The Analyst's Corner: A change in the weather

Relationships are key to surviving the fluid ASP environment

Here in California, the weather continues to be wacky. For instance, this Fourth of July felt more like Labor Day--cold, windy and cloudy. We held a party out on the deck of my apartment to get ready for the fireworks, and the only thing warm this summer’s day was the friendships and the conversations.

On the Net

There’s crazy weather going on in the telco space this summer, too. Winds are blowing up around a space called application service providers (ASPs). The idea behind ASPs is that applications will be leased from a new ASP value chain that includes service providers, software companies, hardware firms and business firms.

This “software for rent” model will mean that software applications in the future will no longer simply be bought from a software company to run on a dedicated server located somewhere in a company’s “clean room” or wiring closet. But, as the summer progresses, at times it’s tough to tell if these visions of ASPs will be harbingers of something new or simply akin to a random gust that blows over the lawn furniture.

At times this year, ASPs were all that Internet companies, and the day traders that follow them, could talk about. Everyone had to be one. Everybody wanted to be linked up with one. More than 500 companies have congregated under the umbrella known as the ASP Industry Consortium.

As you might expect, the participants in this new consortium include equipment providers like Nortel, Lucent and Cisco, which supply the nation’s largest telcos, as well as some network backbone providers. These companies, which traditionally have been virtually shut out from the large profits available to software providers, such as Microsoft, Oracle, SAP and Siebel Systems, see the ASP approach to things as their way (finally) to get a well-deserved piece of the action.

But something interesting has happened over the last several months in the ASP arena. While the idea was launched by the dotcom Web start-ups (who else?) such as Corio and USinternetworking, another force is coming to the fore. Companies with existing businesses and customer relationships are starting to jump in.

It only makes sense. If, for instance, leasing software over the Internet eliminates much of the need for a company to spend millions on high-tech staff people, why shouldn’t “low-tech” businesses simply find a way to offer these new-age Internet ASP applications to their existing customers?

Once you get away from the Web-frenzy way of thinking, the idea makes sense. Consider the birth of 800 numbers a generation ago. How many companies that just offered 800 numbers put florists and restaurants and banks out of business? None (well, maybe one). But, on the whole, companies simply “leased” 800 numbers from the phone company and offered toll-free service to their current customers. The same with fax. In the late 1980s and 1990s, most companies had to have a fax service, but few in the early days actually owned one--especially when faxes looked more like seismometers with that crazy cylinder spinning around wrapped in that funky-smelling paper. As I remember it, very few “fax start-ups” put booksellers or groceries out of business.

We may be about to finally see the realities of business surfacing in the Internet. Why shouldn’t the companies that already have customers that trust them rent applications to their customers? Of course, well-financed, Internet-only companies see dozens of reasons why this should not be the case. After all, didn’t Amazon.com sideswipe the biggest booksellers in the country only a few years ago? That was then. This is now. Brick-and-mortar companies are hip to being ambushed and are now more vigilant--and more willing to experiment with the Internet.

But these companies are not tech experts. Telcos looking at ways to enter this ASP space should see them as a way to get into this space. After all, even though these old-fashioned companies lack a Web expert (or millions in venture capital), they have something valuable to offer. These insurance firms, chemical companies, shipping firms and you-name-it firms already have hundreds of long-standing customers that know and trust them. Relationships–not just technology–may be the real key to success in the ASP business.

And, believe me, when the weather turns cold in summer, strong relationships are the only thing that can keep you warm.
Vance McCarthy is Editorial Director for aspRegistry.com, a Web-based information service for the ASP industry. His e-mail address is mccarthy@batnet.com.
This column originally appeared on the internetTelephony.com website.

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ASPnews.com
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A comprehensive independent publication covering the ASP market and promoting the ASP model to corporate customers nationwide.

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