Weekly Review: A Bit of Good News

The past week has been one of good news from the ASP industry, with a big contract win for one ASP, news of others reaching profitability and a sizeable funding round for yet another member of the ASPnews Top 20 — the second in as many months.

Arizona Goes ASP
Venerable schools market ASP LearningStation has been named as the provider behind a massive contract to deliver a hosted portfolio of applications including MS Office to students in Arizona's 1,200 schools. Charlotte N.C.-based LearningStation is a subcontractor to Cox Business Services, which has landed the contract to supply educational and productivity software using the ASP model to all of the state's 850,000 school students.

Arizona decided on the ASP model as the only way to ensure equal opportunity for students, whether they attend school in the prosperous suburbs of Phoenix or in the remote hinterlands of the Navajo. Equal access to facilities and equipment has become a major educational policy objective in Arizona, following a 1996 ruling by the state's Supreme Court.

ASPs in the Black
Englewood, Colo-based Prentice Technologies became the latest company to lay claim to being the world's first profitable enterprise ASP. Its announcement came just a few weeks after ASP veteran Telecomputing, which has operations in Norway, Sweden and the United States, pronounced its Norwegian subsidiary as the first ASP to reach profitability. In fact, the Norwegian subsidiary scraped a tiny profit in the final month of the quarter, which didn't prevent it posting a full-quarter loss of $311,841. This qualified success was also somewhat overshadowed by the $5.87 million net loss that the group as a whole posted for the quarter.

As noted in a previous review, definitions of profitability vary enormously. And certainly there are many other ASPs in the enterprise space that would also claim to be profitable — such as — to name just two — Appshop and OutTask. But Prentice's claims bear some serious scrutiny.

The company, whose main business is the hosting of outsourced JD Edwards applications, claims to have completed its first year of profitability — certainly a far more impressive achievement than Telecomputing Norway's single month in the black. Part of the explanation for Prentice's apparently laudable achievement is its decision to leave both consulting and data center operation to partners, enabling it to concentrate on the core business of application management. But it failed to provide further details of its supposed profitability, leaving the assertion open to multiple interpretations.

From one point of view it is good to see ASPs now focused on achieving profitability, rather than simply expanding revenues at any cost in some misguided attempt to grab an illusory market leadership. But we still seem to be some way away from the day when an enterprise ASP conclusively demonstrates, on the basis of published, verifiable and GAAP -compliant figures (i.e. complying to generally accepted accounting principles), that it really, truly has passed that all-important milestone of cash profitability.

Portera Nets More Funding
There are two distinct forms of ASP in the industry, and the above comments refer specifically to enterprise ASPs that deliver third-party applications to customers. That is a channel business, and one where it is harder to achieve and sustain profit margins. As I've mentioned in previous articles — most recently in Some Survive, Others Thrive — companies that deliver their own proprietary software as an Internet-based service find it much easier to make money. That perhaps explains why it is this type of company that has been scoring funding in recent months.

Last week, vertical service provider Portera Systems, which operates its own professional services automation software, became the latest such company to score a significant funding round — see related news story, Portera Secures $16M. The latest round is Portera's fifth separate batch of funding, making it particularly noteworthy since only the most exceptional companies get so many bites of the funding cherry, particularly in today's investment climate.

Portera follows in the footsteps of Internet-native Web service vendors UpShot (an ASPnews Top 20 member) and Works, which achieved rounds of $17 million and $15 million, respectively, in July. The willingness of venture capital groups to continue ploughing money into these companies demonstrates that they must be doing something right — and in today's grim climate, that probably means garnering significant revenues from a low cost base.

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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