ASPs: A Brief History

The term ASP is a renaming of an old practice sometimes called “outsourcing.” Businesses in the 1960s through the 1980s sold time-shares on mainframe computers and hosted subscribers' applications. Model 3270 terminals functioned as thin clients. Mainframe tools and networking protocols provided control over, and insight into usage, reliability, availability, performance, and service levels.

These time-shares or outsourcing companies even owned or leased the communications network. Mutual trust between provider and customer was possible because the provider controlled the quality of deliverables and the customer could validate that quality.

With the advent of client/server computing, the technical industry's progress toward distributed and open technology caused an unintended side effect. Somewhere in the evolution from old to new, precise control and measurement of service levels were lost. Not surprisingly, there were fewer and fewer providers of application services.

Today within the CRM industry, we are witnessing a full 360-degree circle. ASPs are now integrating new technology with meaningful, measurable service-level agreements and have the ability to efficiently deliver. Moreover, ASPs are winning corporate customers back with messages of security, reliability, and cost containment.

There are many examples of best-in-class companies that have moved their data and applications onto the site of an ASP. This has been complemented by communications infrastructures that have moved from private networks to Frame Relay connections, the Internet, or private VPNs (Virtual Private Networks).

In the simplest terms, an ASP uses the Internet or private Extranet to host, manage, and support software applications for companies. ASPs make it possible for enterprises to access enterprise-class software solutions without deep investments in the software, hardware, and personnel to support those solutions. The basis of the relationship between customer and ASP is a contractual Service Level Agreement (SLA); ASPs provide predictable monthly subscription fees for software, infrastructure, and operations support as well as application services.

Why are so many companies suddenly feeling comfortable with something that was treated as questionable-at-best only a few years ago? One of the primary points is the scarcity of raw intellectual talent, created by the World Wide Web itself. Demand for information technology specialists is so high that companies are at times unable to find or to afford the talent they need to run their critical applications. Even when they do find the talent, they are under constant threat of losing those specialists to headhunters. Information technology employees are holding jobs for months, not years or decades. Intellectual capital is going out the door just as fast as it is coming in.

There is an old proverb that says “there is nothing new under the sun.” For those of you who have been around the SFA market long enough to have gray hairs, you will remember a company in Atlanta, Georgia called Sales Technologies. Back in the 1980s, Sales Technologies had large mainframe-based SFA systems that remote sales personnel synchronized to. During the time that they were in business, Sales Technologies primarily served the pharmaceutical and petroleum industries. Sales Technologies was truly the pioneer in being an SFA ASP.

Several pessimists have suggested that ASPs might only be able to thrive in small to mid-sized businesses. Sales Technologies proved this wrong; their well designed business model attracts larger corporations that are willing to sign up for these types of service offerings. Nonetheless, some CRM vendors (e.g., Neteos) that had originally offered their solution only via an ASP offering found that going exclusively down the ASP route can be dangerous since some companies do not want to place all their eggs in one ASP basket (Neteos went out of business). Increasingly, CRM software vendors are offering ASP services and providing software on a licensed basis as well.

Application developers and independent software vendors view the ASP arena as a new channel for delivery of their applications. There are, of course, some big questions about how the application developers will react since this movement represents a major shift in the revenue model, from higher up-front revenue for each customer to longer ongoing revenue in much smaller increments, from potentially many more customers. The pay as you go model of renting applications makes the revenue a three- or four-year equivalent to traditional license fees. Needless to say, not all application developers are buying into this model.

To help drive the ASP model faster, 25 companies formed the ASP Industry Consortium in mid-1999. The ASP Industry Consortium has grown from 200 members a year ago to approximately 700 at the time this book went to press. The consortium is composed of service aggregators, including value-added resellers, systems integrators, professional services groups, outsource providers, infrastructure/network services vendors, ISPs, Web-hosting providers, TSPs (Telephony Service Providers or Total Service Providers), VSPs (Voice Service Providers or Total Service Providers), FSPs (Full Service Providers), and companies such as Cisco, Sprint, and Qwest.

Despite the presence and promotion by the ASP Industry Consortium, during the last year several CRM vendors have been forced to make significant changes to their ASP model or to their ASP teaming partnerships, or to stop offering an ASP option altogether (e.g., Siebel closed down their sales.com offering). Many ASP vendors also have gone out of business (e.g., AristaSoft, marchFIRST, FutureLink, Agillon).

With this mixed track record in mind, I caution you to look very carefully at a vendor's long-term commitment to the ASP model. In fact, should you opt for the ASP model, I strongly recommend that your ASP contact provide mitigation for these types of risks.

In researching the ASPs, I was able to identify several vendors that can address CRM needs. Some ASPs listed below in Table 23.1 are very sales focused whereas others have greater enterprise capabilities. The list provided is a representative list and is not comprehensive.

Vendors are approaching the emerging ASP market segment from all angles. Some ASPs are providing only point solutions such as Sales Force Automation. Other vendors are providing an integrated suite of CRM, ERP (Enterprise Resource Planning), employee portals, and data warehousing. Several vendors have formed new corporations or business units to address specific market segments such as Sales Force Automation. Much of the new funding for ASPs is directed at ASPs that specialize in specific vertical industries.