Telcos Find Home in ASP World

Posted: 11/1999

Telcos Find Home in ASP World
By Michael Mitsock

In a nutshell, ASP is a rental or pay-per-use model
for software applications aimed at consumers and, more importantly, at the burgeoning and
barely tapped market of small to medium-sized businesses.

What began as a fairly low murmur last May when the ASP Industry Consortium was
unveiled has swelled to a dull roar. Everyone is talking about the application service
provider (ASP) model in one way or another. Forrester Research Inc., Cambridge, Mass.,
sizes the ASP market at a growth rate of more than 400 percent from near zero in 1997 to
$6.4 billion by 2001 (see chart, below), and financial analysts C.E. Unterberg, Towbin,
New York, recently published an in-depth research report that characterizes the emerging
ASP market as an "early-stage, high-growth market that will ultimately have an
extremely profound impact on the world of information technology (IT)."

What is clear from the literature is that the emergence of the ASP is a paradigm shift
in the deployment, management and delivery of software to end users. The potential market
is huge; its success relies on partnerships of expertise and organizations–telecom
service providers among them–are hustling to find their niche in the ASP world.

Defining ASP

In a nutshell, ASP is a rental or pay-per-use model for software applications aimed at
consumers and, more importantly, at the burgeoning and barely tapped market of
small-to-medium-sized businesses. And catering to the small-to- medium-sized enterprise is
considered the sweet spot of this market. By using inexpensive public Internet networks,
browsers and other computer technology, ASPs can offer rentable, high-functionality and
often otherwise expensive suites of software or groupware to businesses to which they
previously would be unavailable because of cost.

With access via the Internet or virtual private networks (VPNs), businesses can rent
the software they like, for as long as they like, at the precise level of use they need,
and leave the installation, management and maintenance to the ASP. That means the
responsibility for hardware purchases, software licensing and upgrades, networking
solutions and support all are owned and operated by the ASP. And that, in turn, means that
businesses can reduce their application deployment time frames, lower their total cost of
ownership, reclaim their precious internal IT resources by exploiting the application
expertise of the ASPs and ultimately focus on what they do best–their own core
competencies.

Involving ISPs, Telcos

But leaving the "driving" to the ASPs requires a broad set of competencies at
that end. This is where telecom companies, Internet service providers (ISPs) and the
combination companies figure heavily. The delivery system really requires four things:
connectivity, data management, systems integration and, of course, the software
applications themselves. Telecom service providers and ISPs can provide their network and
wide area network (WAN) infrastructure to satisfy the connectivity component. In some
cases, they also can provide the data centers where the applications are managed. And they
are very familiar with the 24/7/365 needs of customers.

Chart: Packaged Applications Outsourcing Opportunity

For the remainder of the competencies, several different business models are rolling
out. Of course, there are "pure-play" ASPs that provide all of the competencies
required for the model, but more frequently, companies are combining in partnerships.
There are some hard-wired partnerships such as one recently announced between Qwest
Communications International Inc., Denver, and Hewlett Packard Co., Palo Alto, Calif., or
there are versatile partnerships such as the enabler strategy that UUNET, the Internet
services division of MCI WorldCom Inc., is pursuing. They all can be viable because in the
end, the most successful ASP model is the one that can deliver the most compelling value
proposition to the end user.

Evolving Pricing

The ASP pricing structure is still evolving, but models include setting
per-user/per-month fees or per-transaction fees or the old timesharing model of charging
based on connect time. There’s even a model that will be very familiar to telecom service
providers–a combination of a flat fee for a certain level of service with additional
charges for special services. However they’re modeled, the best pricing schedules will be
based on how the customer uses or values the services. In part, that will depend upon the
types of applications offered.

Looking at Applications

Applications for rent target a variety of customer segments. They encompass the
wide-ranging horizontal applications such as office automation, including e-mail and
groupware, and back office, including payroll, human resources support, supply chain
management and electronic payment. Then there are solutions that target vertical markets
such as legal, finance and real estate. Finally, there are applications that cover
enterprise resource planning, e-commerce, telecommunications and security. Clearly, the
content is there for the choosing, but the trick is in finding the right applications that
can help preserve margins and allow ASPs to operate efficiently in this market. The key
lies in looking for applications with certain characteristics:

* Low total cost of ownership (TCO). Applications with the best TCO will have
nimble developers who can create, test, deploy and update complex applications in a short
period of time. Take a close look at the resource footprint. Can all maintenance and
updates be performed while the database and applications remain online? How well does the
application expand or adapt to change? How versatile are the software components? Can they
be reused or recycled in new programs? And finally, which management and measurement tools
squeeze the most from your bandwidth? The measurement tools are an important window to
keep track of the pattern of application usage and to help set fees for use accordingly.

* Absolute reliability. ASP customers require 24/7/365 access to their
applications.

* High productivity, flexibility and speed to market. Look for intuitive
application environments that make it easy to create or customize an application as fast
as the market demands it.

* Seamless web enablement. ASP applications and services commonly are delivered
through the Internet or VPNs. ASPs must be able to deliver business logic via a uniform
resource locator (URL). Look for solutions that can be perfectly and quickly web-enabled.

* Scalability. The ability to provide access up to 10,000 users and handle
sudden growth with ease is key to the success of an ASP program. Look for components that
allow for scalability without degrading performance or substantially increasing
maintenance resources.

* Flexible interoperability. ASP solutions will have to work anytime,
anywhere–sharing information and software components with any customer’s legacy data
source, feeding information to any application or any user interface. Look for application
servers that incorporate emerging standards such as Enterprise Java Beans (EJB),
Extensible Markup Language (XML) and Java Messaging Service (JMS), or that have adapters
that can accommodate nonstandard languages.

These are a few of the hard questions telecom service providers should ask before
choosing their software application partners as they try to build the perfect ASP beast.
Luckily, there is tremendous support to help telecom service providers find the right
partners as well as their own slots within the ASP model.

The ASP Industry Consortium, a diverse, cross-industry organization with a mission to
foster standards and articulate the benefits of the ASP model, can be reached at www.aspindustry.org. Some consortium members have
created matchmaking programs to link resources to find, create or enable ASP applications.

All these initiatives are part of the groundswell of support for what is clearly a
fresh win-win model for customers and providers alike. The telecom service providers that
are poised to take advantage of early entry with savvy partners into the hyper-growth ASP
market will be the ones that will be among the companies that can capture this vast
incremental market source.