The BIG business of managed services for SMBs: as applications grow more complex, a key enterprise segment looks for expert guidance

America's Network, August 1, 2004 by Carl Weinschenk

"The problem is that at the client, there is not a perfect world. Things are routinely misconfigured," says McMillan. These companies, others add, see the SME market as one of convenience that will be de-emphasized once the large enterprises rebound.

WHO'S A PLAYER?

The large service providers say that they are capable, long-term players. AT&T, for instance, says that it traditionally has been a strong purveyor of managed services to the high end of the SME sector. The typical company served by AT&T's "Select Markets" group has 100 to 1,000 employees, annual revenues of $30 million to $1 billion and seven locations. About one-third are very active globally, says Mark Metzendorf, the sales vice president for AT&T Select Markets. He says customers seek simplified solutions.

"There is a huge demand for simplicity," he says. "These customers don't have large IT organizations that can manage the complexity in terms of assembling all the components. The notion of having a limited set of partners to do managed outtasked applications is attractive to our customers."

Executives describe broad groups from which the players are emerging: the telecommunications players and the applications specialists. One group can provide the local, long distance, wireless and data services--move the bits and bytes--while the other hosts the apps.

"In general, we see it in two buckets," says Michael Stewart, the president of mid markets for Broadwing. He adds that application companies that do not drill down and offer industry-specific products may be in trouble.

The particulars vary, but the theme is that SMB managed services rely heavily on cooperation--either through acquisition or partnership--between a wide variety of network owners, value-added resellers (VARs), systems integrators, consultants, and others.

It is a market that also is regionalized. "I really think some of the smaller, lesser known players are playing a big role in educating the big players in how to get to the SMBs," says Gartner's Goodness. "I really think that the [SME] market will always be owned by the regional VARs and mid-tier systems integrators and carriers."

A good example is Cbeyond, which provides managed services to companies with between four and 100 employees. It is among many companies that rely on Cisco for the infrastructure it provides to its SMB customers. Cbeyond has gained 12,000 customers since it began selling three years ago, says chief marketing officer Brooks Robinson. It partners with a variety of other companies to serve its customers.

While there are different opinions about the size of the SME marketplace, what portion MSPs will get and what type of providers will predominate, there is little disagreement on the fact that the market is growing rapidly.

Six reasons why SMEs and MSPs are partnering

SMEs are more apt to use MSPs because:

1 They can't hire or retain the expertise themselves.

2 Their security concerns are increasing.

3 They face Sarbanes-Oxley, HIPAA and other federal mandates.