Service providers try to pull back from the brink

Stung by end-user confusion, an over-saturated market, and disappearing venture cash, hosted service providers are going back to class and searching for answers to help capture and satisfy the elusive enterprise customer market.

The timing for desperate measures by service providers to reverse their sagging fortunes has reached fever pitch. Fearing negative connotations, many are turning their back on their once-touted identity.

“It’s pretty clear that some service providers are trying to get away from labels. In some circles, ASP [application service provider], MSP [managed service provider] have become dirty words,” said John Madden, industry analyst for Boston-based Inc. “In this economy, I think [xSPs] would be foolish not to take stock and see what they have in [terms of real] services to offer.”

At the xSP World and Channel Conference in Boston this week, reinvention was indeed the name of the game as industry experts agreed that building partnerships and expanding services was crucial to bolster service provider viability. To that end, vendors including IBM, Agiliti, and Silverback each unveiled new twists on their current service provider efforts at the show.

IBM stamped the xSP label on its renamed and revamped Prime Partner Program to shift from an ASP-only emphasis toward a myriad of other service provider models. Big Blue’s program is designed to help ISVs (independent software vendors) Web-enable their applications to serve their new targeted audience.

A generic term for any kind of service provider on the Internet, xSPs comprise the alphabet soup of ASPs, MSPs, SSPs (software storage providers), MSSPs (managed security software providers), BSP (business service provider), and WASP (wireless application service provider).

In return for inclusion in IBM’s Intel-based xSP Prime Program, participants would agree to run IBM hardware in their infrastructure going forward. As part of the rebranding efforts, IBM’s program and facilities used to run the operation have been tweaked to also answer deployment requirements of MSPs, Web hosters, Internet data centers, and SSPs, according to Ann Reiten, global ASP business leader at Armonk, N.Y.-based IBM.

Reiten warned attendees of the danger of being non-specific about their offerings in an increasingly customized market. She also impressed upon the importance of xSPs owning the technology they deliver to cut down on outside dependence.

According to Madden, vendors will be under the gun to find specific complementary partners to easily integrate their solutions and business model with.

Other top priorities to inject life into the battered service provider image include establishing sound financial models and the development of value-added services to woo indifferent customers, according to industry analysts and providers. Customers will dictate what types of additional services they need bundled onto their original hosted application, be it supply-chain management, storage, VoIP (voice over IP), or network management, many agreed.

Bloomington, Minn.-based Agiliti, for example, bolstered its software services and changed its pricing to gain customers.

Agiliti announced at the xSP conference its new AgileIT Solution for ISVs. The subscription-based suite of services, which can run from proof of concept, to online enablement and testing to eventual service delivery, is hosted at Agiliti’s data center in St. Paul, Minn. Agiliti provides customization features to customers and allows them to offer tack on additional rented applications to their customers, such as Microsoft Exchange 2000.

In addition the company slashed its pricing model in half six months ago, conceding that a direct-sales ASP model was doomed to fall flat to unconvinced legacy customers, said Agiliti chairman and CEO Tom Kiefer.

“Getting comfortable with ourselves as a utility will be a challenge for us,” said Kiefer of the limping and wiser service delivery space.

Some service providers are opting to reverse their course not by inclusion into business model wellness programs, but by shedding market associations they find themselves in league with.

Choosing instead to emphasize the “software” aspect of its business model over service delivery, Billerica, Mass.-based Silverback and former MSP is aggressively rebranding itself as a managed software provider. The move, said Silverback spokesman Dale Allaire, was set in motion to curb customer confusion.

“I think we are mislabeled. Definitely,” said Allaire. “MSP right now is a connotation that doesn’t work well in the middle market. That whole discussion on what we’re about and what we’re providing and how we’re different from MSPs, it goes away.

Ironically, one year ago Silverback celebrated its inclusion into the MSP Association membership during an event at PC Expo in New York.

Silverback offers customers IT monitoring and reporting software from an on-site appliance connected to Silverback’s back end. The company is slowly weaning customers toward a license contract and away from a subscription-based pricing scheme and plans to go head to head against framework giants.