Rising Out Of The Ashes

Round 1 of the ASP (application service provider) fight is over, and Gartner has predicted that 60% to 70% of the competitors will be knocked out before the end of 2002. "Every application does not fit the ASP delivery model," explains Dirk Elmendorf, chief technology evangelist for Rackspace Managed Hosting (San Antonio). "A couple of years ago, when the buzzword was hot, you had a lot of ASPs being funded and trying different ideas. Now prospective customers are putting these ASPs to the litmus test, and only the successful ones will emerge."

Indeed, research firm IDC recently issued a report predicting that, despite well-documented challenges involving profitability, the ASP market grew to almost $1 billion in 2000. Based on a compound annual growth rate of 89%, it is expected to reach $24 billion in 2005. So, how does a VAR get a piece of this action without being dragged down by a partner that is headed out of business?

Don't Be Afraid To Use The P-Word: Profitability
"Everybody is aware that not all ASPs have successful business models, says Elmendorf. "If an ASP goes out of business, it can be very disruptive to transfer data from one system to another. As a reseller, you want to make sure you're dealing with stable partners. You can do this by querying ASPs about basic financial information such as funding and profitability."

Mike Kayat, director of sales and marketing for Integris (Billerica, MA), adds that VARs should also make sure their ASP partners offer technology that is attractive to end users. "The first generation of ASPs ran applications designed for traditional client/server network environments," says Kayat. "These applications do not leverage the 'one-to-many' advantages provided by the ASP model. Second generation ASPs will leverage technology like J2EE and XML (extensible markup language) to truly deliver on the ASP promise of software as a service."

Next Generation Technology Better Suited To ASPs
According to Kayat, J2EE technology will enable applications to be delivered on very thin clients, such as those contained in Web browsers and wireless devices. He adds that XML will enable resellers to more easily connect ASP applications to the rest of their customers' infrastructure. "In addition to quality technology, VARs should also partner with vendors that have a range of and complementary applications," he adds. "This way you can offer a complete CRM, ERP, or financials solution to your customers."

You Can't Get Vertical Off The Shelf
Elmendorf adds that the most successful ASPs will likely be those that offer a software package targeted at a specific vertical. "If businesses want general purpose applications, they will buy them off the shelf," he says. "I don't envision Microsoft Office being sold successfully through the ASP model. However, a software package that manages all the forms needed to sell a house in a specific state and is targeted at real estate agents - that might work. Resellers should look for ASPs that address their core groups of customers."/p>

Kayat concludes that, like it or not, the ASP model will play a very important role in the future of IT. "The development of thin-client applications and the adoption of wireless devices will drive ASP adoption," he says. "Businesses just can't afford to manage these types of infrastructure improvements without the help of ASPs."