TRENDS

April 5, 2002

While the major independent software vendors (ISVs) all established programs for hosted applications when the ASP model first came into existence about four years ago, most are now redefining or refining those business models as the software-as-a-service picture gets a little clearer.

No fail-safe formula for success has emerged, but according a recent report by market research firm Summit Strategies, ISVs that establish strategic objectives, are flexible in building partnerships, move steadily towards Internet-based standards and integrated developments stand the best chance for success.

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According to Laurie McCabe, the report's author, when the first wave of ASPs hit, most ISVs "were just experimenting." Many ISVs, she said, simply saw the ASP model as a way to move down-market to reach new customers.

But a funny thing happened on the way down-market, ISVs discovered that the ASP option was attractive to some of their existing customers. It wasn't just a way to reach customers who couldn't a afford a licensed product. "At first, they all thought SMB (small and medium-size businesses), but it has been the higher-end that has done well," McCabe told ASPnews.

The Magnificent Seven
Summit Strategies' 53-page report, Traditional ISVs: Moving Along the Software as Services Curve, highlights how leading ISVs have adjusted to take into account the realities of the ASP model. In the report, McCabe focuses on seven ISVs: Oracle, PeopleSoft, SAP, J.D. Edwards, Onyx Software, Microsoft Great Plains and Interact Commerce.

McCabe told ASPnews that ISVs must balance their sales strategies carefully. "They may be best-served with a direct offering to existing customers, to capture the low-hanging fruit for things like upgrades," but she warns they also need to partner intelligently. In particular, she points to Oracle as an example of a software vendor that may not be giving its partners their due. "Oracle runs the risk of winning the battle and losing the war."

McCabe is referring to Oracle's Online Services, which now is a standard part of every proposal. Oracle has also added its database and application server solutions to the Online Services menu, underscoring the strategic importance of software-as-a-service for the company. However, McCabe told ASPnews, "Oracle has dismissed ASPs." In particular, when it comes to its relationship with ASPs such as Appshop, which are exclusively Oracle application provider, the ISV may be "cutting off its nose to spite its face," McCabe said.

In contrast, McCabe told ASPnews, that Great Plains probably errs in the opposite direction and should offer more of a direct solution. In general, Microsoft Great Plains' software-as-a-service agenda has become "increasingly intertwined with Microsoft's NET strategy, which seems to seesaw in regard to its emphasis on software-as-a-services," Summit Strategies reports. "But Great Plains continues to innovate in more tactical areas, such as adding service-management capabilities that enable its business process outsourcing (BPO) partners to create private-labeled, hosted offerings more easily."

One theme that McCabe says runs throughout is that a broadly focus ASP approach hasn't worked for ISVs. "It's hard to be horizontal. Look at Agilera — at one point they seemed to offer a hosted version of everyone."

McCabe said that customer relationship management (CRM) ASP Onyx Software made the horizontal error early on, but it has swapped out nonperforming horizontal ASPs — which included the ill-fated Breakaway Solutions and FutureLink — for vertical service provider (VSP) partners. The reports notes that Onyx needs to better trumpet how its Net-native architecture enables and improves hosted CRM. "Onyx is ahead in the Web services race," McCabe said.

Mixed Emotions at SAP
Enterprise software giant SAP, McCabe said, has been "ambivalent at best" when it comes to ASPs. However, the report points out that "despite a relatively neutral stance" it has developed partnerships with ASPs. Still, it hasn't made changes to pull customers towards hosting and, the report says, it doesn't look likely that it will in the near future.

SAP's neutrality hasn't hurt the company, however. Summit Strategies reports that while SAP's profile in the ASP market is lower than rivals Oracle and PeopleSoft, its customer uptake for hosted applications is about the same.

Unlike SAP, PeopleSoft remains committed to selling through ASP partners, which the report notes it did exclusively until March 2000. However, the ISV has stepped up its marketing efforts for its own eCenter alternative. PeopleSoft is partnering with Hewlett-Packard for data center and infrastructure services. In addition to supplying service level management, HP provides integration with nonPeopleSoft application, the report notes.

The Evolution and Revolution Continues
ISVs, McCabe says, must continue to juggle existing, conventional software customers while developing software-as-a-service models. Most are discovering that the ASP model is more of an evolutionary phase rather than a new life form. "For traditional ISVs, the original ASP model is morphing to look more like an extension and enhancement of outsourcing than a discrete segment."

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