I've always thought Application Service Providers (ASPs) were a cool idea. It makes intuitive sense that business applications could be made available online at low cost for the enterprise as well as consumers. A standard Web browser means no painful client software to load and deploy, and standard network protocols make application delivery a breeze. The economies of scale allow ASPs to offer cheap Linux servers that can support millions of customers at a fraction of the cost of old-school client-server applications. Why wrestle with some monstrous SAP or Siebel deployment when you can sign up for a hosted service, get your users to pop open their browsers, and then get right down to it at a fraction of the cost, in a fraction of the time?
A bunch of start-ups got cash on this premise during the dot-com boom -- and promptly went bust when the bubble burst. Research firm WebMergers reported that six ASPs shut down in 2000, and 14 more in the first six months of 2001. Yet now the ASPs are back, and some are even risking the public markets. Both Salesforce.com and Right Now Technologies offer hosted application solutions and have announced IPO plans. I also recently met with NetSuite, which is funded by Oracle's Larry Ellison, as well as smaller VC-backed ASP called Talisma ASP, and both seem to have their tails in the air. Their confidence is particularly amusing as they are all offering services in the broad arena associated with another troubled acronym: CRM (customer resource management). CRM software had a brutal ride on the hype-o-coaster, culminating in a couple of damning scare reports two years ago: one from Gartner, claiming that more than half of all CRM projects failed to meet expectations, and a Merrill Lynch survey saying that nearly half of CIOs at large companies were dissatisfied with their CRM software. Yet businesses still have customers, and they still have to manage their relationships with them, and many are choosing the ASP approach as an alternative to traditional licensed client-server applications.
The big, old-school business applications vendors have figured it out as well. PeopleSoft was already there. SAP has announced ambitious plans to migrate to a thin-client ASP mode, and Oracle is offering a Web application server and dubbed its application suite 11i -- as in i for Internet. RightNow Technologies, based in Bozeman, Montana, is probably the largest ASP in revenues after big dog Salesforce.com. In its S1 it claims 1,000 active clients, and at the end of 2003 it reported revenues of about $35m – after an impressive run of 25 consecutive quarters of sequential revenue growth. (Salesforce.com claims 9,800 customers and at the end of 2003 reported revenues of about $51m.)
RightNow offers an integrated knowledge base of all the customer interactions to lower the overall cost of support. Right Now's executive VP of worldwide field operations, Peter Dunning, is an elegant and credible pitch man. As a former SAP and Oracle applications executive, he's poacher turned gamekeeper when it comes to comparing the ASP approach to the more established application architectures of vendors like, say, SAP and Oracle. He claims Oracle is never likely to get real traction in this space because the company's best and brightest are focused on the engineering task of providing a great database, not the softer skills needed when dealing with end-users. And it's not hard to argue that SAP may trouble shrinking its huge apps down to the needs of smaller and medium-sized business.
He's obviously pleased to be working for a company with customers who actually like the products, and I took this as more than just the usual vendor hyperbole, because there is something liberating and fun about Web-based applications.
I really wouldn't underestimate the fun factor in all this. Talisma, an ASP based in Bellevue, Washington, in the US, and funded by VC's Oak Investment Partners, is a minnow by comparison to the SAPs of the world, but has been through the same Damascene-Net conversion from client server to shiny new thin-client ASP architecture. Its CEO, Dan Vetras, came from another ASP vendor, Captura, which had already got the Net religion, and is clearly relieved that Talisma has now been Webified and made the shift to a three-tier architecture.
Talisma provides a suite of applications for managing customer contacts, with a special emphasis on the use of instant messaging for customer support. I was struck by his description of the way the PlayStation generation has taken to this technology, answering customer emails while conducting three simultaneous customer chat sessions (and no doubt simultaneously texting ther m8s while scoring some mp3s online). I think he's probably right when he suggests that the generation leaving American colleges now, weaned on IM and now embracing text messaging, will be even more comfortable with chatting to customers this way.
Over time I've hooked up to a whole load of consumer hosted-services: Plaxo, Orkut, Gmail. Logging onto an introductory demo from a Salesforce.com or RightNow isn't very different and doesn't take much longer. Not every organisation wants to outsource hosting of their critical applications, but I think more and more organisations are going to build client applications this way, irrespective of whether the server is in or outside the firewall. Long term, the ASP approach gives scary corporate apps the familiar simplicity and instant gratification of doing search with Google or buying a book on Amazon. I think the industry is finally beginning to figure out ways to provide grown-up enterprise applications with the same gotta-go simplicity and ease of use. Why shouldn't business software be more fun to use?