What is a Third-Party Service Provider?

By Miryam Meir

Posted on Feb 18, 2021

Every company excels at something. Whether you manufacture cars, build software, or sell a service, your organization specializes in what it does best. However, just like it takes a village to raise a child, it takes a group of systems, applications, and networks to run a successful business. By understanding what a third-party service provider is and the potential risks they pose, you can build a more secure ecosystem and remain a successful business.

What is the definition of a third-party service provider?

A third-party service provider is generally defined as an external person or company who provides a service or technology as part of a contract. In the IT space, a third-party service provider typically provides a technology used to store, process, and/or transmit data that enhances an organization’s operational efficiency.

What is an example of a third-party service provider?

Since any “as-a-Service” technology solution is a third-party service provider, nearly every organization uses at least one, if not more.

Software-as-a-Service Providers (SaaS)

Software-as-a-service is the most commonly recognized third-party service provider because people use them at work and home. A SaaS provider offers an application delivered through the internet and often uses a subscription pricing model. One way to think about SaaS services is that they are like rental furniture; you only get the pieces you need for the length of time you want them.

Some typical SaaS service providers include:

  • Google Suite
  • O365
  • GoToMeeting
  • Salesforce

Platform-as-a-Service (PaaS)

Platform-as-a-Service is a little trickier. A PaaS provider offers a cloud-based location where organizations can build their own software without worrying about maintenance like operating systems, software updates, storage, or infrastructure. They also use a subscription pricing model. To follow the rental analogy, you can consider PaaS services as similar to renting a furnished house; they give you everything you need to do what you need to do so that you don’t have to think about it.

Some typical PaaS providers include:

  • Google App Engine
  • Apache Stratos
  • Force.com
  • SAP Cloud Platform

Infrastructure-as-a-Service (IaaS)

Distinguishing between Infrastructure-as-a-Service and Platform-as-a-Service can be a little more complicated because many of the services overlap. An IaaS provider sells computing infrastructure such as servers, storage, networking firewalls/security, and data center services using a subscription-based model. Finally, to bring the analogy to completion, IaaS services offer you a rental house without the furniture.

Some typical IaaS providers include:

  • Amazon Web Services
  • Microsoft Azure
  • Google Cloud
  • IBM Cloud
  • Oracle Cloud

Why do you need third-party service providers?

Since most companies focus on their primary product, building their version of an existing technology becomes a financial and operational burden. The choice to purchase public cloud services rather than build a private cloud offers a good example.

When an organization chooses to build a private cloud, it needs to consider the following costs:

  • Hardware costs: the number of servers you need to purchase
  • Maintenance costs: the time the IT department will spend keeping it functional and updated
  • Capacity: the amount of current and future resources you need to optimize the use and cost
  • Compute power: the amount of power necessary to meet current needs and additional power for high-use periods
  • Access: the ability for off-site users to access remotely

Many companies find it difficult to estimate these costs. Additionally, even if they estimate correctly, building a private cloud comes with operational costs that can be difficult to quantify.

Meanwhile, third-party cloud service providers, such as Azure, AWS, and Google Cloud Platform (GCP), calculate these costs for you and provide the technology. While it might be challenging to optimize costs or hidden costs may exist, the service providers do most of the hard work and then charge a subscription fee. For example, you can increase and decrease your compute power whenever you need it, as long as you pay the associated fee. You don’t have to worry about running out of computer power during a busy season because you underestimated it.

Third-party service providers allow companies to focus on their primary business operations while giving them a way to remain competitive by reducing operational costs.

Why third-party service providers increase cybersecurity risks

While organizations can reduce costs and increase productivity with these technologies, they also need to recognize the cybersecurity risks that come with their use. According to the IBM Cost of a Data Breach Report 2020, breaches caused by a compromised third-party vendor cost $207,411 more than the average. Since third-parties by definition are not part of your organization, you cannot control them the way you can manage your internally developed technologies.

With increasing reliance on a cloud-based vendor ecosystem, malicious actors look for the supply chain security weaknesses so that they can gain unauthorized access to more than one organization. Since service providers’ customers tend to rely on point-in-time security reports, they do not take changes to the IT stack and security control maintenance into account.

SecurityScorecard enables organizations to manage their third-party service provider cybersecurity risks

As companies continue to integrate with more third-party service providers, they need to consider how they manage the potential impact these contractual relationships can have on their security posture. With SecurityScorecard’s security ratings platform, companies can monitor their third-party service providers’ security posture across ten categories of risk factors. Out platform continuously monitors your IT ecosystem, giving you an outside-in look at security controls’ effectiveness.

Additionally, organizations can leverage the controls and best practices that SecurityScorecard provides to establish contract language and create a shared security language. Using our easy-to-understand A-F ratings, companies can work with their vendors to establish baseline scores as part of their business relationships.

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