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Managed/Hosted Services: The Newest Bubble?

If there's one lesson we've learned from the various economic bubbles that have been bursting all around us--real estate, credit, stock market--it's an old truth: When something seems too good to be true, it probably is. Let's think about how that applies to the current frenzy surrounding managed and hosted services.Just about every pundit and vendor seems convinced that more enterprise customers will forgo implementing CPE-based solutions and, instead, move to one of the mushrooming variations of outsourced, managed or hosted services.

Much of the enthusiasm comes from exactly where you'd think--the carriers and service providers. But they're far from alone. As orders slow and inventories grow, more equipment and software providers are jumping on the managed/hosted bandwagon, sometimes offering the services themselves, more often in conjunction with a combination of hosting companies and service providers. And, with Microsoft and Google waiting in the wings, IBM and Amazon already offering services from their respective clouds and more software, integrator and service firms likely to enter the UC marketplace, the rhetoric - and discount plans--will undoubtedly escalate.

If there were a CNBC for our industry, its reporters would be heralding managed/hosted services the way CNBC used to hype the never-to-end increase in real estate prices--or the stocks of AIG, Bear Stearns and more than a few others that have since tanked.

To be sure, managed and hosted services look attractive today because of the global credit crunch. Even enterprises that have access to capital may choose to preserve it, because the economic climate might get worse before it gets better. And there are a growing number of IT shops for which managed or hosted services is the only course available, due to edicts issued from on high that restrict capital expenditures or mandate that selected IT functions be jobbed out, outsourced or otherwise cut back.

Further, there are situations where managed or hosted solutions make absolute sense. For example, for small and medium-sized businesses or remote locations who don't--and won't--have any IT staff. Or, as an interim strategy, when an enterprise has yet to adopt a going-forward migration strategy but needs to replace an outmoded or out-grown system, open a new facility or expand an existing one.

There's no doubt that interest in managed/hosting services is growing. At VoiceCon Orlando, as part of their tutorial on Building Business Cases for IP Tel and UC, Robin Gareiss and Irwin Lazar from Nemertes Research () will report that the percentage of enterprises adopting some managed/hosted solutions grew from 27% in 2006 to 63% in 2008. That's a big jump by anyone's measure.

But the devil is in the details, as Gareiss and Lazar go on to peel the onion. When Nemertes asked which functions were transitioning, here's the response they received:

* Managed Router Network: 82%

* End User/Desktop Support: 36%

* IP Telephony Management: 33%

* Security: 21%

* Disaster Recovery: 15%

* Break/fix Truck Rolls: 11%

* 100% Outsourcing: 5%

When Nemertes asked specifically about the architecture choices being made for IP Telephony and UC, the respondents answered as follows:

* Centralized: 41%

* Distributed: 38%

* Regional: 15%

*Outsourced: 6%

As noted, the overall size of the managed/hosted pie is growing, but when you compare the list of functions that Nemertes recently found were of high interest for managed/hosted/outsourcing with the surveys we conducted via BCR magazine in the late 1990s and earlier this past decade, the picture hasn't changed very much at all.

And as Matt Brunk reports in a recent post on, it takes a lot of effort, planning and coordination to successfully deploy a managed/hosted solution. Matt's case study ("Hosted Health Care Services: Turning Over Stones") begins with the following observation: "For those in health care considering any hosted solution--proceed with caution and leave no stone unturned." Matt goes on to offer both descriptive and prescriptive advice for those pursuing managed/hosted solutions, and it's clear that anyone who believes that this route will be quick, easy and cheap will learn a very different lesson--the hard way.

Managed/hosted solutions belong in everyone's toolbox and, if our current economic conditions turn out to be the "new normal" for an extended period of time, they could become part of the permanent landscape. But a more likely scenario is that once economic stability returns, managed/hosted solutions will return to their historic levels.