Last time, I told you we would start looking at representative examples of ASP-provided services by examining some offerings from one specific category of ASP. If you'll recall we talked about how the ASP Industry Consortium (ASPIC) has created specific categories for ASP service offerings.

This month, let's take a look at one of the first types of ASP-provided services to succeed in a major way: hosted e-mail. E-mail hosting providers were some of the very first ASPs. And even though many of these ASPs started out by providing only mail hosting, the changing nature of the marketplace has led most of them to expand their offerings beyond simply providing a mailbox.

Only a few short years ago, companies began looking into having ASPs host their e-mail services. The appeal then was that outsourcing offered a way to avoid the headaches of e-mail administration and reduce the cost of owning the servers.

But today, e-businesses are working to form tighter relationships with their business partners. ASPs today are often called upon to provide a broad range of enhanced services, including workflow, universal messaging, content filtering, and virus detection-along with the requisite mailbox. Realizing that basic e-mail box hosting is a commodity, ASPs are expanding their services to meet these new demands.

Going with the flow

Since e-mail is central to collaborative workflow, some ASPs are wrapping e-mail services into more comprehensive collaboration offerings. The research group IDC says companies are most likely to outsource collaborative applications such as e-mail, calendaring, and scheduling simply because they are commodities.

According to IDC, U.S. companies spent nearly $75 million on collaborative application outsourcing in 1999. IDC also forecasts a 93 percent compound annual growth rate to more than $2 billion by 2005. Another reason companies are outsourcing e-mail, collaboration, and messaging applications is to reduce the total cost of ownership. For example, a typical ASP can provide mailboxes via POP or the Web for about $5 per mailbox per month. In comparison, large IT shops running traditional solutions can have a total cost of ownership per user of $80 to $150 per month.

So how can the ASPs deliver the service so cheaply and the IT department can't? It boils down to a simple matter of economics. The total cost of in-house administration includes servers, software licensing fees, proprietary development, administration, maintenance, and related networking issues. ASPs can spread many of these costs across several customers and, therefore, provide attractive monthly subscription fees, which significantly reduce the total cost of ownership.

There are other reasons, besides simple economics, that often play a part in the decision to outsource e-mail and other collaborative services. For example, IT staff members want to work on what they perceive to be exciting projects that are in line with their career-development goals, rather than spending time on rather unglamorous tasks like keeping the corporation's mail servers up and running.

Mailboxes (and more) for hire

Since companies are demanding better technologies, ASPs must be able to provide those technologies as well as commit to service-level agreements. ASPs now find they have to be accountable for the service they're providing.

This message is not lost on the ASPs. The San Francisco-based ASP Critical Path is one operation that totally understands (and embraces) the concept of accountability. The company's customers include major portals, telcos, and ISPs. Clients include Apple, Nike, Canon, Palm, Xerox, and Intel.

Critical Path manages 3,000 customers and services and 100 million mailboxes, 25 million of which are wireless. According to Critical Path, its customers want the Internet equivalent to a dial tone (i.e., always there when you expect it to be). E-mail boxes may be a commodity, but robustness is not. Businesses rely on their e-mail these days and uptime is a major deal maker (or breaker). Critical Path says that's why it guarantees 99.5 percent uptime. The company also offers custom cross-platform application development, project management, and a slew of other services.

The Walnut Creek, Calif.-based ASP Bluetrain takes a slightly different approach. Rather than focusing on e-mail and providing services that stem from it, Bluetrain places e-mail under a collaboration and communications umbrella.

Bluetrain's flagship product, Passport, is suitable for any small-to-midsized business looking for a better way to communicate and share information. Passport gives you access to your entire organization's information. It enables users to complete tasks like coordinating with a colleague's calendar, having immediate access to important and current documents, or simply sending e-mail. Passport provides full-featured e-mail; shared calendar; shared documents; work groups; task management; discussion forums; news and information; synchronization with Lotus Organizer, Microsoft Outlook, and Palm OS; and 50MB of storage per user.

Bluetrain says Passport is truly an "off-the-Web" service and claims that a company can set up its account in just minutes. Also, new employees can be added in as little as 30 seconds.

Passport is an example of moving beyond e-mail so that a company can better service its clients. But e-mail services aren't always marketed under messaging or collaboration umbrellas. E-mail can also be sold as a marketing and advertising tool.

Boston-based ASP Xchange has based its business on this approach. Xchange says e-mail represents a viable channel for customer-service strategies-a channel that works for B2B or B2C because everyone has e-mail boxes. The folks at Xchange are the first to admit that most people associate the combination of e-mail and marketing with spam. But they overcome that initial prejudice by citing some interesting economic facts regarding the success of e-mail-based marketing. While most people consider spam irritating, companies typically get a 3 to 8 percent return versus 0.3 percent return on banner-ad click-throughs.

If that isn't enough to entice potential customers into the Xchange fold, it offers an even more compelling service: permission-based e-mail, where users opt to receive certain types of messages. The return on that is 8 percent to 15 percent. According to Xchange, when permission-based e-mail is combined with sophisticated personalization techniques, the return, as measured by direct customer responses, rises to 20 percent to 30 percent.

Customers of Xchange include Ameritrade, Citigroup, Microsoft, Sprint, theglobe.com, and Expedia.com-a Seattle-based online travel agency that's using e-mail as a customer-relationship management tool. Xchange sees its role as a purveyor of Customer Relationship Management (CRM) rather than as an e-mail provider.

Be careful out there

While e-mail ASPs may all look alike, they're not. Some are attempting to be the low-price leaders, while others are focusing on higher-level customer demands like quality of service and service-level agreements. As one provider put it, customer requirements driving the growth of e-mail ASPs are the same criteria that will separate successful e-mail ASPs from also-ran operations.

One thing is clear: E-businesses hire ASPs for a competitive advantage. Whether it's packaged as messaging, collaboration, or CRM services, the outsourcing of communications services these days covers much more than e-mail.

Contributing Editor Don Fitzwater is a principal partner in Interface Solutions, a Minneapolis consulting firm.