Let's Do It

Tata Steel has done it, Bank of India has done it, and so

has Bank of Baroda. Dabur did it, as did Colgate-Palmolive; Bharti created

history by doing it, Tata Teleservices also followed suit. These are some of the

Indian enterprises that have outsourced their IT infrastructure in some way or

the other to third-party managed service providers (MSPs) during the last five

years.

These instances reiterate the perception that domestic IT

demand is witnessing a visible shift towards services and management even as

enterprises step up investments in enhancing their IT infrastructure. With the

size and complexity of networks and even IT infrastructure increasing day by

day, enterprises are showing an increasing preference for outsourcing the

network management activities to external experts resulting in growth in demand

for managed IT services.

Tier 2 SIs Join the Fray



In response, existing SIs are expanding their service offerings to offer

managed IT services as part of their portfolio. While the biggies amongst SIs

such as IBM Global Services, HP, Accenture, TCS, and Wipro have been involved in

the managed service provider space for quite some time now, even newer and

smaller players, the so-called Tier 2 SIs or the solution providers, are now

gaining a foothold in the MSP market.

According to Nasscom, the MSP market has grown from $140 mn

in 2005 to $190 mn in 2006. Frost&Sullivan says that the Infrastructure

Management solutions space had a healthy spend of about $207 mn in 2005, and

forecasts about $281 mn spending for 2006. IDC believes that the Indian market

is moving towards an era of outsourcing services in the domestic space.

On the services front, so far, plain vanilla support

services such as software and hardware deployment, and included revenue streams

such as AMC contracts have dominated the domestic market. Traditionally, the big

SIs have dominated the MSP space. This was particularly because MSPs required

substantial investments to maintain NOCs or other facilities for hosting their

clients' infrastructure.

The transition from this earlier model of facilities

management, where vendors were taking the entire manpower themselves, to the

current model of asset stripping, where device-based resources are outsourced,

has changed life for most enterprises as well as SIs, both big and small.

An important aspect is that, smaller Tier 2 players rely

heavily on relationship based selling and this is not sustainable over a long

period. Customers are some day going to evaluate the larger players and look at

new services in the market and this is precisely when the Tier-2 players have to

hold their own. But what works to the advantage of the second level players is

that the Tier 1 players continue building a global services portfolio. As the

Tier 1 players are increasingly targeting the global IT infrastructure

outsourcing market and therefore building a product portfolio to cater to a

global clientele the Tier 2 is aggressively looking at the domestic market

(large and small enterprises) for offering managed services.

The Second Coming of the ASPs



The shared model of remote infrastructure management has also helped the

Tier 2 MSPs. Anant Gupta, COO, HCL Comnet claims responsibility for introducing

this model into India. In this model HCL gave enterprises the choice to take

resources to its centralized IMS services on a shared basis with other

enterprises. IDC estimates that over 85% of infrastructure components can be

managed from a remote location through this model.

Though this model is basically a new version of the ASP

model that failed in India earlier, it has found a number of takers this time.

While earlier enterprises outsourced individual components such as networks or

security, now some of the large organizations are looking at the total

outsourcing option with specialized IMS services providers. These service

providers are not only expected to provide for extensive coverage on the whole

of infrastructure, but also bring in value and cost reduction through their

shared services delivery mechanisms.

More and more companies are shying away from the

traditional models of IT infrastructure service delivery practiced by the Big

five the primary reasons being their need for flexibility and strategic control

from their IT Infrastructure outsourcing engagements, which is not available in

the full outsourcing model. HCL Comnet, For example, introduced the co-sourcing

model, which is based on a collaborative approach to outsourcing, by defining it

as an activity of partnership between the client and the service provider where

the client retains the strategic portion of the operations and the service

provider takes over the day-to-day running of operations and other areas as

defined by the client. Probably, that explains why this new version of ASPs as

practiced by Tier 2 MSPs tasted success this time.

The Tier 2 Edge



Because of the growing economy, even small and medium enterprises have now

started opting for managed services, which in turn have opened the doors to Tier

2 MSPs who were partners to these large global service providers once upon a

time. This long association has also provided these MSPs with the necessary

expertise. Claims Sunil Bhatt, CTO, Allied Digital, one of the top Tier 2 MSPs,

“With 22 years of experience in providing services to our customers and OEM

partners, Allied Digital has mastered the art of customer service with most

matured systems and processes based on ITIL and ITSM framework for high quality

managed services. Today Allied Digital is a partner of choice for any

enterprises for total outsourcing of their IT infrastructure support

services.”

Like many other such SIs, Allied Digital is in the business

of providing managed services since last many years and more then 20% of the

total business revenue of the company comes from Managed Services business.

Customers such as Tata Power, Deloitte, Torrent Pharmaceuticals, Micro Inks, and

many others are enjoying the managed services from Allied Digital. The trend,

according to Bhatt, is to use combination of industry standard remote monitoring

and management products along with popular freeware and shareware tools to

manage customer's IT infrastructure remotely and efficiently.

These products will enable IT asset management, remote

control for problem resolution, patch management, OS imaging and migration, and

software license monitoring to be done from the NOC using the MSP model.

Customers will get the benefit of these services without investing their time,

effort and money to buy, install, configure, and run these products. Allied

Digital's plan to be the first in the country to provide managed security

services (MSS) is an indication of where the tier 2 players are aspiring to be.

Chennai-based Accel Frontline, another top notch Tier 2 MSP,

echoes similar sentiments. “We have re-branded our services, strengthened our

delivery and packaged the offering on the ITIL framework so that we can offer

our solutions to customers on globally accepted best practices with a cost

effective benefit, ” says TO Asokan, country manager, services, Accel

Frontline. The approach is to grow up the value chain and thereby increase the

profitability of overall business. He added because of the nature of services

Accel has been providing, managed services was just a natural extension for the

company. The company is also in advanced stages of discussion with a couple of

enterprises for managed services not only for IT infrastructure, but also for

the entire software operations.

While tracing the evolution of the Tier 2 MSPs, Mayur Sahni,

analyst telecom services, Asia-India, Current Analysis also reiterates some of

their inherent advantages. “The smaller players have typically evolved from

being cabling vendors or equipment resellers for Cisco, D-link, Panduit and the

likes. Since, the product reseller market has very low margins (5-10%) and

competition is intense, these players have felt the need of increasing their

profitability health by offering managed services, which can fetch as high as

50% gross margin.” Although this may give the Tier 2 players a stronger

platform as compared to other players, he warns that it may not hold once they

are pitted against a Tier1 player.

Ultimately, the main values the Tier 2 MSPs bring to the

table are flexibility and cost-effective solutions. “Every single customer,”

says Asokan, “irrespective of size of the deal, is important to us, a fact

that is reinforced by the active involvement of the management in every project.

Also in our effort to be cost effective and offer better value to our customers,

we constantly innovate to offer solutions that reduce TCO.”

Challenges for MSPs



However, Sahni feels that a Tier 2 MSP cannot compete effectively with a

Tier 1 player. “They may be able to grab a small piece of the overall deal,

but the larger players are more focused on the high-end work and global clients,

which are more profitable.” Adds Asokan, “The existing market opportunities

in this space is so large that many Tier 2 players are getting interested in

taking a stab at it! However, one needs to keep in mind that unlike the software

space, which is project-based IT Infrastructure Management, is a real-time

operation, running the backbone of a company and hence needs deep expertise and

experience on the part of the MSP.”

The managed services space itself is an evolving space with

an increasing number of companies joining the fray. Earlier this was a limited

space and seen as an activity, which was afforded only by large organizations.

But now we see small and medium size companies also interested in managed

services. The demand in the sector is bound to grow.

However, the likes of the Tier 1 players feel that many a time the

smaller players are far away from bringing in cutting edge management techniques

and technologies and do not hold the financial muscle to take control of large

complex and multi location projects. But, as evident from the words of Asokan

and Bhatt, the so called tier 2 players are leaving no stone unturned to ramp up

their infrastructure or services to be as competitive as the leaders.  

Minu Sirsalewala



minuvs@cybermedia.co.in