ASPs should take a tip from Oscar

During PC Week's live Webcast seminar on the subject of evaluating application service providers, I found myself thinking of the Academy Awards.Before they start handing out those little gold statues in Hollywood, a long chain of limousines pulls up in front of the building to disgorge the honored guests.

During PC Week's live Webcast seminar on the subject of evaluating application service providers, I found myself thinking of the Academy Awards.

Before they start handing out those little gold statues in Hollywood, a long chain of limousines pulls up in front of the building to disgorge the honored guests. Look at them: producers, directors, actors, special effects wizards -- all the talent you need to produce an outstanding movie.

If an aspiring movie producer watches the Oscar broadcast to see how it's done, the conclusion is obvious: If you want to produce a movie, call a limousine service and ask them to assemble and deliver the talent you need. Isn't that what they do?

Well, no.

A limousine service responds to requests to give transportation service, just as an Internet service provider offers reliable, high-speed transport to content produced by others. If you wouldn't call a limo service to produce a movie, why would you expect ISPs to evolve into ASPs?

Mind you, I can understand why ISPs want to move up the food chain and produce box-office content, rather than just collect carfare and perhaps a tip for the driver at the end of the ride. They can see that, in the long run, the profits accruing to any middle-of-the-road ISP are bound to suffer from shrinking margins.

The rules are about to change

To make sense of any Net-based business, you have to envision what that business will look like when computing takes zero time and when bandwidth and storage are infinite and free. Bandwidth and personal Web site space, the stock in trade of a simple ISP, won't offer much headroom for profit as we approach those inevitable asymptotes.

Look at the airline industry: huge investments in hardware, and costly salaries paid to highly skilled and expensively trained people, all to produce the commodity product of seats that go between cities.

Airlines, like the Internet, work in a standards-based environment in which no one can claim uniquely superior technology -- because everyone relies on the same shared infrastructure, and on a handful of companies that build the vehicles to travel along those paths.

The high cost of entering the network "vehicle" business, and the even higher cost of establishing a track record in that uptime-critical milieu, are the factors that make Cisco stock trade at more than a hundred times its earnings per share -- and put Cisco in position to displace Microsoft as the world's most valuable company.

Meanwhile, the ISPs (whose equipment purchases are so much of Cisco's revenues) have to ask themselves, "What do we know how to do that will still make money when bandwidth is free?" Merely hosting the equivalent of Microsoft Office, on a rental basis, can't do it. That will be the next commodity market. Hosted e-mail is already there.

Introducing ASDs

Odd as it may sound, "ASP" is already an obsolete acronym. What will make money are ASDs: Application Service Developers. (I thought about calling them Service-based Application Developers, but SAD is not an acronym with a future.) The business model cannot be, "Let's take this application and put it on the Web." Rather, it must be, "Here's a better way to do this business task, made feasible by the Web, that we can bring to market before anyone else gets this idea."

When the Internet was a publishing medium, we used to chant the mantra that "content is king." Being an international publisher used to pose forbidding barriers to entry, but the Internet made it possible on a shoestring budget. That's the transition we're now beginning in the software industry as the Internet becomes a medium for delivering function, rather than mere data.

Software development became a high-barrier-to-entry business back when Lotus 1-2-3 announced its birth with a million-dollar ad campaign, not in PC magazines but in the Wall Street Journal. That debut transformed the PC business from one of people buying computers, to one of people buying productivity (or entertainment) software plus something to run that code. The shift to a solutions emphasis was good, but the cost of getting to market kept many promising solutions out of reach.

The good news is that hosting applications on the Internet will lower the barriers to entering the software business. The bad news for would-be providers is that they must make or buy something distinctive to provide.

Who will be the winners in this new category?

Newsletters

You have been successfully signed up. To sign up for more newsletters or to manage your account, visit the Newsletter Subscription Center.
See All
See All