Managed Services

Indian MSPs eye larger chunk of global networks

The MSP wave started by pure-play networking players like Sify and NetMagic has come full circle. Today, almost everyone—from system integration players to even software service players like Wipro, Infosys and TCS—are jumping on to the bandwagon. And why not? The managed service opportunity could turn out to be as big as the software services pie, says Stanley Glancy

For many corporations in the West, India is the land of abundantly available skilled professionals, tremendous cost savings and superior service quality. India has been using these ingredients to concoct different offerings in the information technology space—IT services, IT enabled services, and now managed network services. The West, initially wary of trying out a foreign offering, now seems to have fallen for the Indian temptation hook, line and sinker. Managed network services (MNS) occupies prime space among the new industry buzzwords.

There’s no be a better endorsement of this phenomenon than the fact that many international service providers are now looking at entering India to offer their services to both domestic as well as international players. In fact, a few have already done so, either through partnerships with Indian service providers or by setting up fully owned captive centres here. The latest entrant into the market is Infonet Services—the US-based provider of global communication services for multinational players recently entered into a partnership with i2i Enterprise. The company is aiming at tapping not just global players who have set up base in India but even Indian players who want to go global. Clearly, India is the land of opportunity.

But what about domestic managed service providers (MSP) like NetMagic, HCL Comnet, Bangalore Labs, Comsat Max, Allied Digital, etc, who have been providing MNS to both domestic as well as international players for quite some time now, but have remained in the shadows because to various issues? How will the opening up of this segment impact their business? What kind of opportunities does this renewed focus provide them with? Where are they headed?

Opportunities

Of late, user organisations have found IT infrastructure becoming increasingly more complex. To add to their woes this exponential rise in infrastructure complexity has not been met with a corresponding growth in the expertise needed to manage it. For most companies it is not economically viable to build resources along these lines. MSPs, by virtue of their scale of operations, are in a position to pass on the benefit of their expertise, with the added advantage of predictable costs. The flexibility to deploy resources across multiple clients enables MSPs to offer services at costs that in some cases are less than half of what they would otherwise have to incur.

Says Rahul Swarup, president-enterprise solutions for Sify, “Today, the role of the CTO/CIO has been redefined. Instead of running the operations shop, he is expected to sit along with the management to chalk out strategies for using technology as an effective tool to meet challenges in the market place.”

With companies focusing on core competencies it has become imperative to outsource network infrastructure management to a service provider who has the requisite domain expertise. This policy not only enables the organisation to improve efficiency but also cuts cost tremendously. According to Arup Chakraborty, GM-network services, HCL Comnet, by outsourcing to MSPs organisations can save up to 50 percent of their total IT infrastructure cost. Improvement of connectivity combined with a reduction in prices is also making remote management more attractive.

Projections by market research firm IDC put the global market for outsourced IT services at $27 billion. IDC estimates that managed services, which is growing at a CAGR of 16 percent, constitutes only 30 percent of the total IT spend of companies. Hence, there is a huge latent demand that’s still untapped. These figures are corroborated by a study conducted by the META Group. The META Group study states that by 2006, nearly 95 percent of Global 2000 companies will outsource at least one strategic IT function. The report goes on to add that 20 percent of these firms have already outsourced some function while another 15 percent are seriously considering doing so.

According to analysts, hosting providers will be major players in this arena. META Group expects 50 percent of their revenue to accrue from MNS. Most of the larger independent software vendors (ISV) have also entered the MSP space, and today include MNS in their portfolio of services.

Pure-play MSPs are still a minority. Analysts predict that the market will witness a consolidation in this space over the next two years. And if META reports are to be believed, in the long run 25 percent of pure-play MSPs will cease operations thanks to lack of funds.

But this space is a potential growth opportunity for value-added resellers (VAR), system integrators (SI), and solution providers, especially in the small and medium enterprise (SME) space. SMEs today are demanding sophisticated IT solutions and networks, but do not have the expertise to support them. This segment also lacks the resources that larger companies possess, but may have a greater need for MSP services. Gartner estimates that the SME market for IT solutions is nearly the same size as the market for large enterprises. The larger players typically tend to overlook the SME segment, giving VARS, SIs and solution providers a golden opportunity. Also, the smaller providers generally have existing relationships with smaller businesses, and so know their network needs better.

Though no separate studies have been conducted on the opportunities presented by the domestic market, Inder Raj, senior vice president at Network Security Solutions (NSS) feels that the market will grow to about Rs 120 crore in the next two to three years.

Growth drivers

Some of the key demand drivers for Indian players are increased complexity in LANs and WANs, growth of the Internet, both in terms of reach and usage, reduced life cycle of products and a dearth of technical expertise. Organisations are increasingly finding it difficult to recruit, train and retain a sufficient number of qualified personnel. Says Joyjit Chatterji, vice president, Comsat Max, “Network infrastructure and services no longer serve as a mere support for businesses. Increasingly, they have become the main drivers behind businesses as well. The ability to share resources and data, instant research and data exchanges, mission-critical, enterprise-wide applications and more make the network the core of most businesses today.”

Indian companies can bring into play the lower cost of skilled professionals to manage networks seamlessly, irrespective of their location. The declining cost of connectivity has also made it possible for a service provider in India to connect its network operating centre (NOC) to any network and provide a complete suite of services. With standard protocols as well as devices being used worldwide implementation and management has become simpler while cost has also been reduced substantially.

To support this point, Inder Raj highlights a recent Forrester Research report, which projects that customers will flock to managed security service providers (MSSP) in countries like India for services like 24/7 monitoring, drawn by savings averaging $540,000 annually. Forrester estimates that staffing alone for 24/7 security device monitoring would cost firms an average of $720,000 per year, while MSPs offer the service for an average of $180,000 per year.

Increasing dependence on network infrastructure is also a major demand driver for most organisations. Any performance related problem could have a direct impact on an organisation’s bottom line. Downtime due to power failure is an area of major concern. The recent outage in the United States, when entire states were pushed into darkness is a case in point. The economic consequence of such outages can be severe. According to certain industry estimates, the economic impact of two percent downtime on a company with annual revenues of Rs 125 crore will be approximately Rs 3.5 crore. Of that, Rs 2.5 crore is in lost revenue and Rs 1 crore in lost staff downtime. According to Sharad Sanghi, CEO of NetMagic, Indian MSPs like NetMagic generally have multiple power redundancies in place, providing customers the benefit of zero downtime.

Managing pitfalls

There are several issues that Indian MSPs need to be iron out when it comes to providing managed networked services. Being a nascent market there are no set parameters on how these services should be priced. This can lead to confusion among potential customers, which in turn can put a stop to their outsourcing plans. A META Group report states that less than 20 percent of IT managers are capable of understanding their network needs well enough so that they can define what should be in an outsourcing contract and are also able to confidently negotiate rates for managed network services.

Companies need to be clear about the value proposition offered by MNS. According to Sanghi, there are many companies that are wary of parting with control over their own network, or worry that turning to an MSP will lead to staff cuts. This is especially true in the Indian context. But he feels that the trend is undergoing a gradual change.

Servicing challenges

Like any other growing industry, MSPs too face an increasing number of challenges. Assuring a potential client of the reliability of the service offered is the first major challenge. This becomes especially tough for pure-play MSPs since they don’t have the brand name and credibility enjoyed by the established players. The MSP needs to have a good understanding of the client’s business and should also be able to assure the management of the same before they can be convinced to outsource the management of their networks.

In many cases, the MSP has to tailor service level agreements (SLA) to meet the particular needs of a customer. This poses a major challenge if the MSP is servicing multiple clients with different service models, as customer satisfaction stands to suffer if too many SLAs are violated.

Chakraborty adds that the quality of service should match international standards and there should be process compliance. Says he, “The outsourcing company should not look at it as just a cost driver but should be induced to offshore high-end tasks along with the mundane tasks.”

Swarup highlights several other challenges associated with running and managing IT infrastructure, which can add significantly to the total cost of ownership (TCO). Generally, customers find key employee retention a significant challenge in maintaining and managing their networks or NOCs. Say Swarup, “The ability to retain skilled manpower, train them and constantly provide them with a challenging environment to meet their growth aspirations, and the cost of technology obsolescence, thanks to the need to always have leading-edge technology, can add significantly to TCO.”

With a MNS provider, the challenge of maintaining an adequately staffed in-house department is no longer a concern. Elaborates Sanghi, “In general, the need to provision skilled labour and round-the-clock infrastructure at affordable rates is the biggest challenge that corporates face. This is where a provider with established round-the-clock operations has an edge.” If a provider can back up inherent skill sets and expertise with cutting-edge infrastructure and services, such as those generally found in top data centres, that provider is well placed to provide outsourced MNS services.

Issues

One factor that prevents many enterprises from outsourcing their network management or more importantly, their networking needs, is the concern for security. However, all the experts Express Computer spoke to feel that this concern is more in the mind of the technical team, rather than a real one. Says Swarup, “Today, outsourced networks are as secure as private networks, thanks to technology advancements. Getting that assurance to the customer is one of the key issues.”

The most reluctant sector, understandably, is the financial sector. However, the move to adopt IP VPNs as the main backbone will add impetus to the BFSI segment’s plans to outsource their networking needs, which will in turn encourage many other sectors to do the same. Consequently, those who already have network assets will look at outsourcing the management of this to a service provider, and fulfilling further demand through IP VPNs.

Information security has been another key issue that has largely been ignored. Raj of NSS feels that due to a lack of awareness corporates have unknowingly lost millions thanks to breaches due to hacks, slack procedures and processes, technologically challenged environments, lack of management support and initiative. Chakraborty feels that this can be resolved by offering adequate transparency, giving the organisation a feeling that it is in control of the network.

Sanghi says that the biggest issue that needs to be addressed is the presence of providers in the MNS or remote infrastructure management space (RIMS), who don’t have the requisite infrastructure or skill sets to provide quality services to their customers. As a result, overall client confidence in outsourcing their network management could take a hit, and customers might opt to move network management back in-house. Networks and IT infrastructure are crucial elements for any enterprise, so customers need to exercise diligence before selecting their MNS providers.

Manoj Kunkalienkar, executive director and president of ICICI Infotech, says that as corporates move from MNS to RNMS there are two further issues that need to be addressed. First and foremost is availability of necessary certifications that are applicable and in vogue in different countries. Thus, for instance, for any data centre to host a primary site or disaster recovery site for a US customer, the SAS-72 certification is mandatory. Other countries already have similar certifications in place.

Secondly, each country expects the personnel who are managing their facilities to have a working knowledge of the language of that country. Hence, MSPs need to have skilled IT professionals who have adequate knowledge of languages such as French, Japanese, German and Cantonese.

Total outsourcing

India has started following global trends now. Swarup pinpoints three clearly visible trends in the country—network out-tasking, IP VPNs, and total outsourcing. In network out-tasking the enterprise builds a private network, but out-tasks the build and operate function to an external agency. So the enterprise has ownership of all the resources and consequently, also a high cost of ownership.

Total outsourcing of one’s network needs to a service provider is now gaining rapid acceptance amongst corporates, and is considered the fastest growing segment in the networking industry today. More and more companies are accepting VPNs as the right way to build connectivity for their enterprise.

In total outsourcing, all the IT functions—from desktop to back-end servers to the network are outsourced to one player. It also involves transfer of assets and manpower from the customer to the service provider. The network piece can be managed either through out-tasking or a VPN could be provided, depending on the customer’s choice.

Future tense

Networks no longer merely support basic business processes—they have become the centrepiece of modern businesses in the New Economy. India has ample opportunities in this market space, as our costs are much lower. Besides, in addition to skilled resources in terms of manpower and technology, India also has the advantage of being in a geo-politically and economically stable region. The players here can leverage all these assets to gain an early competitive advantage over their global counterparts.

Organisations cannot afford to stop developing and adapting their networks if they want to survive in the market. But the difficulty in finding experienced personnel and the huge costs involved in setting up, administering and troubleshooting networks has made outsourcing to MSPs an imperative for most organisations. Thanks to this state of affairs, MSPs should see substantial growth in the coming years.

stanley@expresscomputeronline.com