In order to leverage the existing communications infrastructure to the fullest and to contain costs, the Indian enterprise market has been increasingly opting for managed services over the past few years. Typically, the scope of managed services used by the enterprise segment ranges from basic levels of access services to complete outsourcing of network requirements. For enterprises, managed services can ensure effective manpower sourcing and retention, minimum investment in tools and technologies as well as 24x7 monitoring and periodic assessment of networks.

Earlier, managed services were mostly utilised by large enterprises. However, now small and medium businesses (SMBs) too are adopting these services, in particular, managed networks, workplace management and server-related services.

Enterprise trends

Over the past year, the manufacturing, retail, distribution and pharmaceutical enterprise verticals have begun to extensively use automated managed services (AMS). Meanwhile the government and education verticals are also considering adopting the same.

According to industry reports, the banking, financial and insurance services segment is one of the larger verticals using managed services extensively, followed by the retail, manufacturing and IT-enabled service (ITeS) segments. Initially, banking enterprises outsourced their disaster recovery operations to third-party companies. Now, these enterprises have moved up the value chain to partially outsource routine operations and core banking technology applications as well.

Today, managed service providers offer a full suite of services such as designing; building; operating; managing day-to-day operations of customers’ networks, including end-user services and business support systems; hosting service-layer solutions; and providing network coverage and capacity on demand.

Managed service providers usually price their services on a subscription basis. Depending on the services they provide and the number of devices deployed, various packages are priced differently.

Current status

According to a recent survey by Forrester Research, the Indian managed services market is witnessing a compound annual growth rate (CAGR) of 23 per cent and is expected to reach $3.8 billion by 2013.

As per an ABI research report, Ericsson and Nokia Siemens Networks (NSN) are the leading players in this space, followed by Alcatel-Lucent, Huawei and ZTE.

Within the managed services segment, while some services have witnessed tremendous growth, others are rapidly gaining traction. Currently, the managed network service segment accounts for the lion’s share of the country’s managed services market, with most companies opting for these services.

Other segments such as AMS, remote information technology managed services (RMITS), security-as-a-service, cloud as a delivery model, unified-communications-as-a-service (UCaaS), managed print services (MPS) and managed storage services have been catching on.

Emerging trends

MPS: This is still a niche segment in India, dominated by vendors such as Hewlett-Packard (HP), Canon and Xerox. A Forrester Research report estimates that the MPS market in the Asia-Pacific region (excluding Japan) will reach $1 billion by end-2012. The Indian MPS market is expected to be the fastest growing market in the region, with a CAGR of 22.6 per cent.

Industry analysts say that enterprises typically spend up to 2 per cent of their revenues on running printers, copiers, scanners, fax machines and other devices that are often energy inefficient. Deploying an office print optimisation strategy can reduce this expenditure by 15-25 per cent while also decreasing the energy consumed and waste generated.

In India, enterprises such as Evalueserve and Mindtree have deployed MPS. Following this, Evalueserve registered a decline of about 40 per cent in paper usage while Mindtree achieved a reduction of over 50 per cent in paper consumption and 25 per cent in printing costs, besides savings of over $62,000.

Managed storage services: This category includes storage-as-a-service (SaaS) and disaster recovery-as-a-service (DaaS). As enterprises work with large amounts of data on a daily basis, they are exploring options such as SaaS to outsource their storage and backup requirements.

DaaS is also emerging as a promising area, especially for enterprises facing difficulties in monitoring and maintaining their network’s recovery point objective and recovery time objective as per industry requirements. According to industry analysts, enterprises are increasingly outsourcing these requirements to vendors as most of them do not have the appropriate IT infrastructure and expertise to maintain and meet these criteria.

Meanwhile, with a large number of enterprises virtualising their infrastructure, cloud-based DaaS is also being increasingly deployed. In this regard, enterprises are exploring various options to back up such infrastructure while vendors have already begun offering these services. For instance, IBM is providing the SmartCloud Virtualized Server Recovery service.

Security-as-a-service: To secure their networks, enterprises are increasingly signing partnerships with specialist vendors. Religare, for example, has partnered with Tata Communications to enhance security for its critical network infrastructure and business applications.

Cloud as a delivery model: With cloud computing emerging as a key trend in this space, enterprises are increasingly looking to shift their entire or a part of their networks onto the cloud-based managed services platform in order to optimise network spends. In particular, companies in the banking vertical are outsourcing specific IT workloads such as internet banking, asset management, mutual fund products and other small projects, but not the core banking platform.

AMS: The National Association of Software and Services Companies estimates that AMS will provide business opportunities worth $13 billion-$15 billion by 2013 to vendors. A major share of this opportunity is expected to be tapped by Accenture, Infosys, Wipro, TCS and IBM Global Services as well as Tier 2 vendors.

RMITS: According to AMI Partners’ India Managed Services Study, 2012, the market share of RMITS has witnessed a year-on-year increase of 28 per cent. This growth was driven mostly by SMBs.

UCaaS: This segment offers voice- and video-based enterprise applications on a common platform. According to Forrester, this combination of presence and availability with voice, video, email and instant messaging makes it easier to communicate efficiently with employees, customers and suppliers. It also helps streamline business processes. In India, UCaaS is increasingly being adopted by businesses that are manpower intensive and have widely distributed offices. These include enterprise verticals like BPO and IT/ITeS, telecommunications, logistics, government, hospitality, and banking and financial services.

Growth drivers

According to AMI, technology management is a key challenge for Indian SMBs, as less than a quarter of such companies have a dedicated internal IT team to manage their technology infrastructure. Moreover, AMI notes that companies that do have such a set-up are using their in-house teams to tackle routine networking issues, rather than focusing on enhancing network efficiency. In this context, AMI feels that by outsourcing their IT management, Indian SMBs would be assured of guaranteed service levels with an opex model rather than a capex model, thereby limiting the total risk.

Industry analysts believe that the intense competition in the enterprise segment has led to large companies outsourcing their IT infrastructure to experts in managed services, implying cost savings of 5-8 per cent.

A key trend driving growth in the managed services segment is that enterprises are increasingly trying to reduce capital expenditure. According to Locuz Enterprise Solutions, companies are increasingly considering outsourced models that offer the option to reduce or increase capacity usage. Hence, IT-as-a-service, which offers cost savings (in terms of opex), flexibility and predictability, is being deployed extensively.

According to HP, the market is witnessing technology trends that are based on open standards, which make the deployment of hosting and managed services simpler. This, in turn, has resulted in the emergence of lower upfront investments and pay-as-you-go managed service models.

Challenges in deploying managed services

While managed services have gained considerable ground in India, several issues and challenges faced by the segment are yet to be addressed. According to industry analysts, Indian enterprises have depended on in-house teams for managing their IT infrastructure for a while. As a result, they are wary about outsourcing their network requirements to a managed services vendor and cite loss of control and security hazards as significant concerns.

Besides, vendors need to train their sales force on tailoring service level agreements to enterprises as per the latter’s requirements. Solution providers need to deal with issues like fast changing technologies; lack of awareness and familiarity with the services available; customer satisfaction; and lack of resources, in terms of adequately qualified staff.

Other factors hindering the growth of the managed services segment in India are the upfront capex investment for setting up large-scale managed services infrastructure, and issues related to information security and privacy (both regulatory and non-regulatory).

The way forward

As per an ABI research report, the managed services segment is set to witness consolidation, which implies that besides Ericsson and NSN (and possibly a third player), it is unlikely that more companies would be able to sustain a profitable business in this space. ABI adds that this is owing to the spate of licence cancellations by the Supreme Court earlier this year, which led to players like Etisalat and S Tel exiting the Indian telecom market. This was bad news for Huawei and ZTE in particular, which had secured several managed services deals from these operators.

ABI concludes that the market shares of Ericsson and NSN will increase as large operators are most likely to continue their managed services relationships with these vendors. Meanwhile, Huawei and ZTE may offer managed services at competitive prices, which, in turn, may impact the profit margins of Ericsson and NSN.

In sum, despite several lingering issues, managed services are set to witness healthy adoption in India as enterprises continue to focus on their core competencies and leverage third-party services for network-related tasks.