Introduction
LEGO bricks can be used to build magnificent machines – like the Millennium Falcon – but this isn't a task for an inexperienced novice. Similarly, the cloud is an enabler of innovation, but enterprises need skills to fully take advantage, and ensure ongoing performance and security of increasingly complex environments. Operational managed services are now used by one in three enterprises, but each service, and enterprise requirement, is different. What is the value in these managed services for enterprises, and how should service providers and vendors capitalize on this emerging market?
The 451 Take
The cloud is characterized by the ability to experiment and play with powerful, and even cutting-edge, services without initially large investments in infrastructure or expertise. But once play time is over, most enterprises recognize that help is needed to maximize cloud services and deliver mission-critical applications. Some train and hire experienced people in-house, while others outsource to a third party; some do a mixture of both, utilizing tech support services from the cloud service providers (CSPs) to aid in-house employees. The cost of getting external help isn't trivial, but considering the time and hassle it may save, it can often be good value. As new cloud services come to market, and new cloud providers compete (and partner) for enterprise spend, applications will become increasingly complex. Support and managed services are destined to be a substantial part of the IT landscape going forward as a result of this evolving complexity.
Building the Millennium Falcon
Cloud service providers such as AWS and Azure produce the equivalent of LEGO bricks: reproducible building blocks that can be simple or complex on their own, but when assembled with other bricks by someone with a vision or an objective, they can create tremendous value. CSPs make meticulously designed IT services available to the masses, but putting them together in a way that adds value requires experience and talent. Just like LEGO bricks, cloud services can be played with by anyone, but mastering them is a different matter. Putting together a virtual machine (VM) with object storage is relative child's play – while creating an enterprise application can be the equivalent of building the LEGO Millennium Falcon.
A range of new services have come to market with the aim of helping enterprises manage their complex cloud estates. Many of these are offered by third-party managed service providers (MSPs) that promise to take away much of the operational overhead of keeping applications running on the cloud infrastructures of AWS, Microsoft or Google, in a secure, resilient and optimized way. The CSPs themselves are willing to help (for a fee), but often their role is to advise on best practice and improvements on an ongoing basis, rather than to reduce operational overhead.
The hyperscalers' primary role is providing access to and maintaining their services, with technical support for individual customers coming at a premium. A premium is fair: The hyperscalers have done a good job in producing documentation, best practices, architectures and guidelines to allow developers and ops to build and secure cloud applications. The knowledge is there for the taking. But in practice, enterprises are bound to need help in some form – even with printed instructions there is no question a LEGO expert imported from Denmark would build the Millennium Falcon quicker and more accurately than an ambitious novice.
To understand this new opportunity, 451 Research's Digital Economics Unit has produced a new report for Cloud Price Index subscribers on the
Economics of Support and Managed Services, where we investigate:
- Support services delivered by CSPs themselves to help enterprises in building and managing cloud applications on the CSP's infrastructure.
- Third-party managed services, delivered by MSPs on top of CSP infrastructure, to handle many of the administrative tasks associated with operating and maintaining cloud infrastructure.
This report is part of the
new deliverables for the Cloud Price Index (Figure 1).
451 Research contacted a range of CSPs and MSPs to validate information we held on their support and managed services packages, respectively, and to ask for greater depth and clarity on services provided and prices charged. We collected data for 36 support programs and 39 managed service packages, which provided the basis for our analysis. Cloud Price Index subscribers can see fully anonymized and redacted data from the study in the
Cloud Price Index Managed Services Datasheet
Key Findings
Support services provide prioritized access to expertise within the CSP, and help enterprises better help themselves. Managed services take ownership of administrative tasks associated with the use of the CSP, so that the enterprise's labor overhead is reduced. Support and managed services should work hand-in-hand.
Support services offered by cloud providers are a relatively inexpensive way for enterprises to gain prioritized access to technical support, at a price as low as 3% of infrastructure spend. Such services provide only advice and recommendations – the responsibility for solving problems primarily lies with the customer. But if that advice saves just a couple of minutes of administration per VM, then support services are good value.
Third-party MSPs can take away much of the overhead of managing a public cloud environment. The amount of overhead outsourced varies significantly between packages offered by MSPs, particularly when the average fee is less than 35% of underlying infrastructure spend. Above this figure, enterprises should expect monitoring, 24x7 tech support, 15-minute response time SLAs, problem resolution and operational administration, at a minimum. A higher price doesn't necessarily promise a better SLA.
Database management, migration, containers and security are the aspects of management least likely to be included in managed service packages, but available as bolt-ons for additional fees. More expensive packages often include some security management as standard.
The primary value of a managed service is in freeing up human resources so they can focus on other tasks. Our breakeven analysis makes a strong case for doing this – for a managed service priced at 20% of spend to be cheaper than self-management, it would need to save the enterprise the equivalent of just seven minutes of administration each month per VM (Figure 2). Obviously, the breakeven point varies depending on what aspects of management are being outsourced to the provider, and how much the provider charges for the service.
451 Research's Voice of the Enterprise surveys show that 34% of enterprises use some operational managed services related to the cloud today. The number of SKUs offered by AWS, Google and Microsoft has increased by one-third since September 2018 to over a million. This increasing complexity is an opportunity for MSPs to add value, perhaps explaining why 80% of MSP packages include cloud cost and performance optimization.
