Finally, my work here is done. At last there is proof that the ASP model works.
Three years ago this week, I launched ASPnews to report on and analyze an emerging new industry. Few people had heard of the term ASP at that time. But I believed the technologies and business models that some of the early pioneers were starting to develop, promised a new era of accessible, affordable business computing.
Since then, the concept of delivering pay-as-you-go, software-based services from the Web has gained widespread recognition. But despite the enthusiasm of practitioners, the industry has found it difficult to win over skeptical users. They have demanded proof that its wild claims of accessibility, affordability and easy maintenance really did stack up.
Last week, the proof arrived. A new study by IDC — the market research company whose July 1998 report on application service providers prompted me to use the ASP acronym for the name of the ASPnews site — finally vindicates that belief.
It shows that users of ASP services really do achieve remarkable returns on investment (ROI) — not just a few percentage points, but double, triple or orders of magnitude more than their investment. This is precisely the kind of performance that every early pioneer in the ASP industry believed would be delivered. But the IDC survey also shows that certain varieties of the model are far more productive than others, with returns varying from double-digit percentages up to one thousand percent and more.
Good Intentions, Wrong Model
Over the past few years I have had the privilege of hearing in person from the principals of many ASP ventures, outlining their plans and strategies. Many of these briefings are inspiring and thought-provoking, generating excitement about the potential of the ASP model and the creative ways in which it can be exploited.
Unfortunately, from time to time, there have been disappointing briefings, too. There was an explosion of hype around the ASP industry in the second half of 1999, which drew in many who misinterpreted or simply failed to see the fundamental nature of the changes going on. Two in particular have always stood out in my mind. Perhaps I should have voiced my concerns more loudly at the time. But my role back then was much more focussed on reporting than analysis, and in any case I knew very well that people with conviction are destined to follow through on their beliefs until proven wrong. Attempting to dissuade them before they have even gotten started rarely does any good.
The first of these meetings was in September 1999, by a company called Intira. Its proposition was based around the hosting of servers and software in a network of connected data centers spread across North America. Nothing wrong with that — it was exactly in line with what many ASPs and their allies were planning or building. The problem was that Intira claimed to have pioneered this concept, and claimed that it was called netsourcing.
In truth, their model was in some ways distinct from the ASP model, since it didn't share any of its subtleties. Netsourcing was simply the relocation of servers from a customer data center into an Intira data center. Sad to relate, Intira persisted on its lonely pioneering trail before finally succumbing to bankruptcy in summer of this year.
The second ill-fated meeting took place at the end of February 2000, when a mid-tier enterprise software company called Infinium outlined to me its plans to launch an ASP offering of its AS/400-based product suite. It was already providing outsourced application management for some of its customers, and so this was a natural extension of what it was already doing, the company's executives told me. Indeed, it planned to bring this experience to bear in hosting complementary products from other software vendors alongside its own. One of the mistakes that ASPs were making, they added, was that ASPs were not prepared to offer the individually tailored configurations that mid-tier customers demand. This was something Infinium was determined to offer.
Well, Infinium on Friday announced it is closing down its ASP arm (see Infinium Ceases ASP Operations ). I have to give the company credit for sticking with its vision and investing a lot in market development, right to the bitter end. But it was the wrong vision.
Still Work to Be Done
I guess my work here is not yet done after all, because it's probably true that the vast majority still don't get this very simple truth: the ASP model is not a relocation exercise. When you move applications out of the enterprise into an Internet data center, software changes fundamentally. We now know what it changes into — it adopts a Web services architecture.
Any company that enters the ASP or xSP market believing it is adopting some subscription-based variation on outsourcing is destined to fail. Success is reserved for those who do so within a Web services-based framework. And it's the customers of those providers who will earn the thousand percent-plus returns on investment.
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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