On one hand, ASP suppliers and analysts seem to talk of nothing
else. On the other, actual customers seem rarer than hen's teeth.
So where is the ASP market?
ASP was always a supply-side concept. It was conceived by large
application vendors that had saturated their existing market, aided
and abetted by the carrier community, which was desperately seeking
a way to add value to their rapidly commoditising voice-based
services.
Sometimes, however, the best ideas come from inauspicious
beginnings, and ASP is an example of an idea born from supply-side
desperation that, once nurtured by demand-side needs, will grow
into a very big market opportunity indeed. The problem is that,
currently, suppliers in the ASP market are having to adjust their
business models to accommodate the real world, thereby creating the
appearance of a false start for the market. Given this context, let
Ovum highlight some issues to watch for in this year.
Some applications are more appropriate than others
We
have always been clear about the types of applications that are
most suitable for ASP delivery. The key parameters to consider are
the level of customisation required to get the best value out of
the application, and the amount of integration necessary with other
applications to get effective use out of the application.
Pure-play ASPs operate on a one-to-many business model, predicated
on the assumption that the same application, with minimal
configurative differences, can be managed for as many customers as
possible. Furthermore, this one-to-many model rules out the
integration of the application with in-house applications.
Consequently, the ASP business model makes most complex business
applications unfeasible applications for an ASP to deliver.
ASPs:
- Are best at delivering standalone, simple horizontal
applications, such as office productivity suites, salesforce
automation solutions, accounts packages and human resource
packages
- Offer best added value when they service a vertical sector with
pre-integrated applications, thereby achieving custom applications
without busting the one-to-many model
- Need to consider a different business model, such as the
one-to-one customised application services offered by the managed
service providers in the outsourcing market
Lest we forget, ASP is a service offering
One of the
basic premises of the 'apps on tap' ASP market is that business
software can be a utility market play. This premise appealed to
both the large application vendors and the carriers, but for
different reasons. Large application vendors used to serving large
corporates saw ASP as a way to shift their existing product to SMEs
following a "pile 'em high, sell 'em cheap" ethic. Carriers
understand utility service offerings, so believed they could enter
the ASP market on this utility basis.
It was a meeting of slightly deranged minds, because this premise
never appealed to the business community. Our user research
indicates over and over that customers want a business relationship
with their ASPs, not a billing relationship. Consequently, to be
successful in the ASP market, the ASP must have application service
skills to bring to market. This rules out many existing ASP
companies Cue the successful entry of the software service industry
into the ASP market.
Using an ASP is not a cost-cutting exercise
If a market
is proving slow to catch fire, what do you do? In the 1980s you
promised productivity gains, in the 1990s you promised lower cost
of ownership. In the 'noughties' the marketing jury is still out,
so ASPs have been reduced to chanting the previous decade's mantra
of lower cost of ownership.
It takes the average adult a few minutes to work out that this
cannot be so for the ASP market. Paying a regular fee to use
something is very rarely less expensive than owning that thing
outright. But sometimes we opt to rent or hire things because it is
more convenient than owning the product or skill outright.
An ASP can provide companies with fast, flexible, cost-effective
application solutions, especially in the areas of cross-enterprise
e-commerce and e-business, which are the areas where businesses are
most interested in using an ASP. Marketers in the ASP market need
to focus on this and work harder on plausible marketing
messages.
Never underestimate costs
The reality is that ASPs do
not change market channel requirements. In fact, many ASPs have
overlooked a very important business lesson learned and relearned
in many industries over the decades. That lesson is: never
underestimate the cost of customer acquisition.
It seems incredible that analysts should have to explain to large,
well-established and successful companies (who really should know
better) about the channel requirements of different types of
customer. The reason so many have lost their heads when it comes to
ASP is because of a touching faith in the statement that" the
Internet changes everything".
It may change many things, but it does not change the requirement
for face-to-face contact with clients and the cost implications of
developing a business relationship with those clients. If your
business model has been based on the assumption that you serve
large corporate organisations, setting up an ASP business does not
change the cost of acquiring customers - can you really afford to
send your highly-paid, highly-skilled sales team to knock on SME
doors? Of course you can't - but in the ASP market somebody has to
be paid to knock on those doors.
ASPs will only succeed where they directly own and understand the
customer base they are selling to. Therefore, over the next few
years, most software VARs will develop ASP businesses and be much
more successful at selling application services to SMEs than either
the application vendors or carriers have been.
Oops, the early adopter market stumbles
The early
adopter community for ASPs was the dotcom player, anxious to get
business operations running quickly from scratch and with a growth
plan on steroids.
This matched many ASP offerings, because the dotcom needed a full
business suite running from day one, did not have legacy
applications or an IT department to worry about, and acted like a
global multinational - even though staff frequently numbered fewer
than 12 people.
In the current economic climate, many dotcoms are running into
funding problems, so an important customer sector for pure-play
ASPs is shrinking. Many ASPs that are new market entrants
themselves will also be affected by this economic climate, so many
of the smaller ASPs will disappear over the next year or two. The
ASP market as a whole will be slower to become established than
expected, but it does not constrain the medium and long-term market
opportunity for ASPs.
Where does ASP go from here?
This year will be the one
when the ASP market shifts a gear to fully embrace the professional
services sector, and when existing players begin to put their
business plans on a more realistic footing.
- Some smaller ASPs will collapse spectacularly.
- ASP units in well-established organisations will clumsily
execute strategy U-turns.
- The professional services organisations will enter the market
as e-service providers in their own right by partnering with
carriers and with software vendors.
- The ASP market may not be an area for those with a nervous
disposition, but if you are anybody in the software, services or
carrier community, or plan to be anybody in those communities,
you'll be there - as will I.
Dr Katy Ring is research director, e-business, at Ovum
Ovum, the analyst and consulting company, is a global leader in
the rapidly changing world of converging technologies and markets.
Resolutely independent, Ovum offers clients objective advice and
challenging insights.
http://www.ovum.com