You can turn the volatile ASP marketplace to your advantage. 5_39_1001.xml hed: That which survives dek: You can turn the volatile ASP marketplace to your advantage. blurb: You can turn the volatile ASP marketplace to your advantage. number of pages:1 By Don Fitzwater
The ASP marketplace has become chaotic and volatile. Some ASPs are failing, others are changing their business models on an almost daily basis, and still others are merging with likely suitors in order to stave off the final collapse. Surprisingly, there are also ASPs that are surviving. Better yet, some are not only surviving, but also growing stronger. That’s right, stronger!
The ASP marketplace has been getting trashed lately by both the industry press and real-world market forces, but the fact remains that there are success stories out there. So what separates a survivor from a failure? Well, part of it goes back to the original presumptions made when ASPs formulated their business models. It turns out that many of these presumptions were wrong. Following are a couple of these presumptions accompanied by what ASPs have learned from them.
One size fits all
ASP startups presumed that clients would be satisfied with vanilla application implementations, but most IT organizations still require at least 10 percent customization to adapt to current business processes and provide legacy interfaces and data conversions. The customization not only incurs implementation costs, but also significantly raises the ongoing support (such as hosting, stability, patches, updates), negating any price points quoted in early vendor discussions. Market experience seems to indicate that applications with even 10 percent customization cost two and a half to three times more to support over three years than the vanilla application.
There’s gold in them thar hills
Early ASP market predictions proved overly optimistic and presumptions of application capabilities were premature, resulting in the disappearance of many startups through acquisition, merger, or bankruptcy. Many analysts believed that the ASP market would grow 50 to 100 percent per year through 2008, but the degree of euphoria exhibited in 1999 and 2000 has been tempered by the ominous reality check seen this year by many idealistic technologies and investors. Don’t get me wrong: Most of the analysts today are still predicting growth (and, ultimately) success for the ASP marketplace, it’s just that they are being more restrained in their expectations.
Survive or thrive?
Surviving is good but thriving is better. Today, it is safe to say there are two distinct groups of ASPs (besides those that have fallen by the wayside). One group merely survives; the other group thrives.
On the surviving side are ASPs whose main business is taking recognized software packages and making them available online as a hosted alternative to the original packaged product. This is a difficult thing to do as a viable business proposition, especially if the software isn’t built expressly for online delivery. That’s why many have failed. Those who still survive have learned enough lessons by now to operate a profitable business, but it will never be an easy path to follow.
ASPs on the thriving side of the industry deliver applications and services that were born on the Web and have never had any existence outside of the Web. In the past, the breadth and quality of what these ASPs had to offer didn’t seem to measure up to the standards of enterprise-class software applications. But these Web-native ASPs are just now hitting their stride, and they’re beginning to pick up a significant numbers of enterprise customers. This is because enterprises are discovering a need for Web-native applications and services that have no equivalent in the offline world; or alternately, that Web-native providers can offer needed functionality that has never been readily available to them offline.
New breeds, new winners
One of the most interesting effects of this marketplace change is that some unexpected names are joining the ASP industry from the dot-com world. Of course, many ASPs have had to adapt to the market after they found out they could not survive under the presumptions listed above. Also, several non-ASPs are coming into the market without the burdens of those presumptions. Below are some companies that have seized the opportunity to thrive.
Expedia.com: The online travel booking service Expedia launched a new private-label booking service for travel industry clients. Expedia wrapped up part of its infrastructure and operations as a viable online business service. Its first client is American Airlines, which will use the service to add hotel and car rental booking to complement the air travel booking already available on the AA.com Web site. Many observers once saw AA.com as competition for Expedia. Instead, AA.com has now become a customer for Expedia’s proven infrastructure, delivered as a Web service in what is effectively a master provider model.
Multex.com: The economic slump and Wall Street’s volatility might have put the brakes on a lot of businesses, but not on the flow of financial data and stock reports streaming over the Net. If anything, Wall Street is demanding even more information to deal with earnings surprises or to calm jumpy investors. All of this is good news for Multex.com, which sits in the middle of this information whirlwind.
While other content businesses and ASPs have starved to death on meager revenue diets, Multex.com is getting fatter on a model focused on content and technology. Also, it’s an ASP geared specifically for the information-dense and tech-needy finance industry. Founded in 1993, the company builds and hosts software systems that let investment banks, brokerage firms, and research companies deliver financial data over the Web to their customers, partners, and internal divisions. It also operates Web hubs that provide financial reports and investing information to businesses and consumers.
The company pulls in software licensing and hosting fees, content subscription fees, and some advertising, sponsorship, and transaction fees. That blend added up to nearly $86 million in revenue last year, a 110 percent increase from 1999. More than 70 percent of that revenue comes from recurring sources, such as subscriptions and hosting fees, which make for stable growth. In contrast, Multex’s biggest competitor, Thompson Financial, has not been able to combine its services into simple, expandable offerings such as Multex’s.
Multex already commands a major presence in the financial-services industry, with an impressive list of more than 130 top-name ASP customers and hundreds of content providers. Its market opportunity is estimated at $3-6 billion, growing 10-15 percent annually, according to Merrill Lynch. If that isn’t thriving by today’s (or any other day’s) standards, then what is?
ScreamingMedia: The acquisition of Stockpoint by ScreamingMedia presents another example of a former dot-com migrating to become an enterprise Web service provider.
Stockpoint started out as a provider of real-time stock market information to dot-com portals. But today, its customer base is skewed toward financial-industry enterprises that take its information feeds for analysis by their own staff, rather than onward publication. ScreamingMedia, which aggregates and filters news and information feeds (including Stockpoint), was also founded as a service provider to Web portals. But it too has found enterprises forming a growing portion of its client base. The acquisition is designed to accelerate this transition.
These thriving members of the ASP landscape may not look much like old-school ASPs; but under the surface, there are many similarities. Those similarities will grow as Web service providers add infrastructure technologies and services for the types billing and service-level monitoring that has often been pioneered by existing enterprise ASPs. Nor will it be long before partnerships begin to blossom between these providers and other ASPs, where they find themselves serving the same enterprise clients.