Is there still a role for the outsourcer and the managed service provider (MSP) as a trusted IT partner to the enterprise? Or will the new wave of on-demand, always-on services and applications confine the MSP and the specialist outsourcer to the dustbin of history?
If cloud is just another channel, then there will certainly be a role for the MSP. As Peter Mills, head of systems integration solutions for Africa and the Middle East at T-Systems points out, at the very least, MSPs will have to “rapidly adapt to the pay-per-use model if they're going to be relevant in the future."
JJ Milner, MD of Global Micro, says in SA, things aren't quite as black and white as 'always-on-demand versus the dustbin of history'.
"The impact of cloud is really one of disintermediation," he says. "Simply being in the middle and then brokering a service and knowing where to purchase something used to be enough in the IT industry.
You can have a trumpet, a triangle and a brass section, but the symphony won't necessarily play together.
Mark Gillon, Altech Isis
“So if you were a managed service provider that simply had access to resources, or were an outsource manager or some sort of facilitator, then the value you were adding before was arguably fairly low, but you were able to hold on to that position because of structural or contractual arrangements or geographical proximity. But cloud is doing to managed services what the Internet did for traditional IT services."
Milner says this is naturally putting pressure on the value propositions from service providers. But there is a way forward for them.
"You can be a single service provider who can wade through the various options and give the right advice to customers and help them to transition to cloud. But if you don't have a strong value proposition, and if you're not efficient in your model, then I think you're going to be under threat and at an accelerated pace."
Harish Lala, regional head of Africa for Zensar Technologies, agrees that, to some extent, the industry will be moving away from the traditional outsourcing model.
"The cloud has only accelerated that change. Our industry is viewing it that the cloud is redefining the business models and the execution model. Most of us see that a few years down the line, enterprise customers will have mixed traditional outsourcing, private cloud and a few small portions of public cloud. There won't be a one-size-fits-all.
“So how do you integrate the services that are managed across your organisation? How do you manage your portfolio? What portfolio do you put where? And that's where the consulting services will come in."
Wayne de Nobrega, CEO of Altech Technology Concepts, says there will be no one rule as to how the disruption will take place.
"There will be a combination of things," he says. "Complex systems that are key differentiators for a business won't just be put into the cloud. E-mail, file services and storage could move away to the cloud but there won't just be a switch-over. Some won't migrate at all. And the MSP will have to evolve in terms of what services they offer because they're no longer managing something in isolation but integrating things with the cloud services and other third parties as well."
Lisa Fielder, head of the managed services business unit at EOH, agrees with the future of the single service aggregation model.
"Aggregation will be very important," she says. "Single service management will die a slow death. And we as providers need to ask what our clients will look like in three to five years' time. They will want HR, invoicing and printing in the cloud and we need to gear ourselves up for that."
Peter Dixon, GM of services innovation at Dimension Data, has already seen a big push from corporates towards service aggregation.
"Integrators need to provide a single point of contact so there's the proverbial one throat to choke when things go wrong, and so that service management and service performance can be managed across multiple delivery partners. That model will evolve over time to bring in service broker functions, aggregation and integration. Whether you as the outsourcer can provide them yourself or can deliver them in the most optimal way will be what matters."
Business matters
JC van Niekerk, outsource executive at Gijima, says managed services has been, and always will be, driven by business considerations.
"The issue is a business issue and it's a function of enterprise architecture choice. Customers under pressure decide that they don't want these things to be part of their business, in the same way that companies decide whether to have in-house lawyers or to hire a firm of lawyers.
“The development of business platforms where it's no longer just about plumbing but complete process-oriented entities...that will be the next interesting shift. And as a result, managed service providers are going to have to learn to play well with others."
Mark Gillon, business development manager at Altech Isis, agrees.
"We do have to approach this as a business decision. What is the value proposition of what cloud offers versus what we as MSPs offer? Cloud is elastic, scalable and has cost advantages. But what do we offer?
We understand the client's ecosystem intimately, we know where the systems and processes work and we have the top-down view: we see the machine as a whole.
“My fear is that people rush off and purchase the parts of the service they need. You can have a trumpet, a triangle and a brass section but the symphony won't necessarily play together. We're the orchestrators: we can suggest how to get efficiencies and the sum of what we provide is greater than the parts of things that are being commoditised."
But that requires a new approach if the MSP wants to be viable in the future. Craig Arenhold, CEO of Fundamental, notes it can be a scary place to be.
"You can't disregard what the effect of the global economic situation has been on us all as a collective. We've gone from being a traditional client-server application hosted provider earning millions of rands for providing a service, to going into the cloud and saying, pay us R20 000 or R30 000 a month, and that's a massive departure. You still have to make the numbers work and find that scale. If you can't, then you won't exist."
The model will evolve over time to bring in service broker functions, aggregation and integration.
Peter Dixon, Dimension Data
But new business requirements are also providing opportunities. Richard Kantor, executive at BBD, says outsource providers are becoming a go-to for innovation needs.
"We're seeing organisations looking to outsource organisations and partners to provide not just traditional cost containment and focus, but the innovation aspect as well. External service providers can bring innovation in with them. As a bespoke development company, we've been asked for many years whether off-the-shelf applications are going to kill us. Now we're being asked whether the cloud is going to kill us. What we've seen is that as complexity increases, the requirement for integration increases as well."
Gijima's Van Niekerk says there's another interesting trend.
"The terms and conditions of the cloud are radically different from traditional outsource models. In outsourcing, the customers have heavy contract negotiations to tailor-make them for their own environments, cloud providers have 'take it or leave it', with terms and conditions that are totally different.
“In the US market, the legislation of contract management for cloud services is a major issue. Amazon doesn't just change its Ts and Cs to suit you. Therefore, the way you put your offerings together to include public cloud services is the new opportunity."
The reason the industry is at this transition point is financial, notes Haydn Pinnell, divisional director for sales and operations at EOH Application Management.
"In the cycle we've gone through in Europe, for example, a lot of the contracts were awarded purely on the back of bottom-line balance sheet. And what's happened is that there was significant enough bottom line saving for businesses to take a calculated risk and say, if necessary and service delivery becomes an issue, I can go and get that service from the cloud. And for the next two years, that's going to be the cycle.
“Customers will go out and buy those specialist services on demand and when it the time comes to renew those contracts, the focus will be on the providers that have that bigger picture and can improve innovation and service delivery. But at the moment, we're still coming off that hype cycle."
Local advantage
So how should MSPs be adapting? Altech Isis' Gillion says the cloud service broker (CSB) as proposed by Gartner is a compelling one, especially combined with a local presence.
"The cloud service broker is someone who will go in and offer the advantages of cloud such as scalability and standardisation and economy of scale. So we will have to go in as MSPs and take our understanding of the customers' system and make it bespoke to them, and enhance the business and drive the strategy forward. That's where the CSB will have an advantage. We have a massive advantage in that we're local. Because we're stuck at the bottom of Africa, customers don't want to wait for three days before an international provider arrives to help them."
Global Micro's Milner adds that with the new cables coming in and South Africans getting what they asked for, "the whole world is going to be targeting our marketplace. If we're not providing that value, then they can go offshore."
Suzanne Marsay, research analyst for IT services at IDC, says local MSPs do have an advantage.
"Local providers understand our problems with electricity and our problems with bandwidth. Customers like to deal with guys who do."
But she notes the local clients have taken a rather short-term view of what cloud can do for them.
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If you don't have a strong value proposition, you will be under threat.
JJ Milner, Global Micro
We've seen that a lot of clients in SA have taken a very short-term view of adopting cloud and it has affected their returns on investment. The big issue is what is the ROI? The hype came here tied to cost savings, and cloud doesn't necessarily save you money.
“Because cost is such an important issue, they've just adopted a strategy for part of the company but they haven't turned around the whole company or the processes or the strategy. That's only when you start to realise the cost benefits."
T-Systems' Mills says other players will be coming into the local MSP market too.
"We should be looking at the non-traditional players coming into the MSP space. The telcos, for instance.
They've saturated voice in their market so now they're moving to data. As they start wanting to sell more data, they will need to provide applications to drive that."
It's worth noting that the telcos have the backend infrastructure in place already to grab the market share of the SME market. Their revenue will rely on volumes."
And that's ideal for companies in the mid market that no longer want to own IT, notes EOH's Fielder.
"IT must just switch on like electricity, it must work and it must be accessible from any place. We're helping quite a few of our customers explore moving applications to the cloud and going back to remote desktop solutions to see if that helps them focus more on their business."
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