A viable application service provider?

Lebanon’s Trinec has seventeen customers, is seeking to expand rapidly and believes it could even hit breakeven by the end of 2003.

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By  David Ingham Published  August 18, 2002

An application service provider (ASP) with seventeen customers and counting in Lebanon, $1 million in 2001 turnover and ambitious regional expansion plans — given the disastrous track record of ASPs worldwide, can this really be true? It’s exactly how Nadim Ghorayeb, chief operating officer of Trinec, described the fortunes of his Lebanon-based company in late July.

There is the small matter of profitability, (which isn’t expected to arrive until late next year and that depends on geographical expansion plans coming to fruition) but compared to most ASPs the company appears to be in a positive state of health. Long term survival isn’t guaranteed, of course, and achieving the twin targets of 50% revenue growth this year and breakeven by the end of 2003 will depend, Ghorayeb says, on how fast the company can ramp up its service.

“Expansion is the trick,” he says. “The way to do it is to go to other countries. That is why we’ve come to Jordan. We’re looking at KSA as the next step and Egypt is also a target for us.”

Of course, any international model, like the ASP business, has to be modified to suit the local market. The basic concept, of leasing software to companies over the internet, is the same everywhere, but it’s what offered that is slightly different. Trinec has not followed international ASPs by offering business applications such as human resources and financials, but has instead focused on Microsoft productivity applications such as Exchange and Office.

This, Ghorayeb believes, is more fertile ground for a regional ASP than ERP applications, even though it’s office productivity applications that typically suffer the most from piracy in the region. “You have to consider that the licence price does not exceed more than 8-10% [of the total cost of ownership],” explains Ghorayeb. “Most of it is service and operation. What we replace is not only software, what we’re [providing] is a fully managed desktop.”

Other reasons not to concentrate on ERP type applications, he continues, are the low cost of such applications in the region and, more importantly, reluctance on the part of users to have such critical software and accompanying data under the control of a third party. “JD Edwards’ suite is five times cheaper in Lebanon than it is in Europe. Also, ERP is linked to very critical information that businesses would usually like to keep in house,” says Ghorayeb.

In order to achieve geographical expansion, Trinec will be trying to enter countries with the endorsement of local ‘telcos’, such as Jordan Telecom (JTC) in Jordan. Trinec is the first company to use JTC’s shiny new data hosting facility, and Ghorayeb believes telcos are keen to welcome companies like Trinec because they are feeding more data traffic into telecomms networks. “[Telcos] need to offer value-adds to customers [because] they are reaching saturation, especially in small markets like ours,” says Ghorayeb.

However, whilst telcos might be keen to encourage companies like Trinec, those same telcos’ infrastructures can present huge problems. Any ASP has to be able to offer its customers reassurance that its service will always be available. In an ASP’s case, the public internet works in the same way as a corporate network; it’s the means by which the user connects to data and applications. If the internet goes down, you can’t do your work.

In order to reassure customers, ASPs offer them what are called service level agreements (SLAs), a commitment that services will be available a certain proportion of the time, usually 99.9%. If the ASP fails to meet this figure, it suffers financial penalties.

In Lebanon, where telecommunications remains unreliable, Trinec has invested considerably in fail-over and backup technology to ensure it has a chance of meeting its 99.9% availability targets. Ghorayeb says Trinec has managed to do it and is confident that Jordan’s solid and improving telecomms infrastructure will make 99.9% availability much easier to achieve there than in Lebanon.

The need to offer SLAs touches on what is the key challenge for ASPs, overcoming customer’s fears about the security aspect of outsourcing. In theory, everyone agrees that ASPs are a great idea. Instead of having to maintain servers and data in-house, you turn all that over to a third party and simply access software and data over the internet. You remove a hassle and pay a predictable cost for the service.

However, customers have not embraced the idea in droves because they haven’t warmed up to the idea of moving systems and data off premises. In their eyes, security of data is inevitably compromised by doing so.

Ghorayeb agrees this is a challenge for Trinec. “There is a tradition of mistrust in the region. Companies like to keep their data in their own offices,” he says. “They have a misconception of security that is not accurate and we try to create awareness. We use the best [security] technology, whether at the network level or the system level.”

One result of this fear over security is that Trinec’s customer base consists primarily of larger companies that better understand the ASP concept, according to Ghorayeb. “Most of our customers today are large insurance companies and financial companies because these are the companies that realise the benefits of saving on TCO,” he says.

“They have understood the benefit of outsourcing their IT infrastructure.” As it seeks to expand and move towards profitability, Trinec will be relying on more companies’ coming to the same conclusion.

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