ASP earns success, no money

ApplicationStation presents itself as aN application service provider success story even though it is losing money.

The company isn't alone in the ASP community with a definition of success that revolves around keeping a lid on cashburn until its client base hits critical mass. Such thinking is naturally suited to a market founded on a good ideawhich keeps hoping customers will one day arrive at the same conclusion en masse.

ApplicationStation follows a wholesale business model by supplying solutions to telcos, independent software vendorsand professional services companies which they in turn deliver to their clients.

On an annual run rate, end clients are funnelling about $1 million into ApplicationStation's services of which thecompany's cut is about 60 per cent.

It still suffers a cash flow negative run rate of $300,000 a year and is "a bit behind in our model, but that is dueto a softening of the whole IT economy, not because we are seeing deals go away," ApplicationStation managing directorCraig Hawkins says.

In spite of such setbacks, he predicts the company will tip into a cash flow positive situation by the end of theyear.

"Our model is to make the other organisations like telcos and ISPs into the ASP, because they are the organisationsthat engage and bill the customer.

"We still believe in the ASP business model, but it may be 12 to 18 months before a significant market arrives."

By going through intermediaries, ApplicationStation says it will be in a good position to scale up when the marketfinally does arrive.

It targets companies with five to 25 desktops who see advantages in entrusting their technology needs to a combinationof their telco provider, an ASP and a systems integrator.

Most of its customers deal with ApplicationStation through their CEO or a financial controller who also wears the ITmanager's hat.

Hawkins cites performance (aka reliability) and security, confidentiality and trust as the major question markshovering over ASPs in the minds of customers.

Like Hawkins, Interpath Australia CEO Mark Franklin thinks ASPs will have to grit their teeth for another 12 to 18months before the customer wave arrives.

Interpath partners with software and hardware vendors such as Hewlett-Packard, Sun Microsystems and Cisco.

"They get a lot of opportunities but many times a customer makes no decision," Franklin says. "People still have theirIT budgets but they are confronted by the converging complexities of IT and communications, and they don't know how tospend it."

The past six months have seen many companies struggling with cash flow but like any ASP true believer, Franklin feelsa change in the wind.

"I can see a new trend emerging in which customers are saying they won't do it all themselves and are asking who theywill bring in to help them."

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