Can Managed Service Providers Cloud?

By Published On: October 10, 2020

Managed service providers (MSP) offer a compelling deal. An MSP may write a customer a check in the first year of a contract in some arrangements. In the traditional outsourcing model, they will hire a subset of your staff and buy all of your equipment. To make up the cost difference, and make a profit, most MSP leverage a centralized resource sharing model. For example, a storage administration team may support a dozen customers. What took the customer 3-Full-time employees (FTE) to run an IT silo now takes a fraction of a single-FTE. Contracts ensure snowflake customer requirements incur additional contract costs. The model works for traditional IT. How does that model translate in the era of cloud computing?

SI vs. MSP vs. CSP

First, let’s level set on some definitions. A managed service provider is a company that provides outsourced IT services. DXC is an example of an MSP. The company has a market capitalization of $5.1B, revenues of $20B, 138K employees, and over 6000 customers. DXC can run the IT operations of any size of enterprise IT. 

There are also MSP’s on the other end of the spectrum. My friend Jon Holleb runs a small MSP with just a few employees. However, they do provide managed services for small organizations.

System Integrators is another category of service providers. System integrators such as HPE NEXT Consulting provide point solutions such as deploying or customizing SAP. Both Holleb Consulting and DXC provide system integration services. However, in DXC, system integration is a relatively small portion of the behemoth’s business.

Lastly, you have cloud service providers (CSP). Amazon, Google, Azure, IBM Cloud, and Oracle Cloud Infrastructure are examples of a CSP. CSP typically don’t assume operations of your existing IT operations. Each cloud provider also offers limited system integration services. Well, except for Microsoft and IBM. Each parent has a substantial system integration experience. I also have to call out that IBM provides managed services.

CSP disrupted MSP

About 2-years ago, I started receiving inquiries from MSPs about adjusting to the public cloud’s reality. The problem isn’t traditional workloads displacement by public cloud providers. The challenge is the governance and revenue model. The day’s MSP struggled to find a model where they could aggregate support for public cloud workloads across a shared pool of resources. That’s a post for another day. What I wanted to share was the inability of most MSP to adjust contracts.

The last MSP I worked with had a rigid automation system for deploying new workloads. A typical workflow for provisioning a VM. 

  1. Our customer filled out a provisioning form. 

  2. The MSP imports the form into an OS builder platform. 

  3. The OS builder then deployed the operating system on a virtualization pod. 

  4. The MSP registered the new workload and billed the customer for OS management at 1-month intervals.

Now apply that support and provisioning model to AWS. How are RDS databases deployed, managed, and billed? How about Lambda code? How do customers interface with the MSP to build modern applications? Multiple that challenge by multiple cloud providers.

The problem isn’t only a technical challenge. Contracts are also a challenge. Most MSP contracts are multi-year and never considered the public cloud as the primary center for IT services. In my experience, MSP’s have struggled to adapt their service model to account for transient web services. Customers I talk to are also frustrated. Customers don’t want the burden of managing infrastructure but also benefit from the agility cloud brings.

So what should you do?

Sorry, but just like yesterday, I have some bad news. Today, this is an area in which you have to build internal expertise. Public cloud operations aren’t yet commoditized. And as a result, customers wanting the agility of the public cloud should avoid MSP. I’ve received plenty of pushback. As I’ve said, DXC has revenues of $20B/year. I’m going to ruffle some feathers saying they can’t keep up. I’d love to hear from you. Have you found an MSP of an enterprise-scale that moves at the speed of an MSP technically and contractually?

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