What is a Service Provider? Definition, Types, Roles

Service providers are persons or organizations that give their services to organizations and other parties. They provide services for storage, processing, and networks. The service providers offer real estate, communications, education, legal, and consulting services to companies.

What is a Service Provider?

A service provider is a company that provides professional care or specialized services as opposed to a physical good. The phrase is often reserved for communication or technology-related businesses, such as mobile phone carriers and Internet service providers.

What is a Service Provider?

Other service-related organizations, such as banks and mechanics, are rarely referred to be service providers, despite the fact that the term is appropriate. It is usual for businesses in this industry to offer clients subscriptions as opposed to single purchases.

Type of Service Provider

There are three types of service providers:

Internal Service Provider

ISPs are specialized service providers that are frequently integrated within a single corporate unit. The business units may be a component of a bigger corporation or parent company.

Business activities such as finance, administration, logistics, human resources, and information technology give services to various business divisions. They are supported by overhead costs and are obliged to closely adhere to the business’s directives.
ISPs gain from a close relationship with its owner-customers, therefore eliminating some expenses and risks involved with conducting business with third parties. Since ISPs are assigned to specific business units, they must have an in-depth understanding of the organization’s objectives, strategies, and activities.
Typically, they are extremely specialized, concentrating on the design, customization, and maintenance of certain applications or on the support of a particular sort of business process.
What is a Service Provider?
ISPs function in internal market areas. Their expansion is constrained by the expansion of the business unit to which they belong. Each business unit (BU) may have its own Internet service provider (ISP).ISPs often operate on a cost-recovery model with internal finance, therefore their performance is not judged in terms of revenues or profits. All expenses are borne by the business or corporation that owns the property.

Shared Services Unit

Not usually are functions such as finance, information technology, human resources, and logistics at the heart of an organization’s competitive edge. Consequently, they do not require attention from the chief executive’s staff at the corporate level.

Instead, the services of these common functions are consolidated into a separate, independent entity known as a shared services unit (SSU). The concept permits a more decentralized governance structure, enabling SSUs to focus on servicing business units as direct clients.

SSUs are capable of establishing, expanding, and sustaining an internal market for their services and can model themselves after service providers operating in the open market.

As with corporate business operations, they can harness opportunities across the firm and disperse their costs and risks over a broader base. Unlike corporate business operations, they are afforded less safeguards under the banner of strategic value and core competency.

What is a Service Provider?

They are compared to external service providers whose business methods, operational models, and strategies they must imitate and whose performance they must at least match, if not surpass.

Type II customers are business divisions under a corporate parent with shared stakeholders and an enterprise-wide strategy. What may be suboptimal for a specific business unit may be justified by corporate-level benefits for which the business unit is rewarded.

External Service Provider

ESP is a service provider that supplies external clients with IT services. Customers’ business objectives may necessitate easily available Type ll capabilities. The enhanced flexibility and freedom to seek possibilities justifies the higher risks that Type lll providers incur over Type I and Type II providers.

By concentrating demand, ESPs may provide competitive rates and bring down unit costs. Internal service providers, such as Type I and Type II, cannot appropriately support particular company goals. Customers are permitted to pursue sourcing strategies that need services from external sources.

Techopedia Explains Service Provider

The distribution model of a service provider often differs from that of conventional IT product manufacturers or developers. A service provider often does not need a consumer or business to acquire an IT product.

Rather, a service provider constructs, operates, and manages these IT products, which are then packaged and sold as a service/solution. A consumer can acquire this sort of solution from a service provider through a variety of sourcing methods, including a monthly or yearly subscription charge.

Examples of service providers include:

Hosting service provider

Cloud service provider

Storage service provider

Software as a Service (SaaS) provider

The Role of a Service Provider

Provide solutions and services within the area of your job and expertise.

Work TOGETHER with your customer to create and implement their vision (you are there to guide, but do your own thing).

Provide advice and alternatives depending on the client’s needs. Complete tasks required by the customer

What is a Service Provider?

Make recommendations on possibilities or necessary adjustments within the organization.

What is a Service Provider Do?

It is their responsibility to accomplish client-requested activities, give solutions to network issues, and suggest choices depending on customer requirements. They also identify essential organizational adjustments or possibilities.


A service provider is a business who provides services to people or companies. They usually specialize in a particular type of service. A service provider can be a dentist, a lawyer, an accountant, a plumber, a contractor, or a consultant.

People and businesses choose service providers based on their reputation and experiences. A good business is like a bank account. The more you use it, the more deposits it makes and the bigger its balance is.


Examples of potential service providers for a company are advisors, individual consultants, law firms, design shops and investment banks.
Examples of ISPs are:
  1. Comcast.
  2. AT&T.
  3. Time Warner Cable.
  4. CenturyLink.
  5. Charter.
  6. Verizon.
  7. Cox.
  8. Google Fiber.
Google Fiber is a broadband internet service that Google is currently deploying in 18 cities across the US. The service is notable because of its high speed, running up to 1000 Mbps, with a friendly month-to-month, all-inclusive pricing scheme.
A Local Service Provider is a person who offers local services for home within the locality of a particular area.


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