Weekly Review: The Third Wave of ASPs

IBM's launch of its Web services portfolio last week stirred the intriguing possibility that there may be three rather than just two areas of opportunity in the ASP market.

The first and most established success model is the vertical service provider (VSP), an ASP that targets its portfolio of applications and services at a specific vertical market. Now championed by Crosspoint Venture Partners — which has an impressive array of VSPs in its investment portfolio — the VSP model already has many adherents unconnected with Crosspoint, including ASPnews Top 20 member Portera and recent ASP News Review profile subject GeoNet Services. VSPs succeed by having offerings that are so tightly tailored to the needs of businesses in their chosen niche that customers can just plug them into their day-to-day operations and start using them right away.

The second model is the newly emerging master ASP, described in more detail in this week's analysis column, ASPs — Masters of the Internet. These wholesalers and aggregators seem destined to be the giants of the ASP industry, achieving fast growth through mastering economies of scale in operating core applications. They work with service integration partners, who tailor the generic functionality of the applications to the specific needs of individual industries and enterprises. Master ASPs will not achieve the same margin levels as VSPs, but their ability to reach a broader marketplace enables them to scale to much larger aggregate revenues and income.

IBM's announcement last week (May 14th) of a suite of Web services platforms and development tools opened up the prospect of a third success model.

The IBM suite is based on its existing WebSphere application server and DB2 database, extended by support for Web services standards such as Simple Object Access Protocol (SOAP) and Universal Description, Discovery and Integration (UDDI). There are tools for assembling Web services into applications and managing the flow of processes across multiple Web service components, as well as hooks to embed Web service functions into Lotus applications. Various management and security tools complete the lineup.

In essence, the suite provides everything a Web services developer or integrator would need to create, deploy and manage Web services applications within an enterprise environment. There is something still lacking, however — and the lack is equally evident in similar suites announced as part of Microsoft .Net and Sun ONE, and from Oracle and HP.

In principle, these development suites are designed to enable enterprises to set up cross-company applications that run between partners, suppliers, customers and even new prospects. Yet they do not include any ready-made infrastructure for provisioning the resulting applications to users, monitoring service levels and charging for usage where appropriate. So they enable enterprises to offer applications to other parties — to become ASPs — without giving them any of the tools required to do this as a commercially managed service.

The opportunity that this opens up for smart providers is to host development platforms based on IBM's or an alternative vendor's suite, complemented by robust, proven ASP infrastructure tools and services. These Web services factories would take the pain out of assembling and deploying Web services-based applications, leaving enterprises free to concentrate on the business processes that they have set out to automate.

Such an evolution would be directly in line with the pedigree of the Web application servers, such as IBM's WebSphere, that form the foundation for all of these suites. Back in the mid 1990s, systems developers began to realize that a more sophisticated version of the Web server could be used to host applications rather than simply content, provided those applications were built out of self-contained components that could communicate using Web-native protocols. It's taken a long time, but that model is now finally beginning to reach maturity, opening up an entirely new way of building and deploying applications — one that is based on rapid assembly and disassembly to meet changing business needs within the highly connected, open environment of the Web.

C&W Makes a Smart Move
In a world where the sudden drought of investment capital has made cash suddenly valuable, London-based telco giant Cable & Wireless is feeling wealthy thanks to its $8.5 billion cash pile. But its shareholders are eager to see that money spent rather than sitting idly by in the bank. There has been talk of a multi-billion splurge on targets such as top colocation hoster Exodus or UK number two telecoms group Energis. So far, C&W has wisely held back from plunging into unimaginative deals of this nature simply to use up the available funds.

Instead, last week's agreed acquisition of Digital Island looks like a smart move, even though it uses up less than a billion of the available cash — $340m for the purchase, plus the untold millions it will then cost C&W to integrate the two companies and bring Digital Island into profit.

The Digital Island data center network complements C&W's own extensive Internet backbone assets with little overlap, as well as bringing valuable and highly-respected managed hosting expertise into the company. Most observers have paid scant attention to Digital Island — which is listed in the ASP News Review Global 200 — but its sophisticated e-commerce hosting service portfolio is more of an ASP offering than merely managed hosting.

Bringing such skills into the group will be a welcome boost for C&W, whose experience to date in the ASP business has been something of a disappointment to senior management. Its a-Services division, launched with much fanfare to offer hosted Microsoft Office and Exchange to small businesses, has failed to take the world by storm, having mustered little more than a few hundred users worldwide to date. This has not been much of a surprise to industry insiders, to whom a-Services always looked like an ASP designed by a committee rather than a serious commercial proposition. Digital Island, in contrast, has a track record of delivering hosted applications in configurations that businesses actually want.

This review of the week's news highlights is by ASPnews.com founder and consulting analyst Phil Wainewright. A comprehensive news digest is published every month in the ASP News Review newsletter, available exclusively to subscribers.

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