ASPs need a game plan to win the credibility battle

Just over two years ago, at the very height of the dotcom boom, leading players in the IT sector concluded that the future...

Just over two years ago, at the very height of the dotcom boom, leading players in the IT sector concluded that the future direction of the industry lay with a centrally managed, one-to-many model of software delivery. This was application service provision (ASP) - another way of describing software rental - as opposed to outright purchase.

To the venture capitalists, looking down from their steel and glass towers, the argument for ASP was an attractive one and, conceptually, software as a service or a "pay-per-view" proposition fitted neatly into the grand new strategy being sketched out by the likes of Microsoft and Oracle. The idea was encouraged, the business plans extravagantly funded, the analysts were sweetened and an industry appeared.

But there was one tiny problem. Very little attention had been given to whether users were ready to reject their own IT infrastructure and embrace yet another new religion.

Within 12 months, ASP had seemingly lost its way and its casualties eclipsed any early signs of real success. Volumes of expensive research were published and conclusions were drawn, but very few answers were offered to a struggling industry that looked unlikely to survive.

I recently invited 20 leading companies involved in the business to attend an XSP Community meeting at Ernst & Young in London to discuss the ASP model's problems, its history and its future, in a closed debate. After two hours of argument and flip-chart activity, they arrived at a set of conclusions for the industry to follow in its struggle to redefine itself in the eyes of customers.

Hindsight is a wonderful thing, and it would be true to say that the ASPs recognise that their original message was over-hyped and over-simplified in a rapidly expanding market sector - one plagued by ambiguity with too many players and too many different types of delivery model, each with its own pricing structure.

Trust was an essential but elusive commodity. The sales cycle was more complex than anticipated and any true sense of branding, in a brand-conscious society, was largely absent.

Furthermore, users had a poor grasp of the value proposition and the strategic importance of channel partnerships as a route to enterprise customers was ignored. To describe what happened over the last 18 months as a collective mess on a grand scale would be polite understatement.

Going forward, the ASP industry must agree on a new definition of its services and a new mission statement. It may prove to be the spiritual successor to classical outsourcing, but it requires a long period of confidence-building before it attracts significant numbers of enterprise customers.

ASPs have to show clear evidence of return on investment and demonstrate true solutions repeatability, illustrating the appeal of managed services as an end-to-end solution for the entire business process. As one director of an ASP said, "This is a staged evolution, not a technology revolution and there is a credibility battle to be won."

Simon Moores is chairman of the XSP/ASP Communities

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