ASP market comes of age

After two years of hype and many false starts, the ASP arena begins to take shape.

The application service provider market is starting to take shape, after two years of unbridled hype and too many false starts. Now, the inevitable shakeout can begin in earnest.

While the ASP model always held immense appeal as a more efficient way of distributing software and services, it took time to iron out the delivery mechanisms—and to convince customers that efficiency doesn't have to include the handcuffs that EDS once wielded in the days of Ross Perot. The technology issues have largely been resolved, even though security remains spotty, and a down economy has a way of making corporations focus more on cost-cutting measures than where their data or applications actually reside.

The big question remaining is, who's going to be left standing to deliver those applications and services? As markets take shape, there are always more players than a maturing market can bear. The automobile industry is a prime example of that. We've gone from the Detroit-based Big Three carmakers to a global Big Three that continue to gobble up smaller players throughout Europe and Asia. The same is true in the professional-services market, where the Big Eight accounting firms has shrunk down to the Big Five, and every now and then there are talks of a Big Four, like when Hewlett-Packard tried to buy PricewaterhouseCoopers last summer.

The same process will occur in the ASP arena—only faster. Two years ago, it seemed everyone wanted to be an ASP. Now it seems those who never wanted to play in that market, namely the telcos, will be forced into it and probably emerge as the big winners. With their rate structures on long distance dwindling, they probably won't have a choice.

They're also probably the best equipped to play in the outsourcing business, even though many of them have largely ignored it so far. They're the ones with the best connections to the customer—the so-called last mile—and they've got all the billing equipment and processes necessary to track usage and deliver a utility-like service. The difference is that this time it will be data they're carrying over their lines instead of voice.


While power utilities have played a similar role, many have been reluctant to jump into the data services business. With the exception of a few power utilities, most notably Carolina Power & Light, most have been content to stick to their knitting in the world of deregulated power. Phone companies can't charge more in a competitive market, but power utilities don't seem to have that problem. Just look at what's happening in California these days.

Nevertheless, there is one big change that telcos will need to recognize if they expect to be successful. Unlike voice services, which were largely sold direct to the consumer, data is typically part of a broad-based solution sale for corporations. And the only way to get into those corporations is through partners that own those accounts and that have gained their trust. Those with the best partner organizations, just like any high-tech distributor long ago learned, are the most likely to succeed.

Those that understand this model and embrace it could find they have a steady revenue stream for years to come. Those that don't can join the legions of early players in this market, which had an interesting idea but failed to deliver on it.