Things to Look for When Choosing an ASP

Huge ASP market projections, ranging from $7.8 billion to $48 billion by the year 2003, have generated many entrants into the market. Currently an estimated 1,000-plus ASPs today are trying to get themselves established. This number will almost certainly demand some sort of market shakeup — which will probably include mergers, consolidations and bankruptcies.

If you are considering using an ASP, it is important to do your homework and pick an ASP that will be in business for the long run. Here are some things to look for when selecting an ASP to help protect yourself and your business.

Almost all ASPs can be placed into one of three categories: niche, me-too or critical mass. Niche players are ASPs that have found a certain specialist role that enables them to target a very well defined, but small, market sector. They typically rely on a technology that is highly specialized and difficult to duplicate.

Niche players can probably survive on their own, as they can usually charge a premium for their services because of their specialization. However, they are also great acquisition targets for larger ASPs. A niche player that is bought by another company usually maintains its independence after an acquisition, because that specialization is hard to duplicate. If the ASP you are considering falls into this category, it will probably be around for a while - even if it becomes part of a larger company.

Me-too players are the ASPs that everyone needs to look out for. They are ASPs that offer applications that are seen in the marketplace as commodities. They have a very difficult time differentiating their product from everyone else's. This usually leads to differentiation based on price, which is obviously not good for margins.

Acquisition targets

Some me-too companies could potentially become acquisition targets for other providers that are looking to increase market share. The me-too must be one of the market share leaders for this to be attractive. Upon acquisition, they will be most likely be absorbed into the acquiring company and not maintain independence.

Acquisition is the best outcome for the me-too ASPs. Another outcome is they will not be able to generate profitability and thus seek bankruptcy. If the ASP you are considering falls into this category, be very cautious. This might come back to haunt your organization at a later date. The low-cost provider is not always the best route to go.

If you want the best likelihood that your ASP will not go out of business, then seek ASPs that fall into the last class, critical mass. Critical mass ASPs can be either horizontal or vertical in nature. Their solution has either captured a large share of the general market, or is relied on by the majority of a particular industry.

Such ASPs need to have a business model that is able to scale to support the number of users needed to reach critical mass. Their technology is typically unique and addictive in nature. These companies have the best chance for survival. They are the ones who will purchase some of the niche and me-too players to help them gain further critical mass. You should feel fairly comfortable choosing an ASP that falls into the critical mass category.

Another important feature that applies to all ASPs, regardless of the category they fall into, is multiple applications. As the ASP model is adopted by end-users and they utilize more ASP services, end-users will find it difficult to deal with multiple ASPs. Providers that offer multiple services can serve your business with more than one application. This will save you time because it limits the number of contacts you have. It is also much simpler from a support standpoint.

TeleChoice's advice is to be cautious when choosing an ASP and look for the above characteristics to help determine survivability. When an ASP is running your mission critical applications, you could be facing disaster if it suddenly goes out of business.

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