Managed Service Provider (MSP)

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What is a Managed Service Provider?

A managed service provider (MSP) is a third-party company that provides remote IT management services for businesses, nonprofits, and government agencies. They handle the day-to-day management of the customer's technology infrastructure, including network management, security, and monitoring, allowing organizations to focus on improving their services without worry. MSPs may specialize in specific IT segments or vertical markets and perform their services remotely over the internet.

The evolution of MSPs started in the 1990s with the rise of application service providers (ASPs), which provided remote application hosting services. The initial focus of MSPs was remote monitoring and management of servers and networks, but over time they have expanded their services to offer a broader range of IT support. Today, the terms cloud service provider and MSP are sometimes used interchangeably when the provider's service is backed by a service-level agreement (SLA) and delivered over the internet.

What are MSPs used for?

A Managed Service Provider (MSP) can help an organization streamline its operations and improve efficiency. Both Small and Medium-sized Businesses (SMBs) and larger enterprises can benefit from hiring an MSP. SMBs, which often have limited in-house IT capabilities, can use an MSP to obtain expert IT support. Larger enterprises, such as government agencies facing budget constraints and hiring limitations, may also turn to an MSP to supplement their internal IT staff.

An MSP takes care of the complex, time-consuming, and repetitive tasks involved in managing IT infrastructure and end-user systems. These tasks include managing IT infrastructure, providing technical support, adding cybersecurity software, managing user access accounts, handling contract management, offering compliance and risk management, and providing payroll services.

How do MSPs work?

A Managed Service Provider (MSP) is a company that provides IT services to organizations to meet their business objectives. The relationship between an MSP and an organization starts with an assessment of the organization's current IT environment to determine areas for improvement and support business goals.

MSPs offer different service options, such as technical support fix services and subscription services. Technical support fix services involve resolving IT issues either remotely or on-site, with charges based on time and parts used. Subscription services involve monthly billing for ongoing maintenance, security, monitoring, and reporting, as defined in a Service Level Agreement (SLA).

Some MSPs specialize in a particular vendor or technology and offer their own native services, while others offer a mix of their services and other providers' services. They also use specialist software platforms, such as RMM tools and PSA applications, to manage functions such as network maintenance and project management.

The value of an MSP to a business is highlighted by five C-level executives, who agree that MSPs can help organizations save money, increase efficiency, and improve security. An MSP's service offering is typically governed by an SLA, which spells out the performance and quality metrics. Organizations should be careful when defining their commitments in SLA contracts, which may be linked to the MSP's pricing formula.

What are the types of MSPs?

Managed service providers (MSPs) can be categorized in various ways based on the criteria used for classification. One approach is to categorize MSPs based on the size of their target clients and the level of responsibility they take on. This results in three types of MSPs:

    1. Pure-play MSPs - Smaller providers specializing in network and application performance monitoring with a focus on reporting and alerts.

    2. Staffing legacy MSPs - Mid-sized organizations and Fortune 500 companies are the target customers for these MSPs, offering a wide range of services including monitoring, reporting, software installation, and upgrades.

    3. High-level MSPs - Both small and large providers, allowing clients to outsource their IT processes as needed with a wide range of services offered.

Another way to categorize MSPs is based on the type of services they offer:

    1. Monitoring - These MSPs offer real-time monitoring software for applications, network devices, servers, and websites.

    2. Remote support - Cloud-based software and remote device support, troubleshooting technical issues.

    3. Proactive support - Preventive maintenance to avoid potential device or network issues.

    4. Centralized management - Providing a management console for complex networks, remote monitoring, patch management, and security software.

    5. Scheduled maintenance - Regularly scheduled network maintenance for organizations.

    6. Simplified billing - Invoicing, payments, and budgeting are handled via a billing management system.

What are the benefits of managed service providers?

Advantages of using a managed service provider include:
    • Covering staff shortages: An organization can delegate tasks to an MSP if it lacks personnel.
    • Accessing specialized knowledge. Engaging a reputable MSP gives an organization access to experienced resources.
    • Ensuring business continuity. An SLA outlines the MSP's responsibilities to the organization in the event of a disaster.
    • Providing continuous network surveillance. Many MSPs offer 24/7 monitoring services through the use of network monitoring tools for system monitoring and cloud management.
    • Enhancing security. Some MSPs offer security software and security training.
    • Reducing costs. A fixed monthly fee for day-to-day management services may be more cost-effective than paying for individual repairs if unplanned issues arise. This allows the organization to focus on improving its services.

What are the challenges of managed service providers?

Managed Service Providers (MSPs) offer several benefits to organizations, but there are also some challenges to consider. These challenges may include:

    • Lack of security focus: Some MSPs may not prioritize cybersecurity measures.
    • Dependency on third-party companies: If a business relies on an MSP for daily tasks, it may become dependent on them. If the MSP fails to meet the commitments outlined in the Service Level Agreement (SLA), it could result in system downtime.
    • Response time: It may take longer for an MSP to address an issue, leading to potential delays.
    • Upselling: An MSP may try to sell the organization additional technology or services that are not necessary.
    • Limited access to information: The MSP may use proprietary tools to manage and monitor the organization's infrastructure, making information less accessible.

What is the pricing model for managed service providers?

The common pricing models for managed service providers (MSPs) include:

  1. Per-device pricing: MSP charges a fixed fee for each device it manages.
  2. Per-user pricing: MSP charges a fixed fee for each user, regardless of the number of devices used.
  3. All-inclusive pricing: MSP charges a flat fee for all IT support and management services.
  4. Tiered pricing: Customers choose the package of services that suits their needs.
  5. Monitoring-only pricing: MSP only provides monitoring and alert services for the IT infrastructure.

All these pricing models are typically subscription-based with a flat fee charged on a regular basis, often monthly. This approach provides MSPs with a recurring monthly revenue (MRR) stream, as opposed to IT projects that are usually one-time transactions. MRR is different from other business models, such as the break/fix model, which typically charges an hourly rate for repairing IT equipment and parts or replacement gear.