Report: Good Times Ahead For MSPs

Enterprises will outsource up to 90 percent of their security solutions by 2010, according to a report issued this week by the Yankee Group.

The report also indicated that the market for managed security solution providers (MSSPs) will reach $3.7 billion in that same time.

Yankee analyst Matthew Kovar attributed much of this potential growth to security-driven regulations such as the Health Insurance Portability and Accountability Act (HIPAA) and the Sarbanes-Oxley Act -- pieces of legislation that require corporations to document just about everything.

"Organizations have used these legislated requirements to kick off security risk programs known in the early generations as vulnerability management initiatives," Kovar said. "Managed security service providers are merely naming the services to align with what executives are trying to do, and it's merely happenstance that the product name matches enterprise need."

As such, Kovar said that traditional solution providers are flocking to the managed services model in the hope of becoming MSSPs and cashing in. In particular, he said, over the past few months alone, a large number of resellers also have made the switch from reactive network engineering to managed services.Other statistics support this claim. A recent benchmark study by Thinkstrategies and the MSPAlliance indicated that the vast majority of MSP partners saw their revenue grow in the past 12 months, and predicted that this trend only will increase as the need for vulnerability management and other security services becomes more prevalent.

"There's always a need for someone to handle security," said Gavin Garbutt, chairman and co-founder of N-Able, a provider of management software for MSPs. "If it's cheaper for solution providers to be the ones to handle it [at a particular customer], I'd say that customer is making a smart business decision."

At last week's CMP XChange conference in Chicago, a panel of recent MSP converts debated the pros and cons of jumping on the managed services bandwagon. Many of the newest MSSPs reported that they converted their businesses to the new model so they could enjoy lower overhead, freeing up workers, economies of scale.

Others, such as David Balcar, president of Network Design and Integration, Houston, said they made the switch in response to customer demand.

"I don't think we ever looked at [managed services] as a profit thing," he said, noting that his company first introduced managed services into its arsenal last year. "Our customers just asked us for it. They thought it was the cheaper and more efficient way to go."Incorporating managed services into a more traditional reseller model certainly does have precedent. Back in the mid-1990s, when Oli Thordarson, CEO of Alvaka Networks, Huntington Beach, Calif., opted to convert his business into a managed service provider, the profits came pouring in. Today, Alvaka continues to be profitable.

The secret to Alvaka's success can be summed up in two words: recurring revenue. "Managed services offer us a predictable revenue stream from month to month and year to year," said Kevin McDonald, vice president of business development and worldwide channels. "That revenue stream has allowed the company to focus on the big picture of future growth, product offering, and strategic relationships."

Other MSP veterans welcomed the notion of newer, younger VARs joining the MSP fold. At DirectPointe, for instance, a pure-play MSSP, Dan Atkinson, executive vice president of sales and marketing. said more VARs in the MSSP marketplace will mean more competition and more profit opportunities for vendors, customers and resellers to boot.

"Businesses are realizing that they can't do the bare minimum anymore," he said. "We, as solution providers, need to do the same."