US ASP closures spark analyst warnings

While ASPs in the US face up to hard realities of a dot-com backlash and economic downturn, many local ASPs have yet to commence services.

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By  Greg Wilson Published  January 28, 2001

Introduction|~||~||~|The initial closures of application service providers (ASPs) in the US have brought stern warnings from analysts. The closure of two storage ASPs — JustOn.com and Netdrive.com — within the space of a month, serve as a stark reminder to all local companies to carefully investigate their prospective ASP partners. “The ASP market will grow to an estimated $24 billion by year-end 2005, but the path will be littered with failed ASPs,” warns Gartner Group research director, Neil MacDonald in his initial report on the US failures. “It will be increasingly critical for enterprises to distinguish winners from losers as the market consolidates,” he adds.

The US closures are a result of organisations rushing into the ASP space, without forming coherent business plans that would differentiate them from their rivals. As with the earlier dot-com gold rush, Gartner is predicting the closures of JustOn and Netdrive will be the first of many.

The Middle East has already seen a number of ASPs emerge. Between April and May of last year alone, three ISPs declared their intention to begin operations, two of which — e-sage.co.ae and ASPGulf — planned to offer similar backoffice ERP-type services on the Windows 2000 platform. The third, CNS in partnership with Etisalat subsidiary Emirates Internet & Multimedia (EIM), planned to offer locally developed medical applications to medical and dental clinics. But CNS’ plans have since been put on hold, as “the market was not as receptive as we had expected,” says Tony Alan, general manager of CNS. “The dot.com turnaround has affected the ASP business. The system was tested in a number of clinics, but it was not attractive enough to be viable,” he adds.

MMI Technology Solutions (MMI TS), the distributor behind the CS/3 based e-Sage offering has also found the going difficult. According to Premchand Kurup, manager, MMI TS it has “been pretty tough to get around the mindset of the customer.”

||**||Changing the local mindset|~||~||~|For example, accompanying the initial launch of its ASP initiative, MMI, Sage Middle East, Microsoft and Comtrust jointly hosted an ASP event for potential customers. The daylong seminar created four large sales, all along traditional lines and no ASP signings. Since then e-Sage has won one customer based in Saudi, which recently went live. The unnamed Saudi manufacturing company was already an experienced user of CS/3 and was looking to upgrade, says Kurup. “They can handle most of the support and consultancy issues themselves,” adds Kurup. “We handle the other support issues via our call centre in Dubai.”

Kurup reports that MMI TS is in talks with other companies in the UAE about the possibility of moving to the ASP model. However, in the absence of ADSL and with Internet connection still uncertain across the Gulf, the ASP model still has to build, “customer confidence,” adds Kurup.

Since declaring its intention to start renting software across the Web, ASPGulf has spent the subsequent months putting together its data centre to host its software services including, Great Plains E-Enterprise apps, Cognos reporting tools, Siebel CRM apps, Exchange, and Microsoft Office applications, all running on a Windows 2000 platform. Plans to have customers up and running by October 2000, have proved “unrealistic,” says Robert Lovelace, chief operating officer of ASPGulf.

However, ASPGulf is currently running two beta sites and expects to transfer customer data from the separately hosted servers to the main data centre situated in Dubai Internet City shortly.

Regardless of the slow uptake of the ASP model in the region, Lovelace believes the reasons for moving to an ASP model are compelling. “There is a lot more pressure on companies to be competitive,” says Lovelace. “In the past the region did very well on cost, plus contracts. It didn’t matter what the cost was, they didn’t have to maintain a close vigil on what the costs were. Now there is economic pressure to be more competitive and the ASP model offers between 30 to 50% cost savings,” he adds.

ASPGulf is also planning a rapid regional expansion, and is currently setting up data centres in Egypt and Saudi.

If resistance to ASPs has been strong in the UAE, it’s been just as intense elsewhere in the Gulf. ACN initially reported on Arab Circle’s plans to offer ASP services over 18 months ago, and the Saudi ISP license holder has still to sign up a customer for its portfolio of vertical applications. Arab Circle is currently using its huge Sun-based data centre to host services for a number of large Saudi customers. Company CEO, Dr. Rahmat Khokhar is confident that ASP services will commence within the next few months, but the mission critical infrastructure still has to be put in place says Dr. Khokhar.

“Both KACST and STC are still working on the infrastructure, but KACST still needs to finish its second data centre before it can have full redundancy. The infrastructure here isn’t mission critical.”
With the ASP model still in it’s infancy at the global level, Gartner’s MacDonald recommends enterprise clients should investigate the feasibility of the ASPs business model; favour those ASPs that show profitability; closely examine privacy statements and fully understand what happens to the data if the ASP fails and develop a contingency plan in case access to the ASP is not possible for extended periods or if the ASP closes up shop. Please visit: www.itp.net/news/Internet.||**||

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