What is a managed service provider? Strategic outsourcing for IT services

Nov 17, 202310 mins
Managed Service ProvidersOutsourcing

MSPs are increasingly being turned to as strategic outsourcing partners that remotely manage or deliver IT services, thanks to talent and technologies most enterprises lack.

Two people review information on a tablet in an office workspace.
Credit: Gorodenkoff / Shutterstock

What is a managed service provider?

A managed service provider (MSP) is an outsourcer contracted to remotely manage or deliver IT services such as network, application, infrastructure, or security management to a client company by assuming full responsibility for those services, determining proactively what technologies and services are needed to fulfill the client’s needs.

Services delivered by an MSP are delivered by employees located at the client’s locations, or elsewhere. MSPs can also bundle in hardware, software, or cloud technology as part of their offerings.

Managed service provider business model

Managed service providers structure their business to offer technology services cheaper than what it would cost an enterprise to perform the work itself, at a higher level of quality, and with more flexibility and scalability. This is achieved through efficiencies of scale, as an MSP can often hire specialists that smaller enterprises may not be able to justify, and through automation, artificial intelligence, and machine learning — technologies that client companies may not have the expertise to implement themselves.

MSP’s business models are typically defined by the following commonalities:

  • Service delivery: MSPs assume responsibility for specific IT systems and functions on behalf of their clients, managing them proactively, either remotely via the cloud or onsite.
  • Subscription-based pricing: Because MSPs provide ongoing services for their clients, payments for services are typically recurring on a monthly or annual basis.
  • Service level agreements (SLAs): Contracts between MSPs and their clients outline the level of service expected, the metrics by which this service will be measured, and any remedies that should be undertaken or penalties that should be incurred should service levels not be achieved.
  • Customization: Some MSP arrangements go beyond boilerplate service provisioning to offer customized services in an effort to continually add value to the relationship.
  • Support: MSPs typically offer 24/7 support for their services, although varying tiers may be offered to match support levels to a client’s budget and needs.

Overall, managed service providers aim to provide cost-effective, efficient services at a predictable cost to enable clients to focus their internal IT resources on more business-differentiating activities elsewhere in the tech stack.

MSPs vs. outsourcing and consulting

When an enterprise outsources an IT department or function, the outsourcing company either picks up those employees or replaces them with a roughly equivalent number of employees elsewhere. An MSP, however, focuses not on the jobs themselves, but the end results the customer seeks. For example, an enterprise might contract an MSP to handle support calls to a certain level of satisfaction and response time. As long as the managed service provider meets those metrics, it doesn’t matter whether it uses dedicated staff, automation, or some other system to handle calls for that customer; the MSP decides.

There is a great deal of overlap between these definitions, however, and many companies traditionally thought of as offering business process outsourcing are now operating more as managed service providers.

Managed services also differs from traditional IT consulting arrangements in that consulting is typically project-based, while managed services are ongoing subscriptions.

[ Related: 8 ways to get the most from your managed service provider ]

Top managed service providers

Key players in the managed services market include Accenture, Fujitsu, IBM, Cisco Systems, Ericsson, Lenovo, DXC, and Hewlett Packard Enterprise Development, according to Grand View Research.

MSP Swift Systems adds Carousel Industries, Cognizant, HCL Technologies, Infosys, Softchoice, and Wipro to the list of larger MSPs, while Datamation also notes the prominence of Atos, Capgemini, CDW, Deloitte, LTI, NTT Data, PwC, Rackspace, and TCS among its rankings.

As a side note, each of the top 10 outsourcing providers of 2023 are included in the above aggregations of top MSPs, demonstrating not only the gray area between MSP and outsourcing arrangements mentioned above, but the fact that, in achieving economies of scale, technology service providers are well positioned to provide enterprises with a range of offerings to choose from.

[ Related: 6 top managed cloud services providers — and how to choose ]

Managed service provider examples

Key services offered by MSPs include:

  • Data center management
  • Network management
  • Mobility management
  • Infrastructure management
  • Backup and recovery management
  • Communication management
  • Security management

Managed service providers, however, come in all sizes, with the MSPAlliance, an international association of cloud and managed service providers, estimating around 150,000 MSPs across the globe.

Some MSPs specialize in particular domains, such as network management or cloud management, whereas others offer one-stop-shopping. According to the MSPAlliance, MSPs typically offer network operation center services, remote monitoring and management tools, and service desk capabilities.

Strategic managed service providers

Managed service providers have evolved of late to offer services that support strategic and longer-term business planning, including digital transformation consulting, compliance audits, technology roadmaps, and needs assessments.

Another area of growth for MSPs has been in providing internet of things (IoT) services, with 50% of MSPs seeing IoT as a significant revenue opportunity, according to CompTIA.

Benefits of managed service providers

In addition to providing improved security, efficiency, and reduced costs, managed services providers offer the following benefits:

  • Flexibility and scalability: Variable billing can provide additional revenue opportunities for the MSP, while offering a great deal of flexibility and scalability to a customer. For example, an enterprise that has large investments in hardware and software can’t just reverse that investment during downturns. Similarly, layoffs can be very costly and cause long-term damage once the business turns around if those employees have since found other jobs. Similarly, adding capacity during temporary business surges can be difficult.
  • Access to top technical and industry expertise: MSPs can also invest in technologies and expertise in ways that individual companies, especially smaller ones, cannot, resulting in greater efficiency and performance.
  • Ability to bridge talent gaps: MSPs can also help clients gain access to talent they might otherwise lack. Take, for example, legacy systems. As older employees retire, young people are increasingly reluctant to learn obsolete languages and technologies. An MSP can not only staff legacy skills but train for them, given their large client bases.
  • Faster technology adoption: Enterprises can also turn to managed services providers for cutting-edge applications to accelerate adoption, even when they don’t have the staff to use or implement those technologies.

[ Related: Building elasticity in outsourced managed services ]

Current state of the MSP market

According to Mordor Research, the managed services market will grow to $380 billion by 2028, up from $260 billion in 2023, buoyed by increased adoption of the model among SMBs, as they look to outsource non-core IT systems and functions. “The Evolving Landscape of the MSP Business Report,” assembled by Vanson Bourne and commissioned by Barracuda Networks, reinforces this trend, citing increasing complexity of IT (49%) and internal IT resources deployed to other projects (48%) as key drivers for SMB adoption of MSPs today.

The top 10 services and solutions currently offered by MSPs include the following, according to Vanson Bourne’s research:

  1. Security operations center (SOC): 35%
  2. Cloud-based applications: 35%
  3. Managed detection and response (MDR): 34%
  4. Extended detection and response (XDR): 32%
  5. Backup, business continuity, and disaster recovery: 32%
  6. Network security: 31%
  7. Cloud-based infrastructure: 31%
  8. Business applications: 30%
  9. Productivity applications: 29%
  10. Network monitoring and management: 29%

Vanson Bourne’s research notes a drop in cloud-based infrastructure among MSP offerings, from 45% in 2022 to 31% in 2023. It ascribes this drop to fewer organizations requiring ongoing support for early pandemic spikes in remote and hybrid working. Still, navigating remote and hybrid working environments at client sites remains a top challenge for MSPs, cited by 46%, followed by increased competition in the MSP market (44%) and keeping up with tech trends (40%).

As for growth strategies, the “2023 Global MSP Benchmark Survey Report” from Kaseya found that offering new services is a top priority of 61% of MSPs, with 54% of MSP reporting that they have added up to three new services in the past two years, and another 30% having added four or tive new services over that same time period.

Additional trends include an expected growth of 28% until 2028 of the IoT market for MSPs, according to Mordor, as well as a 60% increase in adoption of AIops among MSPs, according to research from OpsRamp. AIMultiple analyst Cem Dilmegani notes that, while no numbers are currently available regarding adoption of generative AI, MSPs are expected to make considerable use of this technology in the year ahead.

Managed service provider jobs

Managed services providers hire IT professionals with a wide variety of experience levels and skill sets, though individual companies may focus on particular industries or technologies. For example, an MSP specializing in managed network services will skew toward professionals with traditional computer engineering, software engineering, and systems engineering backgrounds, in addition to software developers, and networking and security experts.

Due to the wide variety of services offered by MSPs, nearly any IT job can be found within the industry, including IT support specialists, service delivery managers, network operations technicians, systems administrators, security analysts, cloud architects, and more. MSPs also hire IT pros for roles tailored to specific vendor solutions, such as VMware and Oracle.

At an MSP, IT professionals can work with a wide variety of companies in various industries and gain more experience than they can with a single company. Working for an MSP also offers more geographic options, as many MSPs have long relied on remote staff.

Salaries at MSPs are roughly comparable to those at enterprises, according to MSP executives, who add that slight premiums can be found in the MSP job market due to competition for skills and business models that can accommodate them.

MSPs are also investing heavily in artificial intelligence and machine learning given the growth potential for their client bases.