Weekly Review: Where Have All the xSPs Gone?
By Phil Wainewright
September 24, 2002
After last week's decision by the MSP Association to change its name, it's probably a good time to pause and ask the question, "Where have all the xSPs gone?"
None of the categories once represented by the alphabet-soup of xSP acronyms have disappeared. It's been more a case of slipping unnoticed into the background infrastructure of connected IT.
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MSPs are a good case in point. Their trade group now calls itself the Strategic Sourcing Advisory Council (SSAC) (see MSP Association Changes Name). The new name is a recognition that MSPs have blended so well into the neighboring categories of outsourcing providers, enterprise ASPs and IT services companies, no one can tell the difference between any of them any more.
It's a Small World After All
Once people start realizing they have more in common than they previously thought, it's inevitable that some of them will start teaming up with each other. Hence the consolidation we've seen across these various sectors:
- Traditional outsourcing companies have been buying up MSPs to acquire their skills and technologies in remote systems management and one-to-many service provision. The most notable deal was when EDS bought LoudCloud's MSP capabilities.
- The remaining MSPs have been merging so they can better compete against the big players, and reach commercial scale faster. One such example is SevenSpace, which bought rival Nuclio at the beginning of this year, and as a result last week announced it is now cashflow positive on monthly revenues of $1.7 million, a tenfold increase compared to a year ago (see SevenSpace Reaches Cash Flow Positive Position).
- Enterprise ASPs, most of whom now offer MSP services alongside their outsourced application offerings, have been consolidating for the same reason. The crescendo of merger activity has been rising over the past few months, with the highlights provided by USi merging with Interpath, Agilera acquiring United Messaging (see Agilera Sends Message With Acquisition), and Corio buying the remains of Qwest Cyber.Solutions (See Corio Snaps Up Qwest's ASP Business).
- Business process outsourcing providers have bought up ASPs to add greater application functionality to their service offerings, such as Exigen's purchase of Portera's ASP operations (see What Did Exigen See in Portera?).
- Consolidation among IT services companies has had its own strong dynamics, but some players, such as Divine, have seen synergies from multiple acquisitions that combined IT services with ASP and hosting capabilities.
All of the above now fall under the remit of the newly named SSAC, which has done a good job of adjusting its profile to adapt to these market shifts. But that still only accounts for what you might call the "IT services wing" of the xSP movement. To complete the picture means taking a look at what's happened to two more important groups of xSPs.
One group falls into the unfortunate telecoms and hosting sector. It has not been a happy period for NSPs, ISPs and HSPs — otherwise known as telecoms carriers, Internet service providers and hosting companies. Starved of funds, short of revenues and lumbered with massive unused capacity, there's little chance of an early upturn here. But amongst the wreckage of many ill-fated application hosting initiatives, a few lights burn brightly. The provision of basic Web site capabilities to small businesses is still a growth sector, and providers such as Interland and Trellix, each of whom has maintained their focus on delivering high-quality services with maximum cost efficiency, have prospered (see Interland Ups the Ante on Shared Hosting and Trellix Lands Monster of a Deal).
The third group is both the biggest and the most invisible of the three. From the smallest value-added reseller (VAR) to the largest software vendor, the delivery of custom-built applications using the Web as a platform has become commonplace. In many cases, these ASPs, BSPs and VSPs allow customers to choose whether the supplier hosts the software or whether they host their own copy. In either case, the supplier continues to manage the software. This is none other than the Web-based ASP model, but integrated so seamlessly into the mainstream software business model that few customers or vendors explicitly recognize they're doing it.
Web-based ASPs Sing a New Tune
The only exceptions that trumpet their ASP credentials are those vendors who built their applications for the explicit purpose of delivering them to a mass-market customer base (though often they do so without using the ASP acronym). These providers have come a long way from the early days when they believed the Web-based service model meant delivering precisely the same functionality to every customer. Today they realize that customers want to be able to tune applications to their specific needs, which means building in a wide range of self-service choices that are nevertheless easy to understand and select — like all good skills, something that's much more difficult to achieve than it looks.
Last week, Salesforce.com demonstrated the fruits of that learning experience with the launch of a new version of its software targetting the needs of smaller businesses. These are the businesses that many observers thought salesforce had been targetting all along, but instead it spent the first two years of its existence successfully closing sales to users in larger enterprises. Only now does it feel confident enough to offer a product for the volume small business market (see Salesforce.com Takes a Team Approach).
Companies like Salesforce.com are going from strength to strength mainly because they understand both the benefits and the implications of the one-to-many shared services model delivered from a Web base. This understanding is slowly dawning on the growing body of converts that are joining the movement to Web-delivered software and services. XSPs may have disappeared, but they haven't gone away. They've simply become part of the landscape.