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Busting the myths behind managed services

Consultant Jeffrey Kaplan defrocks misconceptions that have grown up around one of the telecommunications industry's most popular terms.

One of the telecommunications industry's most popular terms is "managed services." Everyone's heard it, but few understand it. The true meaning of managed services has been further blurred by the myriad myths that have grown up around the topic. That misunderstanding needs to get cleared up because managed services--done correctly--can become an important component of an on-demand strategy.

When I think about managed services, I'm referring to a packaged service that assumes responsibility for an IT or telecom management function. Managed services are tied to the rapid rise of on-demand and utility computing as well as to the resurgence of hosted applications. In fact, these trends are all driven by the same business and economic forces that are pushing enterprises toward outsourcing and on-demand computing.

So let's take a closer look:

Myth No. 1: Managed services are new.
Some enterprise decision makers believe that managed services are a new kind of solution. The truth is that telecoms have offered managed services to support corporate voice networks since the 1980s. Today's managed-service providers, or MSPs, are targeting a wider array of management functions but are still trying to figure out how to package, price and position their offerings in order to make them successful.

Myth No. 2: Managed services are dead.
Managed services became a distinct market segment of the information technology and telecom industries during the dot-com boom.
Rather than offering a new set of managed services, many vendors and service providers are simply renaming their old services.
Hundreds of venture-funded independent MSPs were formed to capitalize on the same overinflated expectations that produced the Internet explosion and anticipated surge in enterprise demand for the IT and telecom outsourcing that we now know did not materialize as quickly as expected.

Most of the overcapitalized and underutilized independent MSPs, such as StorageNetworks and Loudcloud have folded or refocused their business models. But the managed-service concept has lingered, attracting renewed interest today, as enterprises increasingly outsource portions of their IT and telecom operations. As a result, the managed services market is now expected to grow at a healthy 15 percent to 20 percent a year in revenues in what is already a multibillion-dollar market.

Myth No. 3: Managed services are only provided by carriers and dot-com survivors.
Given the rapid growth of managed services, a wide range of new players, ranging from consulting firms to major hardware and software companies to value-added resellers, are vying for a piece of the market. And their managed services extend from application hosting and managed services to virtual private networks; from desktop to data center services; from storage to security services; and from messaging to supply chain services.

Myth No. 4: Managed services are the same as consulting, maintenance or outsourcing services.
The bulk of managed services today are aimed at helping short-handed enterprises cope with the complexities and frustration of IT and telecom operations. The problem is that many of today's managed services were previously referred to as consulting, maintenance, professional or outsourcing services. Rather than offering a new set of managed services, many vendors and service providers are simply renaming their old services--and diluting the meaning of managed services in the process.

Myth No. 5: Managed services are a clear differentiator.
Just providing managed services is no longer enough of a differentiator. On the contrary, sophisticated enterprises are increasingly expecting suppliers to offer a suite of managed services as part of many deals. But MSPs also find themselves competing in a price-sensitive commodity business, in which all their managed-service features look alike. In order to truly stand apart, they must develop new functional or vertical market-oriented managed-service qualities to augment their current technical capabilities.

Myth No. 6: Managed services are totally automated solutions delivered remotely.
It is a strategic mistake to believe that pure remote management services can succeed alone. The core technology and functionality of managed services is remote management. But the ultimate irony is that they must be sold and delivered on-site, especially to new customers.

Few enterprise decision makers will consider a remote managed service without face-to-face interaction with the supplier.
Bluntly stated, enterprise decision makers demand to have one throat to choke, in the event of any problems.
They need to trust that the MSP understands their unique business and IT and telecom needs. They require tangible proof that the MSP can deliver secure, reliable services that meet their objectives. Bluntly stated, they demand to have one throat to choke, in the event of any problems.

Myth No. 7: Managed services are a high-volume transaction business.
Managed services are a form of outsourcing and thus require an enterprise to relinquish a portion of its IT and telecom management responsibility to a third party. This requires a leap of faith that generally demands a consultative selling approach (not to mention a three- to six-month sales cycle.) Most MSPs are not structured to deal with this sort of sales challenge or customized service delivery requirement.

In the future, independent MSPs, hardware and software vendors--and carriers alike--will be pressed to again adjust their strategies in order to meet the new realities of the managed-services business. Some will have to repackage their service offerings and provide more comprehensive capabilities. Consolidation is inevitable--especially for those that fail to adapt to changing times. As is often the case, those companies with the most comprehensive set of services will ultimately survive.