InformationWeek: The Business Value of Technology

2ndWave Inc. will join the movement this week with the launch of its remote management service. When the company was formed in 1998, it provided network and systems management by sending consultants to customer sites. From now on, it will offer the services remotely using the Web.

Larger vendors are also getting in on the act. Last month, IBM Global Services introduced Web Security Scan, an outsourced Web security service designed to monitor the security of Web storefronts. And Computer Associates recently unveiled partnerships with service providers such as Center 7 Inc. to offer enterprise and Web-management services based on Unicenter TNG.

MSPs--including Inteq, iSharp, and SiteLite--typically deliver network, systems, storage, and security management, as well as Web-site monitoring services, via the Internet on a subscription basis. That can translate into up-front savings for users. L90 Inc., a $44 million Santa Monica, Calif., company that hosts advertisements for other Web sites, is using SiteLite to monitor the performance of its Web site. The service saves the company an estimated $500,000 a year in potential lost revenue, compensation for missed service-level agreements, and at least eight IT salaries, says Frank Addante, chief technology officer of L90. SiteLite recently noticed the load on one of L90's 500 servers was too high and helped fix the problem. "If our site went down, it would take down all 300 of our customers' sites," Addante says.

MSPs appeal to businesses that want a good picture of their networks, servers, desktops, and Web sites, but don't want to buy and implement costly software from management vendors--such as BMC, CA, Hewlett-Packard, and Tivoli--or outsource their entire IT infrastructure to companies such as EDS or IBM Global Services. Those options are expensive, especially up front. Until MSPs came along, typically only large companies with healthy IT budgets had advanced monitoring capabilities at their disposal.

MSP prices vary depending on the services involved. But 2ndWave estimates businesses can cut 30% to 70% from the cost of buying, implementing, and maintaining management tools themselves, says Bob Seebold, chairman and CEO. The provider's server, network, and application-monitoring services range from $3,000 to $20,000 a month. Inteq Corp., charges about $7,500 up front and $10,000 per month for maintenance, backup, bandwidth, operations, reporting, and administration services.

Corey Ferengul, program director of service-management strategies for Meta Group, says without factoring in the cost of hiring new employees to run IT management applications, the cost of using an MSP over a period of five years is about 10% to 15% more than the cost of implementing and running the software internally. But it's worth it, "because MSPs speed the amount of time customers must wait to see a return on their investment and help companies get greater productivity out of their IT staff," Ferengul says.

MSPs can offer lower prices partly because they use the Internet to gather and deliver information, a much less expensive medium than private networks used by traditional management services. The Web also gives customers more flexibility: They can access information any time by connecting to a secure Web site or get updates via E-mail.

But the Web doesn't offer the reliability that a private network does. As a result, customers should make sure MSPs provide some level of service-level agreements that protect them from any downtime. 2ndWave, for example, guarantees the availability of its services: Customers get about 24 hours of free service for each hour of downtime.

Management service providers also appeal to midsize businesses because they use subscription-based pricing models, letting customers avoid signing long-term contracts. Users can cancel service at any time, without penalty. "People are wary of monolithic, multiyear contracts," says Caryn Gillooly, a senior analyst at Hurwitz Group.

The advantages add up for midsize businesses by letting them access software they otherwise couldn't afford or support. Rollingstone.com, an entertainment Web site that had about 35 million page views in May, recently migrated its in-house server-load testing to iSharp's service. "The software tools out there weren't as accurate as iSharp's, and that's pretty important when you're trying to plan upgrades to Web pages, new hardware, or a new operating system," says Mike Boeh, director of technology for the subsidiary of Emusic.com Inc., a $7.5 million provider of online music in Redwood City, Calif.

Rollingstone.com gives iSharp Web addresses for the servers it wants tested. ISharp then simulates the number of users Rollingstone.com requests and sends the results to the dot-com via E-mail. Rollingstone.com is charged according to the number of concurrent users requested for the test and the number of minutes the test runs. Boeh estimates that the service costs a few thousand dollars each month.

Using iSharp also means Boeh doesn't have to hire IT personnel to handle the testing. Many companies see this as the biggest benefit of MSPs. Jon Olsen, general manager of network integration services for Fiber Optic Technologies, a privately held, nationwide integrator of enterprise networks in Englewood, Colo., says network managers and security gurus are hard to find and even harder to keep. His company is negotiating with several MSPs to solve its staffing problem.

Indeed, fierce competition for a finite IT talent pool, analysts say, will drive MSP growth: Meta Group predicts the sector will hit $10 billion by 2004.

Although MSPs have similar agendas, they come from a variety of backgrounds and offer different strengths and weaknesses. Inteq and 2ndWave, for example, started as conventional consulting firms performing on-site management services. Companies such as Triactive Inc. and McAfee.com Corp. leverage their experience as application service providers, while vendors such as Candle Corp. and HP have backgrounds in software development. ISharp, which launched in September, is one of the few pure-bred MSPs.

To raise their visibility, 19 providers last month formed the MSP Association. The vendors have a similar goal--to deliver high-end management software and services to midsize companies--but they deliver on it differently. For instance, management service providers offer their clients varying levels of access to the management applications they host. Inteq hosts software from BMC, HP, Remedy, and Tivoli, but it doesn't let clients access those applications. Instead, Inteq delivers the management data customers request via the Web. 2ndWave, on the other hand, lets users interact with the Tivoli distributed systems-management software it hosts. "Our customers demand access to their management tools because it's their necks on the line," Seebold says. The company also provides management information that the Tivoli software gathers about desktops, servers, networks, and help desks via the Web.

Outsourced network management is relatively new, and its value is still tough to judge, Gillooly says. In the past, successful systems management served as a competitive advantage--for example, helping companies provide better customer service. But as companies rely more on E-business, successful IT management is no longer an advantage, it's a necessity--and MSPs might just be the answer many midsize companies need to succeed.

Still, companies must do their homework when searching for an MSP. Says Gillooly: "Be absolutely clear about what your IT management needs are, and be absolutely clear about what a service provider must do to meet those needs."