ASP rising

Delivering applications over the internet is here to stay. With a new breed of application service providers (ASPs) in place, all that’s missing now is a channel-to-market.

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By  Stuart Wilson Published  May 31, 2004

ASP bites back|~|tariq.gif|~|Tariq Habib, senior manager business and technology at Etisalat's hosting and ASP unit Comtrust|~|The concept is simple enough: offering applications over the internet to customers that would otherwise have to run them in-house. Welcome to the world of ASP. From an end-user hotmail account through to a hosted ERP offering, the ASP definition can theoretically be applied to both. New delivery methods and new ways of purchasing software will create channel change. After several false dawns and sustained efforts to communicate the value of their proposition to sceptical clients, application service providers (ASPs) are starting to see the light at the end of the tunnel. The idea of handing over non-core IT processes to a third party and taking advantage of flexible financing models is starting to appeal to more and more customers. Enter the ASP with promises of 24/7 support, stringent service level agreements (SLAs) and the opportunity for even the smallest clients to share part of an enterprise class network infrastructure located in a state-of-the-art datacentre. The rise of the ASP presents both opportunities and threats to the existing channel of software resellers and systems integrators plying their trade in the Middle East. For application vendors, moving beyond the traditional on-site installation requires a new set of hosting partners and the support of channel partners. ASP is on the rise and the channel, whether a supporter or opponent of the model, needs to develop business strategies that reflect the potential for change in the way that customers purchase, install, pay for and use business software. “People are coming back to the ASP model,” explains Dominic Monkhouse, managing director EMEA at managed host and ASP infrastructure provider Rackspace. “We are partnering with application vendors that see real benefit in offering customers monthly payment options. Many independent software vendors (ISVs) want to move to this model and need assistance with the infrastructure. The definition of ASP has now shifted slightly. It used to be all about delivering applications on a one-to-many basis whereas now it tends to encompass the delivery of a technology solution as a service.” The definition of ASP has now blurred and is frequently intertwined with the concepts of managed services and outsourcing. After bursting onto the IT scene in the late 1990s, early ASPs became embroiled in the dotcom ‘boom’, raising huge sums from venture capitalists, and then experienced the ‘bust’ by burning through the cash in no time at all. While the basic model has not changed since ASP’s early days, the infrastructure and the propensity for customers to consider the model have improved considerably. Hosted CRM vendor Salesforce.com with annual sales of approximately US$70m is just one of a number of ASPs now giving the model validity and genuine purpose around the globe. While application vendors are keen on developing their ASP customer base, problems remain when it comes to switching to a new payment model: “Existing ISVs selling annual licences upfront face a big dip in cash flow if they move to an ASP model and start receiving the fee spread over the year,” cautions Monkhouse. “New players entering the market with an ASP model from day one are actually best placed.” In the Middle East, selling to new customers offers an opportunity for vendors and resellers to promote the ASP model from the outset. Tariq Habib, senior manager business and technology at Etisalat's hosting and ASP unit Comtrust, confirms: “The Middle East market is at a very positive stage in its development of ASP and the outsourcing model. When new deployments occur, vendors have the opportunity to offer a hosted delivery model or a traditional on-site installation.” ||**||Speedy deployment|~|polley.gif|~|“Deploying an ASP model offers vendors a faster time-to-market than traditional installations,” explains Dean Polley, general manager at ASPGulf.com|~|Comtrust has already carved out a niche as a provider of specific applications and business processes to major verticals. Explains Habib: “We can provide the hardware, software, application and management as part of a total ASP solution. This model must be cost-effective for customers and we have really grown from just managing hardware and software and moved up the value chain. Comtrust is rolling out services for banks in the region. If each bank tried to build these IT services and applications it would be inefficient. The power of the ASP model is that it can introduce new services very quickly and efficiently to customers.” While the importance of offering one solution to many customers through an ASP model has waned, the speed of deployment, cost savings and access to enterprise class infrastructure remain big selling points for ASP infrastructure providers. “Deploying an ASP model offers vendors a faster time-to-market than traditional installations,” explains Dean Polley, general manager at ASPGulf.com. “One of our recent customers wanted a 40-seat Great Plains ERP installation and also wanted us to host their website and manage 1,400 Exchange users. The applications were up and running in two weeks.” “This speed is possible because we have the enterprise environment already up and running in the datacentre,” continues Polley. “A traditional installation would have involved putting infrastructure in all the offices, opening up the network and securing it, and putting all this together. That takes resources, planning and a great deal of time.” Ultimately, it is these complex integration tasks that have provided the channel with consulting work, installation services and juicy margin potential. It is one of the reasons why traditional software resellers and integrators remain wary of offering an ASP solution to both their existing and potential customers. The threat of being cut out of the channel structure by software being delivered as a service remains a very real fear. Listen to the ASP infrastructure providers and the impact of any such ‘disintermediation’ is being played down. “ASPGulf.com receives a large number of requests from vendors looking to offer ASP,” says Polley. “But many expect us to go out into the market and sell it for them. They need to understand that whether an application is running on-site or as an ASP, the vendor and its channel still needs to communicate the value-add of the software to the customer. ASP is just another pricing model and someone needs to sell it. The infrastructure providers are just the enablers.” Vendors are keen on pushing the ASP model but for now the channel remains cautious. Habib at Comtrust also spends a significant proportion of his time talking to vendors about turning their software into a fully-fledged ASP offering. The company also runs a partnership programme targeted at application vendors, service providers and systems integrators able to provide Comtrust with solid ASP offerings and routes-to-market to sell them through. “All these partner are involved in supplying or managing IT for the customers,” explains Habib. “What we offer complements their existing engagement with the customers and helps us transfer Comtrust’s value proposition to the market.” ||**||The channel challenge|~|domphoto.jpg.gif|~|“People are coming back to the ASP model,” says Dominic Monkhouse, managing director EMEA at managed host and ASP infrastructure provider Rackspace|~|The ASP model is a double-edged sword for both vendors and channel players. Neither side wants to cannibalise existing revenue streams or upset the current vendor-channel dynamic too much. Yet both sides know deep down that hosted delivery and ASP will continue to grow in stature. The impact on the IT channel of rising ASP demand will not be confined to the software space alone. “ASP can also mean Comtrust taking care of hardware purchasing requirements for the customer,” says Habib. “We are vendor agnostic but have standardised our relationships with major vendors like HP and Acer to shorten the installation timeframe.” Polley at ASPGulf.com adds: “Even with an ASP model, hardware is still being bought either through us or through partners for dedicated hosting. On the software side, applications still have to be bought as well — even if the financing is different. Channel partners reselling ASP may lose out in terms of the network rollout and network security services they provide with on-site installations. Many channel players claim not to see any value in ASP, but this could be because they view it as a threat.” The Middle East channel landscape is looking for a new breed of reseller to fill the void between hosting specialists and the traditional systems integrators. This new breed will utilise the hosting environments available, build close relationships with application vendors and have the resources to reach out and sell to a wide customer base. The channel has so far steered clear of reselling ASP in the region but that looks set to change as vendors and ASP infrastructure providers start rolling out solution packages. “Up until now, most of our sales have been direct although we do go through a select few channel partners,” admits Polley. “It has been a tough sell for the last four years but now the market is ready for a channel to be built as long as they are truly committed to selling the ASP proposition.” There are pros and cons to the ASP argument and those on either side of the fence are prepared to debate the subject at length. Suffice to say, ASP is becoming a viable delivery option and one that businesses will evaluate more and more. “ASP will not be a UAE phenomenon, nor will it be a Middle East phenomenon,” declares Habib. “It is a global phenomenon and it started years ago. Software vendors such as Microsoft and Oracle, as well as hardware vendors such as HP and Sun, are all moving in line with ASP and hosted offerings. It gives the customer greater choice and flexible purchasing options. This does not have to affect anyone negatively but it will affect those not prepared to change with the market.” Selling an ASP offering is not for everyone and it is a big step for a traditional systems integrator or software reseller to take. After all, nobody wants to damage existing revenue streams. Plucky channel players have the opportunity now to secure a first-mover advantage in the fledgling ASP resell space. It is not an easy option to take, but it is one that could prove to be the foundation of a successful business strategy for years to come. Channel rewards are already available for resellers selling hosted offering and ASP solutions. Not only can the resellers pick up the software licence sale, hosting partners often run special incentive schemes to share subscription revenues with the reseller for a fixed period of time. The potential for up-selling also exists in the nascent Middle East ASP market. ASP promises to relieve the IT headaches that continue to burden businesses large and small, and successfully running a non-core IT application using the ASP model for a period of time can quickly persuade customers to move even more of their software off-site. With customers slowly coming round to the concept of ASP, hosting companies wanting to concentrate fully on infrastructure provision, and vendors not wanting to be seen to be selling direct, there is only one piece missing from the ASP jigsaw: a skilled channel to take the offering to end users. Channel players believing the ASP model will really fly in the Middle East should get on board early and enjoy the ride. ||**||

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