By Ashar Baig 1

Today’s economic turbulence has enticed organizations of all sizes to consider cheaper alternatives to their in-house IT. An in-house infrastructure that IT must assemble and manage can be a very costly proposition, and at a time when CIOs are constantly being challenged to cut costs, these high operational expenditures stick out like a sore thumb. Managed service providers (MSPs) offering cloud-powered pay-per-use alternatives to in-house IT can be a very attractive substitute to these CIOs.

The good news is that the market momentum strongly favors outsourcing, utilizing the public cloud. In addition, data growth as well as compliance and fear-driven, longer retention requirements are fueling the demand for cloud services, creating a fertile ground for MSPs. Couple those elements with the shortage of technically competent IT personnel and the promise of cost savings, and managed cloud services are looking more attractive to companies for their data protection and data management needs.

The bad news is that there are more than 4,500 service providers in North America alone and more than 10,000 worldwide. The abundance of available customer choices for outsourcing data protection makes it more competitive among MSPs and leads to commoditization—which is already taking place. 

Although MSPs provide a personalized service experience and better service level agreements (SLAs) than infrastructure-as-a-service (IaaS) players such as Amazon (AMZN) and Google (GOOG), they constantly are challenged to compete against the lower price and the “noise” of IaaS players. As a result, customers increasingly are focusing on lower price, not greater value.

Key success factors for MSPs include competitive pricing, differentiated services, innovative offerings and higher quality of service (QoS) in form of faster Recovery time objectives (RTOs), customer-desired recovery point objectives (RPOs) and better SLAs.

Types of Service Providers

Today, customers have a choice between enterprise-class and consumer-grade offerings. Enterprise-class offerings guarantee customers’ desired SLAs, RPOs and RTOs, while consumer-grade offerings offer “best effort” service quality. Each of these offerings is priced accordingly.

Enterprise-class offerings are delivered by two types of MSPs: “white-glove” MSPs, providing high-quality services at a premium price; and commodity MSPs, who compete on price. The MSPs offering premium services proactively monitor their customer’s backups for anomalies, irregularities and inconsistencies, and take appropriate action without customer involvement.

MSPs range in size from large national and international behemoths to regional MSPs to four guys working out of their garage. When it comes to size, the larger service providers typically have a cost advantage, while the smaller players offer verticalized services, leveraging their experience and know-how of a particular industry.

The no-frills IaaS players—those that offer consumer-grade services—have caused confusion in the market about what the customer is getting. The differences between an IaaS player and an MSP often are not well-understood, but they are vast—comparing MSPs and IaaS offerings is akin to comparing apples to oranges. IaaS players, such as Amazon Web Services (AWS), offer general-purpose storage that can be used by the user for any purpose. MSPs, on the other hand, offer purpose-built platforms with guarantees on SLAs, RPOs and RTOs.

Most MSPs offer a multitude of managed services based on their experience, vertical expertise and technical competency. These services often are a subset of a complete data protection solution which consists of the following:

If you’re looking to bolster or even replace your company’s in-house IT, make sure you understand the difference between an MSP and an IaaS provider. Such a decision is too important to take lightly.

Ashar Baig is president and principal analyst and consultant at Analyst Connection, an analyst firm focused on cloud computing, IT products and services and managed service providers. He has more than 18 years of high-tech industry experience. Baig also is founder and manager of the LinkedIn Cloud Backup group.