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How does offering managed cloud services impact MSP business operations?

Once a traditional IT services provider has made the move to managed cloud services, how do business operations compare? Find out how managed cloud services impact margins, the delivery of added value and help desk tickets.

Increasingly, managed service providers (MSPs) are expanding their offerings to include managed cloud services. Managing IT services that are hosted in the cloud, versus within the MSP or client's infrastructure, offers many of the same benefits it can provide customers: scalability, flexibility and a pay-as-you-go model. But how do these benefits impact MSP business operations?

"There's an opportunity to gain greater margins and support more customers and even tickets per customer, so you can scale your business to a greater extent," said Jeffrey Kaplan, managing director for analyst firm THINKstrategies Inc. "The caveat is you have to have the skills to properly configure the stuff, to properly package and price it to your customers and properly perform those functions. Unfortunately, the marketplace appears to be commoditized and price sensitive, which could undercut the assumptions around margins."

As with any managed service, the key to increasing margins with cloud services is in delivering value. For example, iCorps Technologies, a Boston-based managed and cloud service provider, offers Office 365 as a managed solution. In addition to selling licenses, iCorps Technologies serves as its clients' single point of contact for any matter related to the service. As a result, the MSP's margins are not based on "just the dollar or two off the license," said Jeffery Lauria, iCorps Technologies' vice president of technology. "It's a whole ecosystem built around that. In short, you increase your margins by building services around the platform. You can sell the product for MSRP [manufacturer's suggested retail price] or more than MSRP, but you have to have some value associated with it, and that's what we do," he said.

Differences in delivering added value

The way in which MSPs deliver value differs for cloud-based services versus traditional managed services. "It's not a question of getting something to work. It's a question of how do you best utilize that new resource … now [MSPs] have to add value in a whole new way to help the customer figure out how best to utilize that software. That means there may be different support skills that are necessary. That may be an opportunity [or] that may be a challenge," Kaplan said.

Christopher Hertz, CEO for New Signature, a Washington, D.C.-based managed and cloud service provider, agreed. "You can still administer the services -- add, drop, make a change -- and you are still answering questions on the help desk, but those two areas are diminished. There's an erosion of what you can do as an IT professional."

The world will shrink for those MSPs that can't adapt to this new model where you're working more with the end-user customer on how to use technology versus building the technology on a server.
Christopher HertzCEO, New Signature

"[On the one hand,] you're doing similar things in the cloud but decreased in the amount of effort. And then there's the new world where, in many cases, instead of keeping the lights on, you're helping the customer understand how to use the sets of capabilities available to them from these cloud services," Hertz said.

Hertz added that cloud service providers roll out new features faster than ever before, and clients can't keep up. "There's a paradigm shift where instead of delivering managed services, now you're spending more time working with customers delivering value around services through change management, which includes user adoption, evangelization and training," he said.

The number of help desk tickets

The number and nature of trouble tickets also changes in the cloud. "If [MSPs] take advantage of the [cloud] service correctly, they can increase their management capabilities and increase the number of tickets they can handle, but hopefully those decrease because the service is delivered in a reliable fashion," Kaplan said.

That is Lauria's experience. "On-premises systems require maintenance, servicing and patching. As a service provider, when we take that on-premises system and put it in the cloud, we see stability and reliability go up, and that reduces tickets and problems associated with it," he said.

That doesn't, however, make cloud services a panacea. "The difference is, if you [run] the managed service, you have greater control. You can control the SLA (service-level agreement) and that outcome. If you are using cloud services, you have to rely on a third-party vendor and their SLAs, and that's where it becomes a challenge," Lauria said. "I don't want to say clients become put off, but it's difficult when I say to them, 'Time-to-remediation is three to four hours' or 'I don't know, I'm working with the business partner to resolve that.'"

The move to cloud services is inevitable

Regardless of the challenges, moving to managed cloud services is inevitable. "Another thing to keep in mind, if you don't move in this direction, someone else is going to take your place," Kaplan said. "It's akin to when managed services first launched. People were thinking of managed services in terms of managing whether things were up or down, but for the most part every managed service provider also had to offer managed security support. If they didn't, someone would come in and take their place. Whether you like it or not, you will be pulled in this direction."

Hertz agreed. "The world will shrink for those MSPs that can't adapt to this new model where you're working more with the end-user customer on how to use technology versus building the technology on a server." When asked how he felt about the change, he said, "I think it's rewarding. I'm not a plumber fixing pipes but helping with strategy and business growth. Frankly, it makes us more valuable."

Next Steps

Learn about making the cloud transition with minimal disruption to your business model

How to improve MSP operational efficiency

Tips for selling cloud services

This was last published in February 2015

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How has offering managed cloud services impacted your business operations?
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I cannot overemphasize the importance of utilizing cloud computing services in creating connections among employees and prospective customers in a business. Besides, such employees can easily access crucial data, files and applications, enabling them to perform their jobs efficiently, irrespective of their locations.  Moreover, cloud IT services allow organizations to share internal data over the cloud, without availing it to outside parties. It also enables businesses to store substantial amounts of data using the internet.
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