Big week for big ASPs

Smaller players could get shut out of vertical market Two well-established carriers made major application service provider announcements last week, bringing into question the roles of start-ups and established players in this emerging field.

U.K.-based Cable & Wireless launched its ASP arm, Cable & Wireless a-Services, in the U.S. Though a wholly owned subsidiary of C&W, a-Services was brought about by a partnership among C&W, Compaq and Microsoft.

The ASP uses assets of all three to provide what the company calls "an end-to-end fully managed collaborative computing service from a single source for small and medium-sized business."

For example, a-Service's first offering, a-Workspace, provides the Microsoft Office software suite on a Compaq Internet access device delivered via C&W's Internet infrastructure for $169 per month per user. Microsoft Exchange can be added for an additional $20 per month per user.

As part of this soup-to-nuts offering, a-Services attempts to address what is probably the main stumbling block in the ASP space. With many of the smaller ASPs, a customer that runs into service troubles may be forced to contact both the application provider and the network provider to solve the problem. In a worst-case scenario, the customer could be sent around in circles.

Because a-Services involves the infrastructure and application provider, it avoids such difficulties by establishing a single point of customer contact for both application and network problems, said Simon Angove, senior director of product strategy for a-Services. "The entire end-to-end service... is backed by one single service level agreement," he said.

Through a-Services and affiliated companies, the product will be launched in the U.K. in October, in Australia by the end of the year and throughout the rest of Europe in 2001.

Like a-Services, the immediate access to infrastructure is one of the big assets of Qwest Cyber.Solutions, which announced last week that it won a five-year, $18 million contract from Redback Networks to provide the equipment maker with customer relationship management software from Siebel Systems and enterprise resource planning software from Oracle. This, according to the company, is the biggest ASP contract ever awarded.

These offerings, though similar on the surface, mark different paths for carriers moving into the ASP space. Conventional wisdom says companies such as C&W and Qwest would offer simple horizontal applications while leaving focused, vertical spaces open to smaller companies.

"The larger ASPs have an advantage for broad, repeatable, low-customization offerings," said Paula Hunter, vice president of sales and marketing for cMeRun and president of the ASP Industry Consortium. "Smaller ASPs have an advantage for vertically oriented apps or specific, business-focused apps where professional business skills are required to implement or deploy the application."

These announcements, though, suggest that the large carriers could dominate both the vertical and the horizontal space. While C&W's service uses the company's existing customer base, QCS focuses on providing applications for specific markets such as finance, communications and health care.

"We're not a horizontally focused business," said John Charters, president and CEO of QCS. "We're building a vertical strategy based on best-of-breed products."

Combine this strategy with the scope of the Qwest network and its BellSouth alliance (see story on page 9), and the vertical pure-play ISPs could get squeezed out.

Still, said Jennifer Rosenberg, a consultant with TeleChoice, looking for niche markets is the only reasonable course of action for these pure-plays because they do not have a large existing customer base with which to work.

On the pure-plays' side, though, the usual question of larger carriers' agility arises. "Certainly they would have to partner. Even [QCS] has a relationship with KPMG," which as a partner in the venture provides methodologies, templates and software specialists, said Dave Sovie, a vice president with Mercer Management Consulting.

And vertical market players tout their ability to concentrate on one specific set of tasks.

"Our advantage is focus. A lot of bigger carriers are dealing with issues.... While the other guys are focusing on all the reasons why it's not working in their network, we're making it happen in our network," said Tony Surak, executive vice president of marketing and sales for TalkingNets, an ASP that provides ISPs software that enables a local voice offering.

If a small vertical ASP should succeed in establishing a viable market presence, the possibility of a takeover by a company such as QCS presents itself.

This, however, could be ruled out by the all-powerful bottom line. "Certainly some of the early, pure-play leaders would be logical acquisitions for large incumbent communication providers," Sovie said. "There's a huge `but' there, though. They are trading at multiples that are so much higher than the telcos, it would make it very dilutive to earnings."