides a managed service overlay to take away the management headache.

Cloud MSP vs SaaS: A Cloud MSP offers all the user and commercial benefits of SaaS via publishing mainstream applications, but will offer multiple business solutions and a tailored environment to provide a better corporate fit and integration, with greater visibility and control.



A Cloud MSP has the following characteristics:

• They have built their own multi-tenant cloud infrastructure and own the assets of the component parts across multiple datacentres (rather than piggybacking on EC2, Opsource etc).

• They offer a typical “elastic” pay as you go charging model, which allows customers to expand and contract their resources, only paying for what they use.

• They have a very strong managed service proposition allowing them to offer a SaaS experience to users for mainstream software vendors.(Oracle, Microsoft etc..)

• Self service functionality is designed to be user facing allowing service and change request automation.

• Security is paramount with customers being segregated into Virtual Private Clouds and the adoption of a more closed cloud architecture.

• The Cloud MSP has full visibility over all the servers running in the infrastructure and delegates privileges to customers.

• They have a broad, high level technical skills set from the network to application layer allowing them to own and manage the full stack.

• They have strong integration skills to offer a clear one stop application delivery model.

• Dashboard and Service information provides customers with clear SLA and technical information to retain control.


Issues for SaaS providers:

“Gartner defines SaaS as software that is owned, delivered and managed remotely by one or more providers. The provider delivers an application based on a single set of common code and data definitions, which are consumed in a one-to-many model by all contracted customers anytime on a pay-for-use basis, or as a subscription based on use metrics.”

The reason that salesforce.com has been so successful is that the CRM functionality goes toe to toe with mainstream CRM providers, making it an easier decision for companies to sell the application back into their organisation. Problem number 1 is that not all SaaS providers are equal and I see numerous complaints and definite inequality in the market. So if the application isn’t superior to what a company already has, then there has to be a compromise and/or financial saving to make it appealing. Until the mainstream software players get their software into architecture that is truly SaaS, then companies won’t have to compromise on the quality of their application.

The greatest problem for an IT department is when they want to outsource multiple applications to the cloud, as they have to deal with multiple SaaS providers, all of which have differing platforms, databases, interfaces, connectivity methods etc... This poses a big problem to widescale adoption as companies have little consistency across applications, equally, there is little or no interoperability between SaaS apps, there are multiple authentication issues, increasing loss over control/visibility. Furthermore, a key issue is that you continually have several “asses” to kick... That’s if you can find the right ass!.

Issues for PaaS/IaaS providers:

Companies such as Amazon and Opsource have a different set of issues and have been very attractive to a set of early adopters, who are keen to explore the benefits of the cloud. Typically, customers are technically “savvy” and have been using the platforms to undertake tactical projects. Mainstream adoption of cloud technology may mean that growth of this more disposable “hands off” approach struggles to live up to expectations. Customers are and inevitably will continue to demand greater services, and if an organization has made the decision to outsource elements of their infrastructure to the cloud, surely there are greater financial benefits to outsourcing the whole stack and management?

This has been recognized and providers are courting MSP’s and ISV’s to build out on their infrastructure to complete the full picture. There is a great article here http://chaotic-flow.com/saas-channels-cloud-channels-will-follow-the-moneythe-emerging-paas-channel-opportunity/ by Joel York, which highlights the fact that most PaaS providers need this missing service link, hence it being the biggest opportunity for the “channel”. The problem with this model is that the company providing the wrap around service has minimal control over the underlying network and infrastructure, being at the whim of the PaaS provider.

Another problem for PaaS providers is that their business model is based on volume and needs to attract a high frequency of customers, many of whom will consume resource on a disposable model. The result of this usage has a knock on to the architecture requirement and PaaS providers by their nature need to adopt a more open architecture. They have limited visibility as to what purpose the customer is renting the infrastructure for, leaving it more open to compromise. This disposable/utility view of IT is a big jump for mainstream companies to make. This in mind, there is a direct need for a more personal and refined approach to this, which builds trust if critical applications/data are to move into the cloud.


Why is the Cloud MSP growing so rapidly?

Cloud MSPs typically already have a mature and large customer base of clients for whom they remotely manage or host corporate systems. They are in a trusted position and it’s this position that allows them to leverage the benefits of a cloud delivery model more effectively and lucratively. The Cloud MSP has a very attractive formula which offers customers all the commercial benefits of the Cloud, but minimises risk by providing the wrap around management and SLA’s. The customer gets “The Cloud” in a controlled, well managed and secure fashion which requires a zero leap of faith. The added integration and personalized delivery makes it a very attractive proposition.

It has to be said; part of the “push” from MSP’s is also defensive. MSP’s are seeing hosting companies now coming down into their space. I have met with many mainstream hosting companies recently and they are all saying that the margin from hosting and comms has been eroded, so they now need to diversify into managed service. This represents a major threat because if hosting organisations “skill up” with large teams of application and database expertise and can match MSPs in service delivery, then naturally, customers are more likely to consider the hosting companies where their kit is located. MSPs are fighting back by building new green field infrastructures built on more inventive and agile cloud technology, in a bid to offer a more flexible environment. It is a great deal easier to build an infrastructure, than it is for a hosting company to build a comprehensive portfolio of Managed Services with the skills, processes and accreditations which under pin this, (and make it a success) which is a big barrier to hosting companies. However, in the short term, I’m sure the gap will start to close as hosting companies enter into strategic partnerships to bridge this void.

The main barrier to entry for MSP’s trying to diversify to become a Cloud MSP is the huge set up costs of the Cloud environment, plus the diverse skills needed to manage the resultant infrastructure. I know from experience when we built our environment at my company “Quantix” www.quantix-uk.com , the set up costs were close to £700k ($1.1m) and it took a significant amount of lobbying and convincing of the board to make the step to diversification. All being said, it has paid off, and we now are in a position whereby our contracts, more than cover our initial outlay and the future looks rosy. This high cost to entry though will mean that few MSPs will be able to make the jump and only the most committed will be able to enter the market!

Cheers,

Andy

Quantix driving profit growth through Cloud services

Source: TechMarketView

Privately owned Quantix, a managed hosting services provider, has updated us on trading for its first half, which shows rising growth and profits on the back of its move to provide cloud services. With turnover for the first half of £4m, the company is projecting revenues of £9m for the full year (up 7%) and EBITDA up 23% to £2.1m – not a bad performance in the current climate. Managed services was up 15% and forms the centrepiece of its ambitions for the coming years. Quantix may be a new name to many, but has a familiar heritage: the company was created in 2007 by an MBO of the support services division of IT distributor Sphinx CST, part of Lynx, backed by PE firm ISIS.

Quantix is primarily a provider of managed services around the Oracle platform to medium-large organizations in the private and public sector. Recently it has been investing in its data centre capacity to expand its range of managed services. Most interesting, it has ‘packaged up’ its offering as “Oracloud,” a solution which essentially allows companies without the necessary IT resources / skills to set up private clouds based on Oracle, VMware, Juniper etc. This can include software companies, and they are one of the major targets for Quantix’s current marketing

Indeed, we became interested in Quantix in part through one of its contracts, with IDBS, to provide IDBS software as a Cloud service to a major pharmaceuticals company and its partners (see IDBS - update). Quantix’s affable MD, Dick Salmon, told us that he saw a significant opportunity in supporting software companies in their moves to offering software-as-a-service. Undoubtedly “the cloud” is changing profoundly the structure of the IT industry and routes to service delivery. We see big opportunities in managed services provision around companies like Quantix and will be writing much more on this theme in the future.