A Managed Service Provider (or MSP) provides Network Administration, On-demand Support, Strategic Consulting and Centralized Services usually off premise to their end customers. The model for the past 5 years has been inclusive of all these services with an emphasis on the On-Demand Support element as billable hours have been the most profitable portion of the business.  With the emergence of virtual data centers, another model has also emerged for Centralized Services.  MSPs are becoming polarized between providing virtual data centers or web hosting centers.  Some companies provide both but we find that in many cases there is a symbiotic relationship between the two.  MSPs focused on providing off premise virtual servers or virtual machines (VMs) bring their service offering to both end subscribers and to other web hosting MSPs.  Web Hosters create web assets, including web sites, Search Engine Optimization (SEO) and advertising medium for their customers but often rely on VM hosters for data center creation and administration.

As the number of MSPs have grown in these two categories a third MSP type emerged to satisfy the entire Information Technology support of a corporation.  These are typically known as Full Service MSPs and will supply term contracts to large corporations for a customized full service IT approach, including all aspects of the business mentioned above and including Business Continuity.  These full service IT MSPs have served their purpose well in creating value for their end customers in the form of lower OpEx and CapEx as well as a very profitable On-demand Support model for themselves.

As the economic crises of 2008-2009 began to unfold, all three MSP types began to feel the pressure of their specialties.  VM hosters, providing Infrastructure as a Service (IaaS) now have the likes of Amazon EC2, Microsoft Azure, RackSpace and Terremark to contend with.  In an effort to differentiate themselves and provide more volume business, many Web Hosters have included Software as a Service (SaaS)business grade email hosting services such as Microsoft Exchange.  There are now hundreds of these “Exchange” hosting companies in the market.  In both cases (VM and Web hosting) the business model is rapidly being commoditized.  Stuck smack in the middle are the Full Service MSPs with the opposite problem.  They have become so customized in their solutions offerings that their expenses are beginning to sky rocket and as a result are having difficulty in renewing their massive term based service contracts with large corporations.

There is another MSP emerging as a result of these market pressures and commoditization.  They are the Citrix Service Providers.  As depicted in the illustration above, the “Iceberg” of opportunity is beginning to show signs of revenues through hosting not one or two applications, but the entire suite of office productivity applications.  As longer term service contracts are expiring, corporations are now looking to further manage down their operations expenses and these CSPs are leading the way.  By using a multi-tenant, single instance management approach, the CSP creates a greater economy of scale for their end subscribers while at the same time providing the highest levels of security and business continuity.

Starting with the SMB, corporations are seeing that they can “job out” their IT services without paying an exorbitant fee.  As they become accustomed to this model, they are also now collaborating to offload Line of Business (LOB) Applications which in many cases are similar from one business to another.  The further into the “Higher Valued Services” an MSP goes, the more likely their customer is to see higher value in their offering.  This is because CSPs provide a similar service offerings as their older Full Service MSP cousins, but at a much lower cost to the end customer.

As more and more end users come onboard, the CSP can create a better economy of scale for LOB applications in varying market verticals.  For instance, a Financial LOB application can be offered up to multiple Financial organizations who require the same type of service at a fraction of the cost.

Stay tuned for press in 2010 and specific case studies around these emerging CSPs.