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Managed Services

IT's Tough in Managed Services

7:50 AM -- The telecom managed services sector is entering a delicate phase as the likes of Alcatel-Lucent (NYSE: ALU) and Nokia Networks re-evaluate lower-margin/loss-making deals and concentrate on the ones that add to the bottom as well as the top line. (See Alcatel-Lucent Could Exit 25% of Services Deals and NSN's Rajeev Suri: Restructuring, Research & Resilience .)

The deals that are of less worth are those that involve a lot of basic maintenance and parts management. The deals the major telecom equipment vendors are most interested in now are the higher-margin IT systems management and IT transformation deals that include systems integration and consultancy elements: One of the reasons Ericsson AB (Nasdaq: ERIC) acquired Telcordia was to boost its chances of landing such deals and it's had some success. (See Fastweb Picks Ericsson for IT Managed Services, Ericsson Gets IT, Ericsson's SPIT Vision and Ericsson + Telcordia: What the Analysts Say.)

The trouble is, those IT outsourcing deals are a lot harder to win: A broader range of large IT services companies are also competing for those deals, making it a much more competitive market.

A case in point is a deal just awarded by Saudi Arabia mobile operator Etihad Etisalat Co. (Mobily) , which has outsourced its IT operations to IBM in a five-year deal valued at 1.05 billion Saudi Riyals (US$280 million). The deal with IBM will, according to a submission to the Saudi stock exchange by Mobily, "lead to several technical advantages in final product quality, and in managing and securing the applications and ensuring business continuity."

Other companies competing in this sector include big names such as Accenture , Capgemini , HP Inc. (NYSE: HPQ), Tech Mahindra Ltd. and Wipro Ltd. (NYSE: WIT).

Winning services deals and broadening the revenues mix and capabilities has lessened the reliance of major network infrastructure vendors on sales of equipment but generating decent margins from those services is an altogether tougher task.

— Ray Le Maistre, International Managing Editor, Light Reading

shygye75 12/5/2012 | 5:24:42 PM
re: IT's Tough in Managed Services

The search for low-effort, low-risk, and high-margin businesses continues. Amazing that such opportunities are so hard to find.

paolo.franzoi 12/5/2012 | 5:24:41 PM
re: IT's Tough in Managed Services

 


So, I have run a very small managed service operation.  We did spam filtering for about 200 ISPs.  We developed the spam filter product and provided the managed service with boxes on site or in our data centers.


There are several issues with this as a product developer.  The entire model is different than selling boxes.  Given that the majority of the business at the company I have been working for is a security appliance business, I see this in spades.


One huge issue that I have seen with the way the telco equipment guys have gone after this is the one off nature of these deals.  I will make the assertion that the best way to make money at these things is scale.  If you are going to do random things for random folks, even large ones, your costs are going to be huge.  You don't get to refine the techniques to operate the network.


You have to think like an operator not an equipment company.  If the service you offer requires specialization, is low volume then you probably don't want to do it.  I know that people never think about the internal aspects of this but my buddies at AT&T used to tell me that they estimated $20M to bring in a new piece of gear.  Imagine the costs to turn up a brand new service.


Just so I have given you a whole picture of this.  We had written custom software as the customer portal (for billing and resellers), license system, network monitoring software (on top of customized Nagios instances), a simplified customer service tool to allow Tier 1 TAC guys to do more complex operations (to save money), as well as really hardcore Network Operations and Development tools.  All of that was on top of the product that we deployed (which the vast bulk of which was hand coded but much could have been acquired as open source).


seven


 

Soupafly 12/5/2012 | 5:24:37 PM
re: IT's Tough in Managed Services

I rescued a Multi million $$ managed ICT services business in a former life.


In addition to your scale comment, I would add it depends on where you play.


It seems to me that significant proportions of these deals seem to be "me-too" offerings which essentially start from a "I will replicate your systems & people for less" approach.


That is NOT managed services. That is low cost outsourcing. They are very different things if you have built, operated & managed a managed services company, you would know this.


Very few people have actually done it. Allot of people talk soo much BS about it, its laughable. They even sound convincing until you ask them a couple of probing questions. Then they typically wilt.


If you compete on cost & your a low cost outsourcer then you are going to blow up, unless like Brooke7 states, you can build & leverage automation and use geo-arbitrage around labour to stack the deck. But they are temporary fixes, tactical not strategic, in nature & scope.


Is it really tough to run a profitable MSP. Heck ya!


Does it require laser focus? Yep!


Can it be done consistently? Absolutely!


 

paolo.franzoi 12/5/2012 | 5:24:36 PM
re: IT's Tough in Managed Services

 


Soup,


 


Some very sage comments.  Where I think the scale comment comes from for me was where I played in that space.  We specialize in something everybody uses.  So our cost to run that function is lower than the cost of our customers who do this as a one off function.  Our scale to compensate is horizontal.  So, we run the same service (with some amount of customization built into the service for our customers) across many customers.  We use that same product that the 200 ISPs use as an mail filtering service for over 2000 business customers.  That service is sold separately but is just like the one that our 200 ISPs (and some MSPs) use.  It is just that I am the operator.


seven


 


 


 

Soupafly 12/5/2012 | 5:24:16 PM
re: IT's Tough in Managed Services

Noted seven.


Your business model (based on what you have described) sits around delivering a service at a better price and with the same or better support & performance.


That's not unlike what my MSP did and we excelled at it.


My biggest point, was stay focused on what your value proposition is and what you do that's different from a deliverable perpsective. If you only focus on price and a "me-too" features it will end in tears. That's not what you doing by the sound of things but it is what allot of the very big players are trying to do.


To you, I say bon chance!


Ciao Soups

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