ASPs in retail war

A lot of ASPs are expected to be out of business by the end of the year. One way for these service providers to stay alive is specialization--a method of survival against competition from Goliath-like chains.

Application service providers didn’t feel a lot of love last week. No flowers. No chocolate. In fact, one research firm released a forecast predicting that 60 percent of existing ASPs will be history by next year.

The study by AMR Research may be unsettling, but one way service providers could stay alive is through specialization, a method of survival being used by many small retailers faced with competition from Goliath-like chains.

In this sector, Abhijeet Rane, director of product planning for ASP vJungle Inc., sees parallels between brick-and-mortar retailing wars and life in the ASP trenches.

"A lot of ASPs are trying to sell directly to end customers, and they’re having problems," says Rane. "The Wal-Marts of the world come out on top."

Rane believes vJungle, a year-old company founded by former Microsoft engineer Deepak Amin, has one way for ASPs to survive this form of e-commerce Darwinism. The key is finding a way to "leverage the existing channel" to create individualized portfolios of ASP services, Rane says.

VJungle’s strategy is to partner with well-branded names, including Hewlett-Packard, Office Depot and the U.S. Small Business Administration. Amin doesn’t care that the e-business services being offered by well-known players are being provided by third-party ASPs delivered over vJungle’s OpenEX platform, says Rane.

VJungle is not alone. Its main rival, Rivio, has rolled out co-branded versions of the Microsoft bCentral services.

Specialization is key for CoreHarbor, an ASP that hosts Ariba e-procurement software for midtier companies.

"What’s different about us is that other ASPs have 10 to 12 applications [for rent]," says CoreHarbor CEO Jay Chaudhry. "If you do that, you become a generalist. We’re the heart surgeons when it comes to e-procurement .... We do Ariba day and night, so we really know how to support it."

CoreHarbor, founded in late 1999, just added Sunoco to its customer list.

Focusing on a core competency seems to work for management service providers. Take SilverBack Technologies. The nearly two-year-old company has no desire to supplant a customer’s IT staff, says SilverBack CTO Robert Klotz. "We want to do one thing: Manage the customer’s infrastructure," he says.

Instead of connecting customers to expensive network operations centers, SilverBack’s InfoCare product uses a small appliance running Linux that monitors the infrastructure.

"There are a lot of competitors in our space that try to do everything," says Klotz. "They’re kind of all over the map." The real upshot in the ASP space will be who is left standing.