Is there light ahead for ASPs?

Analysts predicted great things for it, but the ASP sector has yet to prove its worth. Will the software as service model make its mark soon?

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By  Mark Sutton Published  March 7, 2002

Early problems|~||~||~|When the ASP model first debuted in the Middle East a couple of years ago, the companies involved promised that is would revolutionise the way software was sold. No longer would companies have to worry about hardware requirements, keeping up to date with patches or new licences, all applications would be available over a wire. But along with the hype of the dot-com boom, the promised benefits have largely failed to appear. Many of the fledgling ASPs went out of business, and of the survivors, many have drastically altered their approach. Yet the software vendors are still backing software as services, and there are still new players entering the arena. So what is the future for delivering through the ASP model?

The first ASP in the region was ASPGulf, which began operations in March 2000, offering a range of horizontal applications. Since then, many of the competitors that came after have abandoned the model, still others have scaled back or radically changed direction. ASPGulf however, is still providing an ASP service, although it has not been a straightforward task, according to Ihab Hashwa, director of business development & services at ASPGulf.

“When we started two years ago, we started as a pure ASP player. We wanted to have a ready-made application for companies to just come in and sign up with our services. They can basically take ‘product X’, and instead of paying so much upfront for hardware, hiring new technical people, we will do it for you, the implementation cycle will be minimal—that was the whole idea when we started,” Hashwa explained.

“As we grew and got into the market, and started to get feedback from customers and prospects, we realised that ASPs are very steady growth, a very long run business, but we needed something for short run growth,” he continued.

ASPGulf turned to its DIC data centre to bring in immediate revenue. Unable to find a suitable hosting partner when the company first set up, it had resorted to investing heavily in its own data centre infrastructure to host ASP services. Now the bulk of the company’s business is made up by hosting activities, although Hashwa says this may soon change.

Lack of hosting facilities, and uncertainty about the implementation of the model has caused problems for ASPs worldwide, said Ayman Abousief, marketing director for Oracle MEA. Oracle ranks as the largest ASP in the world by revenue, says Abousief, but even then, the original ways of thinking about ASPs have not always proven to be valid. In this market, the focus on infrastructure caused problems. “ASPs here were selling facilities, they put a lot of energy into hosting, and went for as broad a market as possible. They were too horizontal, and too focused on infrastructure,” he said.

Abousief believes that the basics of the pure play ISP model were misunderstood by many of the players, who tried to do too much, when essentially their business model should have relied on outsourcing to partners. “The three key functions in the ASP model are different. One function is the software development itself, the people that write the code. These are today’s ISVs, they have always had the expertise to implement and tweak the software on a customer-by-customer basis. That remains unchanged,” he said.

“The other side is the people that understand infrastructure, the hosting service providers [HSPs]. They have the property, the big servers and the big Internet pipes. For them it [the software] is Chinese, it is just a question of how many megabytes do you want from them,” Abousief continued. “But the ASPs may not have any of these assets. The ASP is the person that is going to say ‘I think this application is a good fit to this market, the HSP is good’ and go make a deal with the ISV and the HSP. The ASP creates the functionality, the billing, the marketing and the help desk.”

||**||Early advantages|~||~||~|Success with the ASP model has also meant looking at different approaches. In many cases, said Abousief, the model has worked as a technology model, rather than a business one—many large companies, including Oracle itself, are hosting their applications centrally, and giving staff access to them via web browsers. Dubai’s e-government project will use this model, with the governments of Bahrain and Oman also deploying applications in this manner. These sites have gone a long way to answering questions about the technical obstacles to the model. Software vendors are also looking at how to make their products more suitable to the model.

“ISVs are taking a good look at applications and asking ‘where does my application fit with this model?’ which is a healthy move,” said Abousief. “At the time when the ASP model was really hyped, there were really very few applications in the market that were ready. People built infrastructure, but there were not enough applications that would suit the model.”

Other vendors also expect to see the sector grow, but perhaps in different ways to those originally expected. “With the traditional ASP model, we expect globally, and to a lesser extent locally, fewer ASPs, but for the number of customers to increase, and increase in a very healthy way,” said Yasser Zeineldin, regional marketing manager for Microsoft Gulf. “Double digit growth is easy to achieve in this space, and we expect that the costs will continue to go down as more infrastructure becomes available.”

What was unexpected by most of the players in the sector, was the customers that were interested in ASPs. Initially it was expected that smaller companies would be attracted to the model, because they could least afford to invest in their own IT. However, it has been the medium sized companies that have been most interested. Oracle serves this segment in the US with its e-business suite, where the speed of implementation, measured in hours rather than months is a major selling point. In many ways, the companies involved have simply had to explore what could and couldn’t be done with the model, and what the market wanted. “It is back to the basics of business, you really have to listen to the customer,” explained Zeineldin. “ASPs really need to get close to their customers, and understand what their issues are. A lot of work has been done [by ASPs] but the more work based on customer feedback, the more success they are going to have.”

The sentiment is not lost on ASPGulf. The company has introduced Microsoft Exchange Hosting, where it hosts Exchange servers for companies’ email and communications, following customer demand to help alleviate the cost and headache of communications. The service has proven particularly popular with the region’s trading groups, that have multiple offices in multiple territories. By replacing expensive leased lines with web-based VPN access, and handling all of the maintenance of servers, the company has garnered “very, very positive feedback” according to Hashwa.

It is also providing local web and portal hosting, as an alternative to using hosts in the US or Europe. “When we started ASPGulf, we were pure ASP. It was 90% of our business, and 10% was hosting. Now we have turned it around, to 80% hosting and 20% ASP, because that is what the market is asking for,” he said.

The company has also changed tack in its ASP offerings, to go after vertical markets. By offering tailored and specialist applications to customers in verticals such as construction, pharmaceuticals and localised HR and payroll applications. By targeting customers that might not be able to afford to buy these specialised applications ASPGulf wants to move the focus back to the business.

||**||Where next?|~||~||~|Also taking the vertical approach is Aspidex, an ASP that only launched late last year, to service the financial segment in the Middle East. The company is hosting its data with a third party HSP based in Germany, initially offering Corillian financial services software, following an approach that allows the company to offer best of breed across all layers, said Izzat Dajani, chief executive. He also believes that the banking sector is more receptive to the concept than most. “Banks have been the biggest users of technology; internationally, the highest outsourcing percentages have been among financial services. Banks are not alien to technology, and they are not alien to outsourcing,” Dajani said.

In order to best understand its target industry, the majority of Aspidex staff are from the financial sector, and two major banks are equity partners in the business. The company also avoids stressing technology over business. “The way Aspidex works is as unpaid external consultants,” Dajani explained. “We don’t move boxes, we sell a service, so we go to banks, and we help them to build a business case. To be a real player, and to be a serious player, you have to work with the people within the institutions that you are servicing.”

As such, Aspidex will not hesitate to advise a customer to buy rather than rent software if it feels that it is more appropriate, although, Dajani said, many banks are ready to choose rental over ownership. “There are cultural issues, such as ownership versus renting, and in this region, people like to own,” he said. “Sometimes you go to the really small institutions, and they say they don’t trust anybody, they want to own. So we have come up with a formula, where we help them own the software, purchase the hardware, and help them in the entire integration process, but we tell them also, ‘anytime you want to migrate, that component into an ASP form, we will do that for you’—we have built a mechanism where we can migrate on-premises customers to an ASP model, and vice versa.
“But I have been meeting with the senior executives of one of the largest banks in the Middle East, and I told one of them, ‘I don’t think you are a candidate for outsourcing, I think you are more of a candidate for owning’, and he told me, ‘we are fed up of keep owning and obsoleting. Every time I own, I find I have to obsolete—either the markets go against me, the product gets superseded by a bigger product, or I cannot enhance the features or improve the functionality. I am sick of that.’ Banks love technology, but it doesn’t come for free,” he said.

And although Hashwa predicts that this year will see ASPGulf and the ASP model really take off, he is still cautious not to say exactly how the company might move forward. “In the last few months, the ASP model in this region is really picking up, especially in this part of the world. I think the model is going to fit the criteria in this region, because people want the best for the cheapest price. I can’t tell you what happens next year—we are going with what the market is asking for. Right now that is hosting, next year it could be something else. We are customer driven, what the actual people in the market want, that is what we are going to deliver.”||**||

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