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Automation ups the ante for cloud managed services and support

July 7 2020
by Jean Atelsek


Introduction


To a large extent, cloud-based IT has proven its mettle during the COVID-19 pandemic, and companies with automated provisioning and scaling of IT resources have survived and even thrived. The mandate for managed service providers is clear: Lean in on cloud-native capabilities and encourage customers to loosen their dependencies on outmoded manual processes. MSPs that do so will likely deliver a return on investment that goes beyond cost savings and into the heart of the customer's business.

The 451 Take

Our latest survey of third-party cloud MSP offerings shows that providers are evolving their offerings to adjust to new realities around where applications live (in containers), how resources are provisioned (via templates), and how security and compliance are handled (continually and automatically). Some MSPs are offering fuller management for the same price – a sign that they are wrangling workloads more efficiently, and in a way that treats IT resources more like cattle than pets. As a group, they are more likely to include automated services – for compliance, log management and container management – as standard, priming resources to be managed en masse. While SLAs on incident response remain widely available and robust, everyday access to technical support is becoming restricted and more costly. Additionally, pricing models are evolving to enable a predictable baseline of spending and revenue (based on unit pricing per VM or endpoint), as well as an elastic component that can increase and decrease with usage. The challenge for MSPs is to drive efficiency in ways that preserve margins, while offering sustained value to enterprises.

Support services promote self-help


For the second year, 451 Research surveyed cloud and managed service providers to develop a report on the Economics of Support and Managed Services, where we investigate:

  • Support services delivered by cloud service providers such as Amazon Web Services (AWS) and Microsoft Azure, to help enterprises build and manage cloud applications on the CSP's infrastructure.

  • Third-party managed services, delivered by MSPs on top of CSP infrastructure, to handle many of the administrative tasks associated with operating and maintaining cloud infrastructure.

  • CSPs produce the equivalent of Lego bricks: reproducible building blocks that can be simple or complex on their own, but when assembled with other bricks by someone with a vision or an objective, can create tremendous value. CSPs make meticulously designed IT services, but putting them together in a way that adds value requires experience and talent.

    Cloud support services give public cloud users access to tools and specialists to help them make the most of the CSP's environment; the focus is on helping customers help themselves. All providers include free support, generally limited to billing support and email ticketing. For those willing to pay extra, premium support services are available, typically for a 3-10% surcharge, tiered based on the total monthly cloud spend.

    The big difference in quality between free and premium support is expertise. Telephone technical support is only provided for free in 47% of cloud packages, and there are no guarantees on how helpful or timely that support will be. However, if you're willing to pay for the most expensive support tier, you are pretty much guaranteed to have access to a technical support person, with a response time SLA of 15 minutes or less.

    The crucial thing to remember is that this 3-10% fee isn't a managed service. The buyer of the cloud service is still responsible for fixing things; the support service is just a way of helping the buyer figure out what needs to be done. The only exception is where there is a problem with the underlying infrastructure, but all a paid support service will do is get the CSP to respond quicker – after all, the CSP will need to work on the underlying problem for all customers, not just an individual.

    Changes indicate more mature MSP offerings, greater automation


    Managed service providers not only offer guidance as support services, but also take on operational control of some aspects of public cloud management and administration in the form of managed services. We believe managed support and managed services should work hand in hand. Support provides prioritized access to expertise within the CSP; managed services provide prioritized access to experts that understand your applications and their business importance.

    This year we have information on 38 offerings. We added information on four new offerings, removed details about three packages that are no longer available, and received updates (including confirmation that services and pricing had not changed) for another 17, for a total of 21 new, updated or newly verified sets of data.

    The table below shows the most significant changes in how managed services are priced between this year's survey and 2019's survey. (For 'Included' offers, the service is rolled into the package's base price; 'Added service' means the customer pays extra; 'Self-service' indicates that the plan offers tools for the customer to manage this aspect themselves; and 'Not available' means the plan doesn't have the service.) The percentages show the number of service providers changing price model: positive numbers represent the introduction of a model, while negative numbers represent the abolition of a model.

    Figure 1

    Figure 1: Changes in How Managed Services Are Charged, 2019 vs. 2020 451 Research: Economics of Support and Managed Services, 2020

    While these changes represent only a portion of the managed services offerings in our sample, they do reflect the latest offerings, and thus point to where the market is likely headed. A few observations about the picture this presents:

  • MSPs are offering fuller services, in some cases for the same or a lower price; some capabilities that used be charged extra are now included in the offering, and many functions that used to be self-service are now managed or included.

  • Fewer MSPs are offering self-service options, electing to control the environment through added-cost or included managed services. Allowing customers to manage some functions can interfere with an MSP's ability to effectively control and automate cloud-based operations. Businesses that want to 'do it themselves' can opt for a lower tier of managed services or pay for support from the underlying provider.

  • Cloud-native capabilities (e.g., container setup and management, log management, scaling, and capacity management) are more likely to be included. This becomes a differentiator for born-in-the-cloud MSPs, and we believe it also reflects a preference for automation as a way of more efficiently provisioning and managing infrastructure.

  • Cost and performance optimization can be part of a standard offer as a corollary to infrastructure automation and continual monitoring.

  • Pricing models are catching up to reality


    Another feature of MSP pricing undergoing considerable change is the pricing models used to charge for over-the-top managed services. The most common method among the MSPs surveyed continues to be charging a percentage premium above the list price of the underlying infrastructure purchased from the hyperscalers. So, if an enterprise spends $100,000 on AWS with a management fee of 30%, the MSP charges $30,000. This model appears to be falling out of favor (see Figure 2). Charging on a per-unit basis – either per VM, node or endpoint – may better reflect the effort required by the MSP to handle operations, but it doesn't easily extend to noncompute services as the percentage model does.

    Figure 2
    Figure 2: MSP Pricing Models, 2019 vs. 2020 451 Research: Economics of Support and Managed Services, 2020

    As infrastructure becomes more varied, distributed and dynamic, more MSPs are finding that a combination of the two – a flat rate based on units managed plus a percentage of spend that scales up and down with usage – better represents the effort and support required for modern-day deployments.

    Upsell opportunities: Day-one initiatives get digital transformation off on the right foot


    So where are providers upselling? While day-zero activities, such as requirements definition, architecture and application design, generally fall into the professional services category, day-one initiatives, such as setup and configuration of databases, containers, and compliance, can set the table for ongoing management (see Figure 3). Migration, if offered, always costs extra; it is typically billed on a per-VM basis, although some MSPs charge per hour. Continuing management of databases, containers and compliance follows naturally from the setup – although customers could take over operation to cut top-line spending, they may find it more cost-effective to leave the service in the hands of the MSP that has the in-house expertise to set it up.

    Figure 3
    Figure 3: Managed Services Most Likely to Cost Extra 451 Research: Economics of Support and Managed Services, 2020