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Startup Spotlight: Netstore

With an IPO ahead, Netstore is positioning itself at the centre of Europe's ASP market -- and the payoff could be huge

They might not seem very exciting at first glance, but Application Service Providers (ASPs) are some of the most important companies involved in making the Internet simpler and more useful. Simply put, they take an application that would otherwise run on your desktop and make it available over the Internet -- whether it's a word processor, an email service or corporate software.

For consumers, ASPs will mean access to complex applications over a simple networked device, such as a mobile phone, set-top box or a stripped-down Web PC. Netstore, which launched in 1996 as a remote data backup service, says it is now the biggest ASP in Europe, with customers such as Anheuser-Busch, Cisco Systems and NatWest Bank. Its most recent round of financing was in 1998, when it brought in funds from 3i, its original backer, and the venture capital arms of NatWest Bank and Barclays Bank. The company is planning a flotation for April.

techTrader spoke to Netstore CEO Gary Smith.

Could you describe your business plan and the advantage of the subscription model?

The subscription model is for the benefit of the end user. It is very expensive for small or medium-sized companies to buy sophisticated applications, and IT specialists are very difficult to hire and retain. Most small companies treat IT as an internal thing and an afterthought that merely keeps them going.

Netstore takes the big boys' toys down to the everyday person. We put into place systems that are generally too expensive to deploy and too difficult to run by small companies. The cost to the company is roughly half what it would have been -- and they don't incur the headache.

What is the future for the ASP market?

Steve Ballmer, CEO of Microsoft, said that "the future of Microsoft is application socialism". If using a computer were as simple as using a television, home computers would be used a lot more than they are at present. In a few years time I think that both homes and businesses will have something like a TV with which they can subscribe to different applications like Sky. It is difficult to envisage that we are seeing the death of the PC, but it is just a matter of time.

The investment community speaks of ASP's as being "hotter than the Internet".

You are committed to integrating WAP with all of your service offerings. Why do you see this as the way ahead?

There is a current wave of WAP phones, and the next influx of palmtops will be Internet enabled and part of a telephone, so that you can use it to browse the Internet. We have worked with Ericcson and Nokia in a small way, and you will see developments in Windows CE devices in a matter of months. This is where the explosion of ASPs is going to come from, as all access will then be external and mobile.

What results have you had from Microsoft's pilot progamme?

Microsoft has been trying to understand where it should target its research and development. We have 12,000 users on a centralised service provider. Microsoft has had to look at ways of architecting their software so that it works well with these numbers. Windows 2000 has been developed specifically for the scale of accessibility needed for an ASP.

Who are your main competitors?

We don't have any real competitors. When we started three and a half years ago, people thought we were mad. Most ASPs are in the USA at the moment, and haven't even hit Europe yet. There are a number of different types of ASPs, and only a few work with Microsoft products.

If I had to name our biggest competitor, it would be Compaq, as it offers an alternative way of doing things.

How do you feel about the timing of your IPO?

I think our timing is fine. Right now we are loss-making because we are investing quickly in the growth of our company. My profit margin is, however, reasonable, which is very different to the average dotcom business, where it is unusual for their profit to be visible.

The resellers who sell our wares are also desperate. The vast majority of their profit comes from selling Compaq computers, where they only get a four per cent margin. ASPs offer a 30 per cent profit margin.

Startup Spotlight is a weekly feature on ZDNet UK News and ZDNet techTrader, featuring the bright sparks of the UK's high-tech startup industry. For more of the faces behind the news see the Startup Spotlight archive.

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