Cloud computing technology poses opportunity, big challenge to MSPs

Managed service providers talk about how their businesses are being affected by the emerging cloud industry.

Outsourcing some IT processes and bringing in managed service providers (MSPs) to help business systems run smoothly have been standard procedures for many companies for years.

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But is that changing now as cloud computing technology becomes a more popular and widely-available option? And is the rise of cloud computing services coming at the expense of traditional MSPs and their offerings?

Interestingly, an informal survey of four MSPs found that cloud offerings may be a boon, not a bane, to their businesses, and those MSPs will probably add cloud-based services to their arsenals to better assist their customers.

"I think cloud computing is going to be a tool for us," said Jason Ulm, vice president of sales for Traverse City, Mich.-based Appia Communications Inc., an MSP that offers hosted voice, video and network management, all from the cloud. "If a customer already has had one service outsourced or hosted outside their building, it's easier for them to be open to the cloud because they have found value" from such arrangements in the past, Ulm said. "They've used these before and they're comfortable with them."

Most customers don't yet even fully understand what cloud computing technology is at this point, according to three of the four MSPs. But customers do ask for services to help them streamline or improve their own IT systems, usually without knowing that those services will be delivered using a cloud computing infrastructure. The MSPs said that customers generally don't care about the underlying technologies that will solve their problems, but just want the issues fixed.

"I've never had customers say to me, 'Hey, what do we need to do with the cloud?'" Ulm said.

Paul Chisholm, the chairman and CEO of mindSHIFT Technologies Inc., a Waltham, Mass.-based MSP, said his business is growing as more small- and medium-sized businesses (SMBs) need new services but don't have the internal IT staffs to do it themselves. Cloud computing is adding more ways for mindSHIFT to deliver those services, he said.

"It's something that is positive to us," Chisholm said. "Cloud computing makes people aware of a lot of different things," including their needs for security, consistent performance and 24/7 uptime. "The MSP business has always been a cloud-like business. This is nothing that's going to hurt our business. I see it as a natural extension rather than a brand new strategy. Anything in the marketplace that brings credibility to what we do is going to help us."

Oli Thordarson, CEO of Irvine, Calif.-based Alvaka Networks, said that although the cloud has important technical underpinnings for MSP operations today, the presence of cloud technologies is not the key reason customers are buying new services.

"For the clients, it's not the awareness of the cloud that's going to make them more likely to sign," Thordarson said. "It's really more a relationship of trust. Over the years, the things we have done for them have worked. Until we show we're not a trustworthy business partner, they'll tend to gravitate toward whatever we recommend to them."

Yet there has also been some worry accompanying all the changes in the availability of cloud services in the MSP world, Thordarson said.

"There's a certain amount of fear in the MSP and VAR/IT services provider marketplace about how the cloud computing market is going to affect us all," he said. "When everybody has peeled back the layers of the onion, I think there's both fear and opportunity. The general consensus with the guys I talk to is that not everybody is going to go to the cloud, but that a lot will go to the cloud."

M.J. Shoer, president and virtual CTO at Portsmouth, N.H.-based Jenaly Technology Group Inc., agrees.

"Certainly there's a lot of concern out there in the industry about how cloud computing will affect our revenue," Shoer said. "It may change how and what we look at, but I think it doesn't change our fundamental relationships with our SMB clients. They still want us to be there as their trusted advisors. If anything, the impact of all these new and different options is going to make that even more important."

What's positive about the emergence of cloud computing technology today is that it is looking like a potentially good new revenue source for IT providers, who have been hard hit by the tough economy, Shoer said. "From the MSP side of things, it's just one more managed service that you can provide. Everybody's hyping the cloud as well as worrying about how the cloud will affect them," he said.

About the author
Todd R. Weiss is an award-winning technology journalist and freelance writer who worked as a staff reporter for Computerworld.com from 2000 to 2008. He spends his spare time working on a book about an unheralded member of the 1957 Milwaukee Braves and watching classic Humphrey Bogart movies. Follow him on Twitter @TechManTalking.

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