Managed Service Provider (MSP)

What is a Managed Service Provider (MSP)?

A managed service provider (MSP) is a company that oversees information technology for other businesses. MSPs give businesses access to expertise, resources, and technologies that they may not be able to afford or maintain on their own.

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This is particularly beneficial for small to medium-sized businesses, nonprofits, and government agencies that lack the resources and/or expertise to manage specific types of technology in-house.

Techopedia Explains

The business model for today’s MSPs evolved from the 1990s when application service providers (ASPs) first began to deliver software over the Internet.

This was a significant paradigm shift from the traditional approach, where businesses purchased software licenses, installed the software on-premises, and managed the software in-house.

Essentially, the early success of ASPs showed businesses that they could be more agile and reduce staffing costs by outsourcing IT services. The technology that inspired this new “as-a-service” delivery model also inspired new types of pricing schemes like subscription-based pricing and consumption-based pricing.

Today, the terms “cloud service provider” and “managed service provider” are often used interchangeably, but the two terms are not synonyms.

While many of today’s MSPs deliver their services from the cloud, not all cloud service providers (CSPs) are MSPs – and not all managed services are delivered over the Internet.

While the industry has seen a significant shift towards remote management and support, especially with advancements in cloud computing and remote monitoring tools, there are still numerous situations where on-site managed IT services are necessary or preferred.

Examples of Different Types of MSPs

Some MSPs concentrate on specific ICT management components, like network management or voice over IP (VoIP) telephony, while others target specific industry sectors, such as healthcare or manufacturing. The choice of MSP largely depends on the client’s specific IT requirements, their industry, and their business objectives.

Here’s a breakdown of the different types of MSPs and the services they provide:

Types of Managed Service Providers (MSPs)

  • Network Infrastructure: This type of service provider specializes in network hardware and infrastructure management. Their services typically include network operation center (NOC) services designed to make sure the client business’ network is reliable, fast, and secure.
  • Remote Monitoring and Management: RMM MSPs specialize in monitoring and managing IT infrastructure and endpoints remotely. This type of service provider can proactively detect and resolve IT issues, often before the client is aware of them.
  • Managed Security Service Providers: MSSPs offer firewall management, intrusion detection, virus protection, and security information and event management (SIEM) services. These services are crucial for businesses that need to protect sensitive data and comply with regulatory compliance mandates.
  • Cloud Management: This type of MSP can be hired to help with cloud migration and optimizing cloud resources for cost and performance.
  • Managed Print Service Providers: MPSPs help companies acquire and manage their printing assets, which include printers, copiers, and fax machines.
  • Data Storage and Management: This type of MSP provides data storage, as well as backup and recovery services. Depending on the SLA, they may be responsible for data in transit, as well as data at rest.
  • Communication Services: These managed service providers manage telecommunication services like VoIP, video conferencing, and unified communication and collaboration (UCC) to ensure seamless communication within and outside the organization.
  • Software-as-a-Service (SaaS): This type of MSP offers subscription-based software that is hosted and managed externally by the provider. In the early days of the Internet, this type of managed service used to be referred to as apps-on-tap.
  • Desktop and Mobility: These MSPs typically manage physical and virtual desktop infrastructures (VDIs). In some cases, they will also provide mobile device management (MDM) services. Many industries have regulations that require devices that access sensitive data to be managed with strict controls. MDM helps ensure compliance with these regulations.
  • Professional Services Automation (PSA): This type of MSP focuses on helping businesses automate services like billing, time tracking, and resource allocation. Ironically, this type of managed service is rooted in the need for MSPs to optimize their own business processes in order to meet service level agreements (SLAs).

The Importance of Service Level Agreements

A service level agreement is a formal agreement between a service provider and a customer. It documents the specific services that will be provided, the performance standards that will be met, and the remedies or penalties for non-compliance.

This type of agreement helps to set clear expectations for both parties and minimizes the risk of misunderstandings. If the MSP does not meet the agreed-upon service levels, the SLA provides a mechanism for the client to terminate the agreement or seek financial compensation.

Managed Service Provider Pricing

MSPs employ various pricing models, each tailored to different types of services and client needs. Understanding these models is crucial for businesses to make informed decisions when selecting an MSP.

The most common pricing models include:

Pricing Model Description
Per-Device Pricing In this model, the MSP charges a flat fee for each computing device it is hired to manage. Typically, this includes servers, desktop computers, laptops, printers, and smartphones. This pricing model is straightforward and predictable, which makes it easy for businesses to budget for IT expenses.
Per-User Pricing Similar to per-device pricing, this model charges a flat fee per user per month. It covers all the devices used by each user, which makes it a flexible and scalable option for businesses whose employees use multiple devices.
Tiered Pricing This is one of the most common pricing models for managed services. Typically, the MSP will offer several tiered service packages, each with its own subscription price and SLA. The higher the tier, the more the service costs. This model is popular because it allows businesses to choose a package that best fits their needs and budget.
All-Inclusive Pricing This approach offers a comprehensive range of services for a flat annual or monthly fee. All-inclusive services typically include on-site support as well as remote support.
Monitoring-Only Pricing In this model, the MSP only charges for monitoring the IT infrastructure and alerting the business when there are potential issues. This basic package is popular with companies that have an in-house IT team that can handle problems once they are identified.
A La Carte Pricing This pricing model allows businesses to select specific services and essentially build their own MSP package. A la carte offers the MSP customer maximum flexibility, but it can be more challenging to budget for if the business’s needs tend to fluctuate significantly over time.
Project-Based Pricing In this pricing model, the MSP charges a flat fee for a project. The price is determined by the MSP based on the project’s scope and complexity.

The Future of Managed Service Providers

Today, an increasing number of enterprise-level MSPs provide modular services that can be combined as needed to meet changing business requirements.

This can save businesses time and money by eliminating the need for in-house staff to integrate and troubleshoot different service components themselves.

In the future, the MSP market is only expected to continue to grow. Important factors driving this growth include the increased availability of cloud computing resources, the increasing complexity of hybrid IT environments, the continual need for businesses to be agile, and a shortage of skilled IT professionals, particularly in cybersecurity.

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Margaret Rouse

Margaret is an award-winning technical writer and teacher known for her ability to explain complex technical subjects to a non-technical business audience. Over the past twenty years, her IT definitions have been published by Que in an encyclopedia of technology terms and cited in articles by the New York Times, Time Magazine, USA Today, ZDNet, PC Magazine, and Discovery Magazine. She joined Techopedia in 2011. Margaret's idea of a fun day is helping IT and business professionals learn to speak each other’s highly specialized languages.