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Rise Of The Management Service Provider
Sunday, October 1, 2000

Wall Street and the venture firms may have come down hard on dot-coms, but nobody can deny that the Internet is here to stay. According to IDC (International Data Corporation), more than half a billion people will be online by 2002. At the same time, business dependency on the Internet is evolving from informational and non-revenue generating content to complex transaction-based revenue generating applications. Rick Juarez, senior analyst at Robertson Stephens calls this phase the gthird stage of Internet and e-commerce infrastructure.h

The problem initially with e-commerce sites, he points out, was that they tried to sell their goods before setting up a store, and had no organized approach to hosting or support infrastructure. Nor did they make any effort at monetizing the intellectual content on their site. gPeople just set up Web sites, but had no provision for any secure transaction available,h he says. gYou would have to call up the vendor, place your order and get your goods. No wonder it didnft work!h The scene is changing rapidly though, he points out. Dot-coms, as well as traditional brick-and-mortar companies, are changing their approach to online transactions to keep up with the increased user demand for high performance and availability of e-commerce sites. Web sites that fail to meet the requirements quickly lose visitors and potential customers.

Highly Engineered Solutions

Coupled with this changing attitude is the explosive growth in B2B exchanges (currently estimated at 450), messaging and streaming services which have, in fact, unleashed a new wave of online activity. This in turn has created the demand for what Juarez calls ghighly engineered solutions.h The introduction of these highly engineered solutions, which Juarez classifies as Internet Utility Providers (IUPs) and Internet Portal Providers (IPPs), are needed to tightly integrate the access, hosting and hosted-application platforms that are currently being delivered. IUPs and IPPs will essentially act as conduits to efficiently link supply factors with demand factors. For example, IUPs provide the platforms to enable independent software vendors to offer solutions on an ad-hoc basis, like a higher-level application service provider. They will provide a platform for their customers to address a mass market easily and flexibly. The IPPs will aggregate ASP solutions and serve as the gateway that users leverage to access the applications.

Whereas this is leading to consolidation in the industry, a new breed of service providers called the Management Service Providers, or MSPs (a term coined by the Gartner Group early this year), are appearing on the scene. Very simply, MSPs can be defined as providers that deliver information technology infrastructure management services over a network to multiple customers on a subscription basis. They provide the process and the people along with the technology to the customer. The biggest benefit that a customer can derive from an MSP is the ability to deploy more quickly, and get their IT departments up and running.

In his report, gVirtual Bricks,h published in May, the Robertson Stephens analyst presents solid arguments for investments in these new Internet and e-commerce infrastructure providers, or gvirtual brick providers,h as he calls them. The five key assumptions that underlie his thesis are:

œ Due to a labor shortage, businesses will outsource infrastructure-based services

œ Increased growth in B2B e-commerce will require greater levels of infrastructure

œ Email, messaging and collaboration will fundamentally change the way businesses will operate

œ Any slowdown in dot-com spending will be offset by increased spending by enterprises

œ Resource shortfalls will require the introduction of solutions that will increase productivity and enable faster services

The First Wave

The three companies that Juarez says one should watch out for in this new space are Jamcracker, Loudcloud and Inteqnet. Jamcracker, founded by K.B. Chandrasekhar of Exodus fame, is an ASP aggregator that aims to provide one unified base to the customer, who will be able to get all the services, from financial to human resources, on one platform. Loudcloud, Marc Andreessenfs latest venture, provides comprehensive infrastructure services that automate the scaling of software, hardware, storage, network, hosting and 24x7 operations support. Finally, there is Inteqnet, started by Santhana Krishnan and Yash Shah, which delivers IT infrastructure management services. These companies together represent, according to Juarez in his report, gthe first disruptive wave of infrastructure-based solutions since the dawn of the early days of hosting when many thought hosting was a small and limited market.h

Santhana Krishnan, co-founder and CEO of Inteqnet.com, calls the MSPs the gair traffic controllers,h or gReuters of information technology.h gYou need air traffic control to maintain order and avoid chaos. And you need Reuters to collect and make available all the information, which you can later use to your purpose. Similarly, we provide subscription-based services to monitor, track and report on IT environments at all times.h


So whatfs the difference between MSPs and ASPs? Whereas itfs true that MSPs deliver their products and services in an ASP model, there is one fundamental difference between the two. The ASP industry focuses much of its attention on end-user issues that address business value, such as application functionality, establishing service level agreements and billing. The audience for the new MSP market is narrower, consisting mainly of IT managers who want to ensure infrastructure performance. MSP customers consequently may be internal IT departments of corporations, ASPs, VARs, systems integrators or other service providers. The end user typically has nothing to do with them.

Krishnan further points out that while the dot-coms are a natural target for the MSPs because those companies traditionally have big plans and limited management resources, any company that has an IT infrastructure will need their services. META Group predicts that within the next couple of years, more than 35 percent of the Global 2000 IT organizations will engage an MSP indirectly, via business partners or service providers. And unlike the ASPs, the MSPs are here to stay, says Krishnan. This is because part of the market for MSP services draws from the traditional network and systems management software market, which the Gartner Group estimates at $14 billion in 2000, with approximately $4 in service spent for every $1 in software. With Gartner also predicting a 133 percent jump from $90 million in 2000 to $3.26 billion by 2005, the future may well lie with the MSPs.

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