The Good, the Bad and the Ugly of going from MSP to CSP

Recently at IT Nation I led a panel discussion on the “good, bad and ugly” associated with the trend and experiences of MSPs transitioning to CSPs. This article captures the main takeaways from the panel session. Should MSP owners and operators re-invent their businesses as CSPs and what are the key considerations in doing so?

Is it too late to build vs. buy? Building out a virtualized private cloud is an expensive proposition. The MSP has to determine whether building out a private cloud infrastructure makes sense versus either working with a master private cloud provider (like Artisan Infrastructure) or slicing up and reselling a managed cloud offering from a company like Zumasys, RackSpace or VMWare. Lyf Wildenberg, CEO of MyTech Partners out of Minneapolis, MN, suggested that “Determining to build (a private cloud) means that the MSP must be resourced appropriately in order to handle the change in the support load, NOC operations and infrastructure delivery. A strategic assessment of the MSP’s staff, its supporting infrastructure and toolset capabilities must be completed before deciding to implement a private cloud infrastructure.”

Does an optimal target market customer (to offer cloud services to) exist? Panelist Tommy Wald, former CEO of WhiteGlove Technoligies (acquired by MindShift in 2012) offered a strong opinion. “The complexity of the technology and IT services needs of mid-market enterprise is such that offering a cookie-cutter approach to them is a tough sell. MSPs that serve the SMB market typically offer more commodity service offerings. Those offerings are most easily replicated in a private, multi-tenant private cloud offering. So the MSPs serving the SMB are most well suited to offer a private cloud product.” The other panelists debated whether certain vertical markets could be easily serviced by a private cloud offering. They agreed that certain verticals in which private client data breaches are a concern (legal, finance, etc.) are more appropriate for a single tenant private cloud only if the business opportunity is big enough.

Is cloud cheaper? The panelists all agreed that offering cloud services is not cheaper. According to Jim Lancaster, President of Sagiss in the Dallas MetroPlex suggested “MSPs either are buying equipment and racks for dedicated equipment or paying license fees for a hosted virtualized environment. Either way the expenses are such that the gross margins of the business model are not shifted dramatically either way assuming your basket of services pricing stays constant.” The panelists advised MSPs to look at their pricing and business model aspects against any potential shift in their usual MSP-based services pricing or billing methodology to determine the marginal differences.

What are the risks to consider? The panelists identified several risks in considering a cloud services deployment model. The discussion regarding risks surfaced many tough questions. The panelists unanimously noted that each MSP must ascertain which risks are most prevalent for their own situation. Some of the risks identified include:

Security: Security is a risk for both the MSP and its clients. Is the cloud services infrastructure secure against an external breach? Will clients be concerned about the physical or virtual location of their data? Creating documented and audited procedures for operations processes and security procedures will help put cloud service customers at ease with the transition.

Single point of failure: Like any business consideration, MSPs must be confident in deploying a cloud services deployment model such that it doesn’t risk the predictability of stable MSP business revenue or profits.

Competition from other client service providers: If an MSP is not currently offering a cloud service offering there is a good chance that another of their vendors (for example ISPs or ISVs) might try to upsell cloud services to displace their current managed service offering. To limit this risk, MSPs must maintain close, trusting relationships with their customers and work to own as much of the service delivery stack as is reasonable for their business.

The panel session concluded with great discussion around the topic of “keys for success” in deploying cloud services and completing the transition from MSP to CSP:

Assess your team. According to Kevin Fitzpatrick, Director of Technical Support at CSP Zumasys, “Determine if your current staff is currently capable to manage the cloud business offerings. If they aren’t then you’ll have to assess whether or not they are capable to train to make the transition. If you determine they aren’t capable to make the transition, then what? You’ll need to re-staff or reconsider your potential to move to becoming a CSP.”

Use clear contractual agreements to give customers assurance about the delivered services and their ownership of their data. Transitioning a customer data to the cloud isn’t necessarily an easy process. Customers should also know their rights and their ability to move off the cloud should they choose to do so. Ensure that your contracts are clear. Sure, friction in moving data may provide you some “stickiness” with your customers but you will build trust and goodwill by making sure they know just what it means to move data to the cloud and also how they can get off of it if desired at a later date.

Create value to survive and to thrive. Wildenberg from MyTech Partners put it best, “As a service provider, whether you are a traditional MSP or moving to CSP, all of the risks we’ve talked about and the competition within an accelerating technology market are such that you must absolutely offer and surround each of your customers with a valuable service experience in order to maintain and grow your business.” It’s as simple, and difficult, as that.