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In some ways, computers were once the bane of Kelly Hood’s professional existence.

In the office at Parrish Services, a Manassas, Va., plumbing, electrical, and heat and air-conditioning outfit, she was the first stop for employees with tech complaints, typically of the unanswerable variety—a computer kept locking up, a program wasn’t running correctly, a worker was having problems logging on. That was about 2001, when Hood handled customer billing and accounts payable for the then 2-year-old company.

“We started out with three or four [computers] kind of networked together; kind of everything was a mess,” said Hood, now the company’s office manager.

She’d forward the complaints to her boss to fix. Looking back, she said, too much time was spent trying to correct problems. Enter Evolve Technologies, an MSP (managed services provider) in nearby Fairfax, Va. For the past six years, Evolve has handled Parrish’s IT needs. Today, Evolve oversees the company’s help desk operations, providing Hood with a respite from the questions that once plagued her days.

If necessity is the mother of invention, it soon may also be the engine of MSP adoption for small and midsize businesses. Analysts and others in the industry are predicting big things for MSPs over the next few years. Gary Chen, an analyst with Yankee Group, said a recent survey of SMBs—defined in the survey having between two and 500 employees—showed many plan to buy managed services within the next three years.

“SMBs are just beginning to become more aware of these services, and, as time progresses, the education and comfort level will become much higher, and vendors will have refined their offerings and marketing pitches as well,” Chen said.

The future for managed services in the SMB market was not always so bright. “The MSPs were not selling to small environments because that wasn’t in the cards financially,” said Charles Weaver, co-founder and president of the MSP Alliance, a 1,000-strong organization of MSPs, in Chico, Calif.

Future growth will be driven partly by the burden of increased government regulations, data privacy laws will put a strain on IT departments and many businesses will be faced with a choice—either hire more IT staff or place their faith in the hands of MSPs, Weaver said.

Still, compliance received low marks as a driving force behind MSP adoption in a November 2006 study by In-Stat. Instead, companies of all sizes listed issues such as access to technology and a need to focus on core competencies as motivators. In-Stat analyst Jeff Jernigan said many SMBs may adopt managed services to keep up with their peers.

“Hosting is huge among small firms, and they, again … seem to be more open to outsourcing—even [outsourcing] security, which is the least outsourced function [for most businesses],” Jernigan said.

His research found midsize companies currently outsource at rates on par with enterprises, though midsize businesses are roughly twice as likely to switch from in-house performance to a managed service over the next two years as are companies of other sizes.

Most SMBs that adopt managed services want to sidestep complex tasks to focus on their core business, Chen said. “Much of the interest in managed services is for things that are hard to do and complex, such as security,” Chen said. “SMBs are beginning to realize they can’t effectively implement and manage these solutions on their own.”

Doug Turpin, information and technology director for Atlantic Bay Mortgage Group, in Virginia Beach, Va., heads a four-person IT staff. For several years, Atlantic Bay has contracted with Web-hosting company The Planet, of Houston, to handle the mortgage company’s e-mail and other critical servers. “Typically what I look for, for places to outsource, are spots where our core competency is not x,” Turpin said.

Next Page: The managed services myth.

Jeff Kaplan, managing director of Thinkstrategies, in Wellesley, Mass., is optimistic about the managed services market in 2007. However, that doesn’t mean he agrees that SMBs are embracing managed services as widely as many think.

“I’ve known for a while there’s a certain myth about their receptivity,” Kaplan said. In September, Thinkstrategies partnered with Business Communications Review magazine and the research department of media company CMP Technology, of Manhasset, N.Y., to study the issue.

Among other things, the survey of 550 businesses found that one-third of companies making less than $50 million outsourced some aspect of their IT operations but that half were not considering any managed services. By contrast, midsize and larger companies use managed services more and are more open to using them in the future, the study showed. In many small companies, the IT people in charge of operations that would be handled by MSPs are wary of outsiders treading on their turf, Kaplan said.

“The issue here is in many SMB organizations, the IT professionals … look at these managed services as being a threat to their jobs,” he said. Enterprise IT departments are more likely to be able to offer employees jobs that are of equal value to what outsiders are managing, Kaplan said.

The Thinkstrategies survey also found that while the majority of respondents were pleased with the level of service they receive, among those not pleased, 53 percent of companies earning less than $50 million not outsourcing IT activities stated it would be cheaper to handle the responsibilities on their own. In addition, most businesses that reported being satisfied with the services they receive stated they were only “somewhat satisfied,” Kaplan said. “They feel OK about it, but they are not enthusiastic about it,” he said.

However, Amy Luby, co-founder of Mobilize SMB Private Services Network, in Omaha, Neb., said a category of companies making less than $50 million is broad.
“None of my clients generate $50 million per year in revenue,” said Luby, who is also CEO of Omaha-based MSP Mobitech. “I would categorize by number of desktops. Small and midmarket would be under 250 desktops—small is under 50 desktops; midmarket is 50 to 250 desktops.”

At Parrish Services, Hood said the company each month pays about $400 per server and $75 per desktop for Evolve’s services. “When we need something, we e-mail support, and the help desk will respond within a half hour usually, and if they cannot help us, then the next person will respond right after that,” she said. “They also run our off-site backups and our anti-virus software all remotely.”

The biggest cost savings for businesses that adopt managed services are in the areas of staffing and hardware. Emil Sayegh, director of product marketing at Rackspace Managed Hosting, in San Antonio, estimated that among infrastructure, backups, licensing and other costs, his company saves each customer hundreds of thousands of dollars. WorkRecords, which has offices in Dallas and in Indiana, contracted with Rackspace in 2006.

“We had been using another hosting company for about a year and had enough service problems that switching to Rackspace was a pretty easy decision,” said WorkRecords Chief Technology Officer Tony Harvey, adding that Rackspace handles his company’s e-mail needs with Rackspace Managed Microsoft Exchange. “[The] problems with previous providers were lack of response to ongoing issues and not really having an upward mobility path. They spent tons of money advertising but seemingly little in building infrastructure to support customers.”

Though Harvey would not disclose how much WorkRecords is paying for Rackspace’s services, he said it is well worth it. “Really, a [service-level agreement] that promises a 100 percent refund of our monthly payment if they are down more than x percent is not helpful,” he said. “We want everything to work—well. We want our customers to be able to access their information. We want e-mail to keep flowing. We want backups to happen and be retained properly. We aren’t looking to save money when someone screws up. We are paying a fair price, and we want it to work.”

To that end, David Sobel, president of Evolve, in Marina del Ray, Calif., has this philosophy: Think like you are working on your clients’ IT staff. However, the mantra for SMBs, some say, is slightly different: Know what you are getting into before signing up.
Many MSPs, for example, will state they monitor client networks round-the-clock, Luby said. However, though their tools may be capable of 24/7 monitoring, the provider itself may not do that, she said. Businesses need to know whether, when a server goes down at 4 a.m., the MSP will know about it immediately or not until hours later when workers wake up in the morning, she said.

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