ASPs: Friend Or Foe?

When the application service provider (ASP) software model burst onto the scene a couple of years ago, many VARs saw it as a threat. If businesses used ASPs to deliver their applications, it would mean that they wouldn't have to install their own software. Where would this leave VAR - who make their living reselling hardware and software solutions? ASPs originally appeared to be a threat to the very existence of resellers.

"Not so," cry a couple of ASP vendors I recently spoke with. In fact, these vendors offer their applications to customers primarily through resellers. It's their view that ASPs and VARs cannot only co-exist, but form mutually beneficial partnerships.

VARs Provide Customer Service That ASPs Can't
"The ASP model simplifies the delivery of software," says Zee Aganovic, president and CEO of CyLex Systems (Boca Raton, FL). "However, all of our customers have a place where the tire hits the road - where they need services. This includes tuning, integration, training, and support of their applications."

Adds Randy Simmons, director of marketing for channel development at SMARTworks.com (Dayton, OH), "A lot of ASP solutions were developed with the technical understanding of a specific application in a targeted market. However, ASPs are not connected to customers on the street level, the way VARs are. This creates a gap between ASPs and end users that VARs can fill."

Reduced Sales Cycles, More Opportunities
Aganovic says the ASP model enables VARs to focus on services, which generate a higher margin than reselling of hardware and software. "ASP solutions also reduce the up-front investment end users need to make in their systems. This shortens VARs' sales cycles," he says. "With an ASP model, a customer's ROI can be estimated by determining whether the monthly fee reduces expenses or not. Determining ROI for traditional systems often involves complicated calculations projected over 36 months.

"ASP delivery opens doors for VARs that had previously been shut because of budget constraints. It enables VARs to offer solutions that don't require huge one-time capital expenditures. Many potential buyers at smaller businesses, and departments within larger businesses, don't have the power to authorize such large expenditures."

The Best Is Yet To Come
Simmons adds that the transition that businesses are currently making to Internet architecture makes it an ideal time for them to transition to ASP solutions. "For a business to move all of its legacy systems to the Internet requires a significant investment in hardware and software," he says. "In addition, it requires a commitment to service and maintenance of the Internet system to keep up with rapidly changing e-commerce technology. Unless a company's core business involves technology, it is better served not to bear the costs of technology integration and infrastructure. ASPs will do it for them. We make our money by providing customers with the capabilities they need to stay on the edge of the Internet economy."

Aganovic adds that ASP delivery will ultimately be the future of software. "ASP is not a fad. As a founding member of the ASP Consortium, I have been privy to many conversations with technology giants like Sun, Microsoft, and HP. There are several multimillion dollar ASP initiatives underway that have not yet come to market. When they do, it will create a paradigm shift in software delivery. The sooner VARs start creating ASP opportunities for themselves, the further ahead of the game they will be. Now is the right time for VARs to begin offering ASP packages."