Asian ASPs Welcome Competition

HONG KONG (03/22/2000) - The e-commerce revolution in Asia has kicked off a rush among application service providers (ASPs). From accounting software to supply-chain products and e-commerce software, the range of applications available via the Internet has expanded rapidly, with no end yet in sight.

"Even though there are lot of ASPs here (in Hong Kong), we welcome more so that customers have a greater choice," said Sammy Wong, managing director of the Digitel Group, the ASP that runs horizontal portal Corp2net.com.

"Different ASPs position themselves into different markets and we believe we can leverage our business by building cooperation with them," said Wong.

Wong is not alone in his quest to form alliances with other ASPs in the region.

Computer Associates International Inc. recently signed deals with Cable & Wireless HKT Ltd. and Beijing Anyi to provide Web-based applications. In addition, Sun Hung Kai Properties subsidiary iAdvantage Ltd. has teamed up with Microsoft Corp. and Hewlett-Packard Co. to provide applications geared towards IT companies.

PricewaterhouseCoopers LLP last week teamed up with Australia-based Telstra Corp. to provide enterprise resource planning (ERP) and customer relationship management (CRM) application services. Officials at the company said that, over the next five years, Greater China will see the most significant growth within Asia-Pacific for ASP-based ERP applications. That growth is being driven by demand for e-commerce, they added.

"In the interim, Australia will be the first to take up ASP offerings because it is the more established ERP market, but down the road, Greater China, the mainland in particular, will see the biggest growth (in Asia)," said Chris Bennett, ERP leader at PricewaterhouseCoopers Asia-Pacific.

Bennett added that his company's alliance with Telstra is representative of a wave of interest in e-commerce that is forecast to generate 30 percent of ASP revenue over the next 5 years.

"We're seeing a significant growth (in the number of ERP implementations), not only because we have an ASP offering, although that will give us a significant market share and increased revenue," Bennett said.

"The marketplace is demanding ERP and CRM solutions that are specifically tailored to individual organizations' requirements," Bennett said. "It would be a fallacy to think that an organization will take a generic ASP service offering with very little tailoring. What we're offering is (the ability to customize) requirements in a configured system."

"One of the barriers to traditional ERP implementations by (small and medium-sized businesses) has been the initial entry cost, including hardware, software and implementation," Bennett said. With an ERP service from an ASP, smaller companies "could expect a reduction in ownership costs over a five-year period of between 30 percent and 40 percent. In addition, we've reduced the barrier to entry with no payment up front," he added.

Adopting a similar pricing strategy, Digitel's Wong said that to make application services attractive to small and medium-sized businesses, ASPs have to keep their focus on reducing IT investment costs for users.

"We definitely have the competitive edge where pricing is concerned," Wong said. "At a critical point, SMEs may want to upgrade or change their systems, and they can do so easily without worrying about heavy software investment."

Although Bennett acknowledged that SMEs would be the first to outsource applications, because "they could expect a reduction of ownership cost by 30 to 40 percent," he doesn't discount bigger corporations from taking up ASP offerings.

"I think that SMEs would be the initial entry point for ASPs, but we will also see very sizable deals," Wong said. "We are already having some discussions with a major (manufacturing) corporation, which has 200 separate legal entities in Asia-Pacific, to provide ASP offerings to them."

According to Wong, ASPs are appealing because customers can take advantage of the single point of contact, allowing them to work from the office or from home. He added that the hassle of contacting software companies for upgrades and patches can be eliminated with the implementation of a 24-hour service hotline offered by the ASP.

However, Wong noted that there are limitations associated with hosted applications. "The bigger companies might not find our general applications up to par and may prefer to host their own applications over their own networks," he said.

Wong added that SMEs stand to gain by using hosted applications because, compared to paying thousands of dollars for boxed software, subscribing to an ASP significantly reduces costs. Wong also believes that collaborating with partners focused on vertical markets is crucial in creating a winning combination.

"The skill sets are very different between horizontal and vertical (application) portals," Wong said. "Vertical portals tend to reach only a small group of companies in specific industries," he explained.

Wong said that while horizontal portals tend to be more general in terms of service provision, vertical portals were industry-based, which therefore require more business-specific skills rather than purely technical skills. He added that it would be beneficial for horizontal and vertical portals to converge so that they can cover a wider spectrum of customers.

"We are still in the beginning stage of building customers here," Wong said.

"We are in the process of convincing the market to accept ASPs when outsourcing their data. …What customers are concerned about is security," he said.

According to Wong, the upcoming implementation of a public key infrastructure, with a private key assigned to individual customers, will help alleviate some of these security fears.

Broadband is another challenge facing ASPs.

"When talking about broadband, there are two types of bottlenecks to consider - the access and the backbone Internet bottlenecks," said Wong. "For ASPs, we have our own infrastructure to host our own Web site and local exchanges with different countries to prevent an Internet bottleneck."

Wong acknowledged that access bottlenecks are dependent on the reach of local access networks, which he said, is "getting broader and broader".

"Probably by the end of this year, when the broadband network is in place (in Hong Kong), the application hosting market will boom, because infrastructure is very important to the ASP market," Wong added.

Wong was equally optimistic about increasing competition among ASPs. "I'm not afraid of competition. …It's better to have more," he said. "In Hong Kong alone, there are over 1,000 software companies, so there's a large enough market here for us to provide a neutral platform to host a variety of application software."

Digitel expects its customer base to increase two-fold every month, said Wong.

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