Will managed IT services boom during recession?

The recently rebranded Toronto-based Tenzing IT Managed Services is hoping its new name and stronger focus on software-as-a-service (SaaS) providers will help expand its reach beyond the Canadian marketplace.

The company, founded in 1998 and formally known as Canada Web Hosting, sees a tremendous opportunity in targeting companies that offer Web-based applications. Brian Shepard, founder and CEO of Tenzing, said SaaS has become an increasingly attractive option for organizations looking to turn their software needs into an operating expense.

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“When capital is tight and companies are hesitant to write a cheque for $250,000 or $500,000 for a piece of software, this allows them to turn it into a monthly and more manageable fee,” he said.

SaaS providers, he added, have their niche and are focused on developing a Web-based application for their clients. Unfortunately for these companies, many are lacking expertise in the hosted IT services arena.

“So this allows them to leverage our background and expertise on managing these applications and the infrastructure that enables them to meet their service level agreements (SLAs),” Shepard said.

Tenzing can also take care of any other hosting needs an enterprise might have, including database servers, internal applications, corporate Web sites, firewalls, security services, and backup services. The company operates data centres in Toronto and Vancouver, allowing its clients to choose their primary site and take the alternate site for disaster recovery purposes.

“All our clients are provided with a technical account manager that works proactively to keep you ahead of the curve,” he said. “If there is a new technology that you might want to be considering for your environment in the near future, they will help you with that as well.”

Sebastien Ruest, vice-president of services research at IDC Canada, said the managed services market can provide a great opportunity during the economic crisis as it will appeal to companies and SaaS providers that are unable to invest in people or assets.

“It’s a counterbalance to outsourcing,” he said. “With outsourcing, there’s still a transfer of asset and people. If the economic crisis continues over the next 12 to 18 months, even outsourcing providers are going to be looking at ways to counteract taking on assets and adding people to their workforce.”

Ruest added that targeting SaaS suppliers is a smart move because applications, rather than infrastructure, is at the core focus of most organizations today.

Charles King, a principal analyst with Pund-IT Research Inc., said while there are risks in branching out during a recession, focusing on SaaS providers could provide Tenzing with growth opportunity.

“According to what I’m seeing, companies are looking to cut costs in every possible way and the SaaS model offers options for significantly lowering or removing data centre facilities, management, and maintenance expenses,” he said. “In other words, Tenzing could be expanding its presence at just the right time.”

Another plus for the company, he added, is its leverage of industry-standard server and storage components, which should allow it to ramp-up its data centres pretty easily if customer demand starts to increase.

For King, Tenzing’s potential success in the U.S. market will not hinge on the company’s new name, but rather its ability to gain customer trust and confidence.

“The bottom line is if Tenzing is to succeed it will be as critical for the company to emphasize its depth of experience and reliability as its new name and service offerings,” he said.

Ruest added that trying to differentiate themselves as much as possible from the other newcomers in the hosted application management space will also be important. One of the biggest opportunities for the company, he said, is the recent events that have been occurring in offshore locations, such as last month’s bombings in India.

“A lot of American companies are kind of hesitant to send work offshore now,” Ruest said. “I think it’s a great opportunity for a Canadian company to take advantage of the proximity, the stability of the market, the stability of the political structure, and the cultural similarities.”

The cost differentiation between the U.S. and Canadian dollars might also play a factor, he added. And that’s an area that Tenzing is fully aware of as it concentrates more of its efforts south of the boarder.

“This provides a good avenue for the U.S. companies looking to cut back and reduce their expenses,” Shepard said. “Generally, if they’re spending about US$5,000 a month on hosting, getting a similar service for CDN$5,000 will save them about 25 per cent on that expense as it stands now.”

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Jim Love, Chief Content Officer, IT World Canada

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