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MSPs Can't Afford Not to Swing to SaaS

By Jeffrey M. Kaplan
Mar 13, 2009 4:00 AM PT

In my previous column in this space, I examined the trends which are driving IT managers to increasingly embrace Software as a Service (SaaS) solutions to better support their end-users and help their organizations achieve their corporate objectives.

MSPs Can't Afford Not to Swing to SaaS

A growing number of managed services providers (MSPs) are also becoming advocates for leveraging the added power and lower costs of SaaS to overcome the unprecedented demands of today's tough economic environment, better serve their customers and gain a competitive advantage in the marketplace.

Hitting Their Stride

Managed services have been around for many years but have only recently begun to attract widespread attention and generate growing demand. In the 1980s, managed services were offered by telecommunications carriers as a highly customized form of outsourcing to their largest customers. In the 1990s, an influx of startups attempted to offer highly standardized managed services to a wider array of small and medium-sized businesses (SMBs). Today, a combination of new technologies and maturing service delivery methodologies is enabling MSPs to deliver more flexible services to organizations of all sizes.

Yet, just like their corporate customers, MSPs are facing escalating business challenges including escalating customer expectations, rising competitive pressures and intensifying financial pressures.

In order to overcome these challenges, MSPs must fundamentally change the way they do business. They must automate more of their management processes, and rely more heavily on centralized operations. However, they are finding it more difficult to raise capital to build state-of-the-industry operations centers and offset their rising operating costs.

On-Demand Delivery

In response, they are increasingly turning to SaaS-based alternatives. Some of these SaaS solutions permit MSPs to perform their day-to-day operations more cost-effectively, such as remote management systems. Others enable them to expand their service portfolios into new areas -- such as messaging, security, and storage services -- without making additional capital investments or facing significant risks.

The SaaS solutions also allow MSPs to scale their business investments in response to the level of customer demand they generate rather than in anticipation of projected demand which might not become a reality. This permits the MSPs to mitigate their financial risks and redirect their limited resources toward other areas where they can gain a competitive advantage.

Buyer's Market

MSPs are also benefiting from a buyer's market with a widening array of SaaS offerings from a combination of startups and established players targeting the managed services market. Just like their corporate counterparts, MSPs have the luxury of choosing from a variety of best-of-breed SaaS vendors, but should make strategic sourcing decisions about which suppliers they want to rely upon.

However, an industry shakeout is inevitable and will result in many of today's SaaS vendors disappearing. MSPs can't afford to put their businesses at risk by relying on suppliers who will not be around long term.

Therefore, MSPs must look at the financial viability and breadth of offerings of the SaaS suppliers, as well as their functional capabilities and best-of-breed capabilities.

Jeff Kaplan is the managing director of THINKstrategies and founder of the SaaS Showplace. He can be reached at jkaplan@thinkstrategies.com.

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