Going Past Promises and Looking at Execution in ASPs

By now, the Application Service Providers (ASPs) that have customer references, scalable business models, and approaches to reselling applications from other vendors will survive. In a sense, the shakeout of the Application Service Provider (ASP) marketplace is actually very positive, in that the companies that are left really do deliver value. Nearly every software company at one point or another has experimented with both the ASP and electronic software distribution (ESD) approaches to delivering applications. Both of these approaches share common characteristics: They generate enthusiasm for the way they change distribution dynamics through efficiency, and both are now being looked at as a method for distributing applications within companies. The ASP model will be one that continues to pervade larger IT infrastructures, whereas ESD and its focus on distributing licenses through many different means is increasingly relegated to smaller, more portable application delivery. The ASP model can deliver from an applet to an enterprise-level application suite.

In the world of the ASP, there are two dominant methods of distribution: Citrix and Java-based applications. Of these two approaches, Java-based applications are clearly gaining the majority of market- and mindshare. Citrix-based approaches scale well in Windows 2000-based environments, yet inherently are limited to that operating system environment. One of the key indicators of a software company being capable of scaling to the true level of an ASP is its willingness to port Win32- and Win16-based applications that rely on Citrix into Java-based architectures for more pervasive distribution throughout a company.

Knowing What's Real and What Isn't

Today's market dynamics are forcing companies to quickly reinvent themselves, often claiming to be an ASP when in fact they are just as much ASPs as they are hardware manufacturers. Attracted by the acronym, companies take relatively simplistic collaboration tools and place them in a Web environment, claiming that they are truly ASP-enabled applications. Nothing can be further from the truth. So, how do you avoid getting burned by companies that claim to be ASPs, when they have not done their due diligence, in fact? Here are several key questions to ask before going with a true ASP:

• Does the ASP know and care about your business? In the companies I have spoken with about how they made the decision to go with one ASP over another, the most common deciding factor was that the ASP knew and understood their business. Sounds so fundamental, but you would be surprised how many companies jump into contracts with ASPs who don't have a clue about the client's business models. If the ASP is working with other members of your industry—manufacturing, for example—chances are they have an appreciation for the challenges you face. In manufacturing, for example, the need for handling supply-chain automation is significant. ASPs who are already working with manufacturers will have solved the technical problems you are potentially facing with an implementation.

• Does the selection of platforms support application claims? This is often where companies taking on the ASP name have their greatest challenges, and it's the point that can potentially impact your company most quickly and with the greatest pain. For example, if an ASP claims that it can provide you with a scalable architecture that handles transactions and does not have any ERP expertise, that's something to be concerned about. Further, many companies claiming to be ASPs claim that they have scalability when it comes to transaction-application development, yet have a collaborative tool as their basis. If a company is using Microsoft's Exchange Server or Lotus Notes, and claims to have strong transaction expertise, be wary. The fact is that many of these collaborative tools do have limited transaction tools; they are not recommended for e-business initiatives.

• Does the ASP own its network operations center or lease space? Increasingly, companies are outsourcing their networking centers because the cost of continual innovation in their products is a higher priority than building a secure, state-of-the-art hosting center. This market dynamic is driving the development of regional, highly secure ISPs that are challenging the market leadership that Exodus has had for the last several years. Clearly, Exodus leads the industry with its orientation on security. Be sure to visit its site and see the direction it is taking, influencing the broader industry in the process. Unless you are dealing with one of the largest ASPs in the industry, those who have the financial strength to sustain their own network operations center, it's best to go with a company that has an outsourced center with one of the industry leaders in hosting, including Exodus or InFlow.

• Is there an application roadmap? One of the attributes that I have seen when working with ASPs on their direction as a company is the relative ease or difficulty they have in articulating their vision of where they are going. It's definitely a danger sign if a company cannot tell you in succinct and clear terms where its development priorities are, what direction it is heading, and the dimensions it has when segmenting the marketplace. These are all issues that need to be addressed before you sign up with an ASP—check to make sure that it is clear about how it sees the future direction of the marketplace. If there isn't a product roadmap, be cautious even if the ASP is reselling applications. Conversely, if the ASP can provide a strong sense of direction with regard to the applications it will both create and resell, drill into where the insights came from on which the roadmap was based. Don't think this is being too cautious because the ASP's future is yours if you sign up. An example of a product roadmap is provided in Figure 1.

Figure 1 Example of an ASP product roadmap.

• Is there a commitment to customer listening? Any ASP that has survived to this point either is self-sufficient or has a very strong chance to be, or else the venture capital money would be gone by now. Chances are, the companies you are considering are in this league because today's economic climate makes it imperative that those products be built to address pain points throughout an organization. The fact that the best companies in sell-side e-commerce all share the common characteristic of having a customer advisory council in place for gaining insights into what customers are looking for in the next generation of their products. Of all the companies that have adopted this approach, Dell Computer's many efforts and processes in this area, in addition to the disciplined approach that Blue Martini is taking with regard to being responsive to customers. Although both of these companies are leaders in their respective segments and so attuned to customers that the actual structure of the company has been developed to bring the best resources available to a task, the foundation of their successes is due to their ability to listen to customers. Blue Martini's many processes and its commitment to customer listening lead the industry of analytics and sell-side e-commerce vendors. The real message here is that you need to get an idea of just how well the company listens to customers, and the strength of that commitment in the context of advisory councils. Many companies think of this idea, so you want to partner with one that is able to execute on this commitment to listening to customers.

• How many customer references? This is an area where you can readily see if the company is getting anywhere or not. Be sure to get several references in your industry area. If an ASP cannot provide more than three references, this is not a good sign; you need to get at least 10 to see how the company executes across a spectrum of implementations. Most likely, your prospective ASP will be in the mid-point of that spectrum of performance, but it's a good idea to do much due diligence during the evaluation phase of looking at ASPs.

• What about partnerships? It's a fact that many companies today are supplementing their weaknesses by forming partnerships with companies that have counterbalancing strengths. ASPs who are without any alliances that they can thoroughly show successes from need to be dropped from your list. The interconnected nature of the ASP business and the fact that the e-commerce world is ripe with opportunities for partnerships makes forming partnerships easier than getting a frequent buyer card from your local grocery chain. Companies with strong alliance programs include Interliant, USinternetworking, and BroadVision.

• Are there articulated value statements by product? If a company has the capability to provide this clarity of positioning by product, it's a good indication that it has done its homework when it comes to listening and interacting with customers about future directions. If an ASP cannot do this (and cannot provide a demo), be cautious. You need to see the product running and have a clear understanding of what's going on in the company's product management team before signing up with an ASP.