It all started six years ago, when the outerwear designer and manufacturer outsourced its JD Edwards ERP system to application service provider (ASP) Prentice Technologies Inc. Three years later, when Prentice was bought by Fortrust Solutions, a data center management firm that wanted to move into the ASP arena, the hand-off went fine. "It was all well managed," Smith said.

Then, in mid-2004, Fortrust sold its ASP business to a software-as-a-service provider in California. The transition itself went smoothly enough, but over the next year and a half, service levels dropped off, and gradually, nearly all the original Fortrust staffers left the firm, Smith said. "Several times, I asked their management, 'Are you guys serious about this line of business? Because it doesn't appear that way to me,'" he said. "On several occasions, I even offered to pay more for better service, but they never took me up on it."

With his contract up for renewal, Smith began looking for alternatives. This year, he signed on with a new outsourcer, OneNeck IT Services Corp. in Scottsdale, Ariz., with which he is currently satisfied.

Smith's dual experiences contain valuable lessons for outsourcing customers, given the consolidation activity in this arena. Outsourcers are eating up other outsourcers to increase scalability, expand global presence, take advantage of lower-cost skills and broaden service offerings, experts say.

"With increasing regulatory pressures, demand for encryption, fears of identity theft and the need for privacy, it's getting harder and harder to be a small service provider," said Dan Scheuble, president of the mortgage division at Fidelity National Information Services Inc., a provider of information products and outsourcing services in Jacksonville, Fla. Larger providers can leverage their investments across all of their product offerings, he explains.