Service Providers Gain Traction

That's the prevailing sentiment of attendees at the Global MSP Network (GMN) Spring 2002 International Conference under way here, where nearly two dozen companies are represented (and where this reporter will be speaking.)

Almost a year old, the GMN has 24 member companies. Initially a draw for more pure-play MSPs, including Puzzle Solutions, the organization's charter has evolved. It now counts traditional VARs and solution providers in its fold, plus vendors and service providers eager to partner with these channel companies, including Intel, Procuro, eGurkha, Big Fish and others. Here at the conference, attendees are trying to achieve two, main objectives--one strategic, the other tactical. On the strategic front, the GMN is trying to communicate the successes that member companies are enjoying so they can dispel any notions that the MSP model is not viable. On a more tactical side, the group is attempting to develop standards and policies for working together and to identify best practices for targeting customers and building support for the MSP business model.

One company talking about the success it is having of late is DirectPointe, an applications and networking outsourcing company based in Lindon, Utah. The company's goal is to turn IT solutions into utilities that customers consume on a monthly basis. Mike Proper, CEO of DirectPointe, says the company closed the biggest deal in its two and one-half year history last week. Better yet, its 90-day pipeline for new business is $3 million--the best it has ever been. The uptick, Proper says, is coming from SMB customers that aren't interesting in investing in new infrastructure or technology per se, but nonetheless eager to gain new functionality at a reasonable, predictable cost. The company's recent success has lead five potential investors to come calling in the past sixth months. He's currently evaluating offers and believes he will engage at least one of them soon.

Likewise, Todd Beakey, vice president of business development of RSpeed, a San Ramon, Calif.-based MSP specializing in remote network management, says his company, too, is buried by the amount of business it has. Its remote network administration business has taken off and its telecommuting security services are showing great promise. Although not wildly profitable yet, the company is holding its own and also attracting interest, principally from investment bankers.

That's not generally the case with most channel companies, many of whom are struggling. But those making a transition are faring better than many. For example, Oli Thordarson, president of Alvaka Networks, a Huntington Beach, Calif.-based network integration company that provides MSP services, says April and May have not been great months for the traditional side of the IT integration, consulting and reselling company. Thordarson's efforts to create a more predicable revenue stream in the MSP space, however, are bearing fruit, he says.

Likewise, GMN member David Wiebe, CTO of Voyus, has found that the recurring revenue part of his company's business kept it alive in the past year.

Thordarson also believes it is possible to make more profit from MSP services than traditional services because MSPs' services rarely involve sending a technician into the field. Like many in the group, Thordarson sees his organization's participation in the GMN--he's the current chairman of the group--as vital to the company's continued success. He likens the work that the organization is doing to the work done a decade ago by the Local Area Dealers Association (LANDA), which helped to define the shape and scope of the client/server networking market in the late 1980s and early 1990s.

Another GMN member, Andrew Percy, CEO of Puzzle Solutions, also sees his affiliation with the group as beneficial. For one, it's helping him identify the tools and the best practices his company needs to embrace to be successful in this space. One thing that sets the GMN apart, he adds, is the group's composition, which remains skewed to service providers.

"We're really the only impendent group that's not vendor dominated," Percy says.

Though it has achieved a measurable amount of momentum, as measured by media stories and new business development, the group finds itself at a crossroads. Although certain members are enjoying individual successes, broader market realities have made it difficult to attract greater attention and garner additional industry support. To be sure, the rise and fall of once prominent companies in and around this space, including Exodus, JamCracker, Breakaway Solutions and others, have not helped it engender a larger following among analysts and customers alike.

Wisely, the GMN has shifted with the times. With capital in short supply for new, stand-alone MSPs, for example, it is looking to existing VARs and other solution providers for additional membership.

"We're repositioning to focus on morphing channel organizations," says Thordarson. "The men and women who have changed their businesses over time to take advantage of prevailing market trends represent a wealth of opportunity."

"The collapse of the ASP market may have been the best thing to have happened to MSPs," Beakey says.

Perhaps, but the group still has work to do defining the market. Indeed, at this week's meeting in California, one of the basic goals was to come up with an answer to one of the most fundamental questions challenging the group: What is the market?

Other issues the group is wrestling with this week include how best to serve customers, and get paid for it. To that end, Thordarson says the group has to work to ensure that customers recognize all the work GMN companies do for them. He talks about the 'symbols of service' that providers in other industries provide for their customers. For example, the GMN could borrow a page from the hospitality industry and create or identify ways in which members can communicate the value add they provide.

"The position of the TV remote in a hotel room, the triangle folding of the bath tissue, the arrangement of amenities such as shampoo--all these are things that hotels do to remind guests that work they expect has indeed been done. We need the same in our field, especially because so much of what we do is invisible to our customers," Thordarson says.

Though the market has had its share of starts and stops, supporters believe the work the GMN is doing could help solidify the position of providers in the market, which some believe can't help but benefit from prevailing buying trends.

"More than ever, the MSP model is one that will survive the test of time," says Srinivas Ramanathan, president and CEO of eGurkha, a Tinley Park, Ill.-based network and applications monitoring company that works with MSP customers.