According to Wikipedia, a Managed Service Provider (MSP) are “is typically an information technology (IT) services provider, who manages and assumes responsibility for providing a defined set of services to their clients either proactively or as they (not the client) determine that the services are needed. Most MSPs bill an upfront setup or Transition and an ongoing flat or near-fixed monthly fee, which benefits their clients by providing them with predictable IT support costs.”
Of course MSPs have now spread beyond IT into a number of other functions. When MSPs are involved in the procurement function, MSPs are typically a technologically enabled service provider who takes responsibility for procuring and managing outcomes in a category of spend on behalf of a customer. (I have no idea how this is different from Business Process Outsourcing (BPO), btw.)
The category that gets the most publicity with respect to MSPs is temporary labor where this appears to be a popular model for clients. Clients hire staffing companies who act as MSPs and then use technology from a provider like Fieldglass or IQNavigator to provide the service to the end customer. The line between these models has blurred somewhat as some MSPs have tried to market their technology independently and some technology providers have added services. (If memory serves correctly, for instance, Fieldglass is a pure provider of technology and IQNavgiator provides technology and MSP services.)
The MSP model (and some blurring) is also present is also alive and well in print, logistics, facilities management, and several other categories of spend. In fact, the guy behind Groupon, Eric Lefkofsky, has made a living in this space, first with InnerWorkings, a print and promotions MSP and then Echo Global Logistics an MSP in trucking. Both are technologically enabled print and logistics brokers who will offer MSP services to large clients and typically provide a gain share model on savings achieved.
The difference between these models and ICs is that ICs connect the buyer of the service directly to the database of suppliers and directly to the suppliers themselves for the two to transact. MSPs provide you with people who know how to use the technology and provide higher levels of service and expertise. It’s a bit like using eBay to sell something directly (IC) versus going to one of those services that has a store-front and sells it for you, taking a cut (MSP). There’s nothing wrong or right with either model, but they have very different levels of scalability, economics, and valuation.
ICs can scale quickly, have small labor components, and have economics that look like SaaS providers generally. MSPs have a much higher labor component, scale more slowly due to the need for specialized knowledge, and have economics that look like print or logistics brokers–perhaps enhanced by a lower cost of operations. The market values MSPs at a heck of a lot less than it values ICs, so many MSPs are trying to figure out how to offer a lower-cost, more scalable, IC-like service. Echo Global Logistics is one such example. It will be interesting to see the extent to which they can pull it off; traditionally consultants/service providers and technology providers have not mixed well. If they can pull it off it will be a nice boost to their valuation.
In the spirit of full disclosure, I own a little bit of Echo stock in the hopes that they can pull it off and so I can follow it more closely than I otherwise would. I’m not trying to push the stock, however, and you should know that my track record of investing on my own account is, shall we say, quite mixed.
Have a great Labor Day!
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