Freedom to Move

An ASP model gives customers freedom by providing software as a service, but will this new-found freedom affect a reseller’s bottom line, and collapse the channel? Not according to vendors and ASPs, who are desperate to bring the channel onboard and broaden the market.

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By  Mark Sutton Published  May 7, 2001

I|~||~||~|The channel is being walloped from all sides as the nature of business for resellers continues to rapidly change. Resellers are competing fiercely between themselves making margins dangerously low, retail outlets are growing in stature—both with customers and vendors—and to top it all, vendors are now telling the world that ‘software as a service’ is the way forward.

While the Middle East used to be fairly secure in its knowledge that whatever happened in the U.S. and Europe would take a fair amount of time to trickle down into the region, that timeline is getting progressively shorter. It has come to the point now, that software as a service has become reality in the Middle East and there are a number of ASPs (Application Service Provider) that are on the verge of offering their hosting and management services.

There are only a handful of ASPs in the region, and as yet, most are not ready to offer any type of full service to customers. But in the coming months, the region is going to see a lot of activity from ASPs such as ASPGulf and Afcomp, as they put the finishing touches to their data centres, vendor agreements and security arrangements.

Although estimates for customers are conservative for this year, expectations run high from the ASP corner for future business. “By the end of this year, we want to have thirty-two customers, including the four that we have already,” says Duncan Watson, CEO of ASPGulf.
This number may have some resellers breathing a sigh of relief, after all, less than forty customers no longer buying software is not a big deal. But, it is a big deal as some of these customers are large corporate and trading groups that are linking all their businesses together, including remote locations around the region. From that perspective, it is a large number of potential customers that may have otherwise bought software and hardware, from the channel.

||**||II|~||~||~|With larger companies utilising an ASP service, hardware that ultimately may have been sold by the channel may also be taken away as they use an ASP data centre, which includes servers, SANs, domain services, a whole network infrastructure and impressive security structures. This eliminates part of the necessity for customers to source high-margin hardware from the channel.

Even more worryingly for the channel is the excitement from the vendors. Hewlett-Packard is looking to sink dollars into ASP projects in the region, Microsoft is touting its .Net mantra,—including software as a service—and Oracle too, is looking to a model whereby software is no longer purchased on a CD, but is accessed through the Internet. “For us, we see the ASP model as an additional way [for businesses] to acquire licensing and for them to set up their IT infrastructure,” Etienne Jacques, sales director, Microsoft GEM told CRN.

“ASPs makes a lot of sense for smaller companies to get access to technology,” he added.

HP has recently begun its hunt for ASP ventures in the region, and is examining the channel for prospective partners. “We have been looking at ASPs and new sorts of partners because it has occurred to us that the traditional partners that we have don’t cover all the market,” says Graham Porter, marketing manager, Hewlett-Packard Middle East.

“The issue here [in the Middle East] is finding partners that can add value. They need to have developers and applications, and we have been pushing a lot of our partners to do this,” he added.

In the search for ASP partners, HP has set up a partner programme to find them, and ideally, according to Porter, they would be an existing reseller that wants to move to this model. Although HP is quite prepared to invest in an ASP infrastructure, for any business interested in taking up the ASP challenge and becoming an ASP themselves, the figures for setting up a data centre and getting an ASP model up and running are mind boggling. ASPGulf, for example, spent four million dirhams (over one million US dollars) on its security system for its data centre alone.

The actual setting up of an ASP is also extremely time-consuming and very complex, according to local ASPs. “We started with a vision in August 1999, and it has been a very stressful activity,” says Dean Polley, general manager, Afcomp.

“It is very intensive and technologically complex. Designing the infrastructure took two months alone, and we are now on the thirteenth version from when we started,” he added.

||**||III|~||~||~|The cost, time and effort required to set up as an ASP with a data centre does not mean for the average reseller that there is no room to move within an ASP model, indeed both ASPGulf and Afcomp are looking to put a channel in place in the very near future. “Instead of reselling in the traditional sense, they will sell subscriber access licenses for the applications that we have, and continue to do what they are best at which is implementation, installation and training,” says Polley.

“This we believe, will be a model that all software resellers will eventually follow,” added Polley.

Microsoft, on the other hand, remains non-committal about the expected outcome of the effect that the ASP model will have on the channel. Etienne Jacques, sales director for Microsoft GEM, did suggest that resellers start looking at the ASP model and find ways in which to work with it. “The simple message for the channel is that as with any technology change, they have to adapt. They have to realise that there is an opportunity for them.”

“Pay attention to the ASP model and look at it from a business opportunity point of view, get trained. Get in touch with existing ASPs and see if you can resell their services, and be positioned in the market as a solution provider,” he added.

Oracle is looking towards a more vertical application solution for the ASP model, as opposed to the broad applications of Microsoft and Great Plains that are available from ASPGulf and Afcomp at the moment. “I tend to think that vertical applications have a better chance of making it because then you’re selling to a certain business community,” Ayman Abouseif, marketing manger for Technology Solutions, Oracle ME told CRN.

Both ASPGulf and Afcomp are aware of the necessity for vertical applications within the ASP model and are prepared to host the software, should any become available that suit their own portfolio. “We are interested in working with the channel that have applications that we can add-on to our existing solutions,” says Watson.

The agreement by local ASPs to host applications should boost the local developer community, a concept that both Oracle and Microsoft are keen to encourage. “If I have an ISV that is looking for an ASP, I want them to leverage our current ASPs. And we do have some working on vertical solutions at the moment,” says Rajesh Deepchandani, business solutions specialist, Microsoft GEM.

With margins being crushed on hardware and software, alternative sources of revenue must be sought, and there are benefits to working with an ASP. As Microsoft realised when it introduced its Open License policy, there will always be reluctance to change on the part of some resellers, but for those that are more adaptable, there are benefits to be found. “It’s a question of evolution. When we only sold boxes and then introduced Open License, some resellers were very keen to get involved, and others went out of business,” says Jacques.
As both Afcomp and ASPGulf are looking to put a channel in place, and neither is fully operational, perfect timing could make all the difference in being left behind or gaining extra revenues by working with an ASP model. A model, that if predictions from the companies involved are correct, could be worth millions of dollars within a few years.

As ASPGulf’s Watson points out, the ASP model can provide many benefits for the channel: “the channel can provide customers with more value-added services; use the ASP as an IT arm for customers to deal with; and look forward to gaining access to customers that may previously not have been available to the channel.”
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