Change is good

The time is ripe for change. Gone are the days of high-margin minutes. Carriers can no longer cash in on connectivity. A new business model is emerging, and the focus is on services.

The idea of offering service has shifted from simply dial-tone to enhanced services. But what does that mean? Will enhancements such as call waiting and intelligent call routing sustain a service provider in the years to come? Not with the focus on data. Still, providers are grasping at what to embrace and implement.

A promising approach is that of the application service provider. ASPs install, maintain, upgrade, tweak and even customize software programs for their customers. They are no longer charging customers strictly based on usage and incremental service offerings. They are building relationships with their customers and then charging for that service.

It's a great model for providers: steady revenues based on high value-added services. Applicable in both general commerce and vertical markets, the opportunities are endless. The ASP becomes, in effect, an extension of the customer's business so that when the customer grows, so does the ASP's value - and its revenue.

The concept of providing hosted applications to customers is sound, but it isn't new. Network integrators have been touting this model for a few years. Small and medium-sized businesses are aching for companies to take control of their technology needs. Most don't have a technically savvy staff, let alone an internal IT department to track and upgrade their technical resources. Even large companies can use the help. The corporate IT staff can benefit from outsourcing its application services because now, they're often unintentionally relegated to putting out virtual fires.

In the private network environment, integrators are buying system and application software in droves. Customers access the specific applications they need for a monthly subscription or maintenance fee. Universities are prime targets for this type of solution. For example, architecture students need to use expensive computer-aided design programs. In the ASP model, students can sign up for access to the program through the university's intranet and transparently reach the ASP. At the end of the semester, the software can be updated, new students can register and the university pays only the maintenance fee, which can be charged back to students' tuition bills.

But the ASP's path to success will be tricky. Despite its promise, the market is small. The biggest challenges to its success are acceptance and implementation. Service providers are not used to jumping into unproven markets, and this type of offering changes their business model. The new competitive carriers are pushing ahead - and as a result, forcing old telco dogs to learn new tricks.

To succeed, ASPs must find their niche. They can't offer all services to all customers. They should specialize, partner and, down the road, consolidate to expand their offerings and footprint. ASPs will watch the horizon for new software programs, updates, added services and other items that will make the client business run more smoothly.

The new model is relationship-based. It hinges on the ASP's knowledge, reliability and responsiveness. It forces the ASP to be intimately familiar with its customers' businesses. The initial learning curve is tough, no doubt. But once that relationship is forged - assuming it is well-tended - customer loyalty will run high.