Vector ESP Sets Evolutionary Strategy

New models of application hosting are continuing to spring up everywhere. One model frequently described in this column is the managed ASP (application service provider). Solutions providers use Microsoft Terminal services and Citrix MetaFrame to host their clients' applications, often at a co-location facility. The customers purchase their own equipment and manage their own application environments.

The Approach Of Vector ESP
Vector ESP, based in Houston, is a fast-growing organization that is advocating a very different hosting model. Vector has been acquiring key Citrix Platinum resellers around the country and is arguably the leading server-based computing (SBC) integrator. The company uses SBC as a door-opener to increasingly deliver what they call "managed services."

"We will utilize the IP network to extract data from the customer's systems and then deliver information via a browser integrated into one environment for the customer," said Tom Bunch, CTO of Vector. "Our opportunity is to create value by leveraging our skill sets among a broader base of customers. Customers get access to managed services, infrastructure, and applications at a fixed cost without requiring a large capital investment. They are also able to maintain more flexible IT architectures that will enable them to focus on their core competences."

Bunch says that the sweet spot for managed services is the small to medium enterprise markets ranging between 500 and 5,000 users. Vector expects to grow the managed services portion of its business in roughly equivalent volumes to its professional services and traditional systems integration pieces. Of course, since the managed services business equates to annuity revenue, it will grow over time to comprise a higher percentage.

Push Versus Pull
Wayne Patterson, CEO of Vector, explains that one of the causes of the ASP struggles is their typical reliance on a "push" mode. "This sales method requires a leap of faith on the customer's part, particularly when CIOs are generally risk-adverse and are reluctant to accept 'push' technology. The high capital required to build out infrastructures and to establish sales channels has led to a high rate of xSP bankruptcies."

Vector is content to focus on responding to a growing "pull" model of demand. They use SBC as a way to get IT managers more comfortable with the idea of total managed services by first outsourcing less mission-critical components of their IT infrastructures. As SBC clients ask Vector to take a greater role in managing their internal application hosting environments, Vector responds by utilizing co-location facilities that are close to the customers. This enables Vector to keep capital costs low while continuing to build deeper customer relationships.

One Size Fits All
According to Vector, the key for xSP players is not in the delivery of applications. Software companies will increasingly provide their own application hosting. xSPs also cannot count on providing infrastructure access as a viable business. The actual cost of computing as measured by dollars per transaction is already very inexpensive and is rapidly declining. Infrastructure access is going to be a commodity business that will probably be dominated by major players such as Telcos.

"The ASP motto of today is one size fits all," said Patterson. "But the Internet has taught us that everyone wants a customized solution. Dell thrives by providing computer configurations in quantities of one. Most customers want solutions that fit them in terms of accounting, CRM (customer relationship management), ERP (enterprise resource planning), etc. The requirement is for an economy of skills rather than for an economy of scale."

If Vector is right, successful solutions providers that are venturing into the managed ASP arena may soon need to begin developing a new set of skills and tools. They will increasingly be required to provide a solutions value based upon applications integration knowledge rather than upon infrastructure or delivery expertise.