SWOT: This ain't business yet ... OR IS IT?

A viable and compelling business proposition -- that's the way Rolf Jester, regional director for the IT services market at research analyst Gartner, sees the ASP business model. And he envisages an absolute explosion in ASP business.

Megan Clarken, chief of international operations at ASP aggregator Peakhour, describes the value propostion as a "no brainer" when you consider everything it offers. She says ASPs save the customer from a lot of pain by loading applications, installing software upgrades plus hardware, and providing continuous support. Customers, whether rationalising their businesses or confronting escalating shortages of technical resources, are looking for cost-effective solutions over the Internet -- and ASPs are there with applications ready to rent.

What is an ASP?

Whether customers actually understand what the ASP proposition is another issue.

Jester says it is clear that users are confused. Gartner found that while users are prepared to look at what ASPs have to offer, they don't go looking for an ASP service as such -- they go out to buy a solution for a business process. "We must never lose sight of that," he says. "Whether [the solution] is delivered by an inhouse system or by an ASP is secondary . . . There is an opportunity for people to get in and sell, but they'll have to be astute on how they present the value proposition."

The misunderstanding of what ASPs are all about is something Clarken thinks will change very quickly. Familiarity will breed understanding and acceptance, in much the same way that online banking has over the last decade, she says.

Even the ASPs themselves are confused, according to Lloyd Ernst, CEO at ASP enabler WebCentral. "It's misunderstood in many ways. [The industry] is trying to work out what part they fit inside," he says. "What we tend to find, in Australia at least, is that people [are] willing to outsource the operations of mail servers and Web servers. So we consider that the benefit that we add . . . the outsourcing and the management. With WebCentral, for instance, we've been providing e-mail services for the last four years. Does that make us an ASP? Well, I guess it does in many ways."

Internationally Microsoft has been running pilots (including five in Australia) with companies that want to become ASPs. Kevin Rodrigo, group manager of the network solutions group at Microsoft Australia, says: "We work with them to understand what the marketplace wants -- to get that right -- and then move on to appropriate licensing models and so on . . ."

According to Gartner's Jester, a big part of that "and so on" involves branding. "One of the problems is that many [ASPs] are not well-known brand names," he says, "and just as with any e-business, they have to get out there and establish themselves." But acquiring brand recognition is something Jester says is very expensive. "What they've all got to solve is to establish a brand identity which matters in their target market. "There is no simple solution," he adds.

Are we alone?

So how does the Australian vision compare internationally? According to Jester, the development of the ASP market in the US is about 18 months to two years ahead of us. "There are lots of ASPs there. It is a very well-developed market in the sense that there are a lot of them, and all kinds of applications, and different business models. There are already even integrators or aggregators of ASPs in the US."

But he adds that we are catching up and he is seeing developments of the ASP market both in Australia as well as in Asia Pacific. In fact, Jester predicts this growth will double every year for the next five years.

WebCentral's Ernst sees a closer race. "I think the US is probably ahead in some ways," he says, "but I don't think Australia is all that far behind -- maybe six or 12 months from where we tend to see this particular market." However, he adds a note of caution about making too many comparisons between Australia the US. He says we need to keep in mind that the infrastructure and the way we pay for things is different here.

Clarken defines a major difference be-tween her own Peakhour and US ASPs -- over there ASPs often offer just one application. "So [each] is an application development company which can provide that product over the Internet," she says, "as opposed to what Peakhour is -- an aggregator that grabs all of the applications available over the Internet that [can use] another distribution mechanism . . . We aggregate them under our platform. And there's value-add there: Peakhour becomes a one-stop shop.

How many can there be?

So we're catching up and more are coming on board every day. But what is a realistic number of ASPs that the Australian market could support? Ernst predicts it will be roughly between five and 10 large-scale ASPs, with a host of smaller ones. He thinks the barrier to entry is a lot higher for ASPs than ISPs, due to the level of support ASPs need to provide to customers.

Paul Dundas, general manager of the online group at network infrastructure provider Phoneware Online, believes some ISPs will soon be including an ASP offering. "I think you will see a lot of ISPs moving towards the ASP model and obviously partnering with key ASP providers," he says, "because we can provide the infrastructure for them to deliver their services."

Clarken also believes more and more ISPs are coming to the realisation that they have to supplement their value by offering other services to their customers -- and becoming an ASP is a means to the end. "I think you'll find a lot of them are seeing the value-add in bringing applications on board, and being able to offer them to their customers."

Ernst, in contrast, believes ISPs should focus on what they are really good at -- providing connectivity and looking after the customer. "We [WebCentral] divested ourselves of our ISP business -- we used to have 40,000 subscribers . . . You're pulled in many directions and you just don't have enough technical resources to have that broad a focus. ISPs would have to give a lot of consideration to how many staff they would need and how well they could run both an ASP and an ISP."

The crystal ball

And what does the future hold for ASPs? Ernst says businesses will be taking up more of these applications but it's still another five years or so until "things start to become really interesting -- when your ordering systems [for example] automatically communicate with another supplier through standardised mechanisms . . ."

Clarken adds that the "sky's the limit . . . As technology broadens, what we can offer just becomes bigger and bigger, whether that's the use of applications over wireless to mobile phones, or the use of applications on digital television. Application service providers are able to grow their offerings as technology enables them to -- which is itself just growing exponentially year by year."

But there's caution in the wind. Jester predicts that probably within two to three years, there will be a consolidation down to a much smaller number of ASPs -- a natural phenomenon as the market matures. "We believe . . . that 60 per cent of the ASPs out there now, worldwide, will fail within two years," he says. So to survive a possible shakeout, Jester recommends ASPs put their businesses in order now, citing branding, clarity of value proposition, the right channels, the right partnerships, and straightforward management capabilities as key.

Ernst urges remembering that the ASP market is still embryonic. "It is going to take years and years for this industry to develop. There's a lot of hype around at the moment but I suppose the real truth will be what the model looks like four or five years down the track."

It is important to put the effort in now to prepare for the mainstream uptake of customers using ASPs, according to Microsoft's Rodrigo, but "I think Australians are finding bandwidth an issue -- the cost of that bandwidth." Phoneware Online's Dundas concurs, saying as the cost of broadband infrastructure decreases, we'll see an increase in the instance of ASP model delivery mechanisms and providers in Australia.

So ASPs may see dollar signs on the horizon, but the market is just not there yet. However, as Rolf Jester reassures, that is to be expected: "It's still early days."

A HELPING HAND

Microsoft isn't the only one helping businesses understand the ASP proposition. IBM is offering SP Ready, a program aimed at Independent Software Vendors (ISVs), solution providers and service providers that want to launch ASP offerings. It includes a five-step program designed to help future ASPs with their education, assessment, enablement, hosting and market launching.

Peter Hreszczuk, country executive, Net Generation Business, IBM Australia and New Zealand, says the company sees major growth in the ASP market. According to Hreszczuk, a lot of ISVs had been approaching IBM, asking for help in moving to an ASP model. "We believe that there's a need in the marketplace to assist these organisations in moving, not just technically, but from a business perspective."

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