TRENDS

March 6, 2003

Borrowing money is good. It's a simple business fact that if you can make a greater return on money that you borrow than you pay in interest, then you should take out a loan.

For consumers and governments, the argument is a little different: Borrowing lets these groups do things like buy a new car or build a new hospital — things they couldn't otherwise afford. Borrowing, for them, is financially convenient — it has a cost, but it gets things done.

In both scenarios, financial logic is the driving force behind business decisions. In that same spirit, it's refreshing to come across a company like New York-based ad serving software maker 24/7 Real Media. It offers its Open AdStream software on an ASP basis not because it is cheaper for its customers or because it can do more when delivered in this manner, but because it is financially convenient.

24/7 Real Media also sells its software as a licensed enterprise product, but offering the ASP option has some important benefits to the company, Thomas Capato, 24/7 Real Media's senior vice president for technology sales, told AS news. "About a year or so ago we recognized that the market was changing, and that capital dollars were getting tighter. But the ASP model enables customers to pay transactionally. This is very good for our P&L [profit and loss]. The problem with selling licensed software is that sales can vary tremendously between quarters, he said. "The spikes in revenue before [we introduced an ASP offering] were incredible. The original intention with 24/7 Real Media was to build a packaged solution, but as we were building the company out we looked harder at recurring revenue streams."

24/7 Real Media At a Glance

Headquarters: New York, N.Y. Publicly traded: Staff: 275 OpenAdStream Customers: More than 350 worldwide Finances: Revenues: Third quarter 2002: $9.8 million Profitability: Third quarter loss of $3 million

In functional terms, Capato told ASPnews the ASP and licensed software package are identical, so the decision to purchase a license or rent the software comes down to the financial position of the customer. "If a customer is not cash rich, they'll go with an ASP version, but if they have cash, they're more prone to go with the enterprise version. Really, the difference in the two product offerings is not significant — it comes down to the culture and mindset of the customer."

A Real Migration Path
Since the two products share the same code base, one selling point for the product is that customers can migrate from one to the other with zero training costs. Just about the only concrete practical point in the ASP version's favor is that since 24/7 Real Media use Akamai's content delivery system to speed up the delivery of their ads to end users' browsers, the ASP version may be faster than an on-premise solution if the customer is not using Akamai or any equivalent product, Capato said.

As it has panned out, about 72 percent 24/7 Real Media's customers have bought the enterprise version, and 28 percent use the ASP offering. But that split appears to be changing fast: In 2002, almost two-thirds of new customers chose the ASP version and only a third licensed the software outright.

ASP Model Makes Sense for AdSense
Another ASP with an ad serving product to offer is Los Angeles-based Applied Semantics. The company is less ambivalent than 24/7 Real Media about the best way to deliver this type of product: AdSense software could be offered as an enterprise solution, but the only benefit of that would be a perceived (rather any actual) increase in security, Gil Elbaz, Applied Semantics' co-founder and CEO, told ASPnews.

Applied Semantics At a Glance

Headquarters: Los Angeles Calif. Staffing: 40 Adsense customers: None yet, 8 pilots starting shortly Finances: Revenues: not disclosed Profits: Profitable in 2002

The slowdown in advertising sales has meant publishers are looking hard for ways to generate revenue, Elbaz said, and the pendulum is therefore swinging away from in-house ad sales to pay-per-placement solutions, he believes. An ASP solution is ideally suited to this as the publisher is freed from having to find a pool of potential advertisers, he said.

AdSense's key selling point, arguably, is that it uses Applied Semantics' own technology to disambiguate words — looking at surrounding words in a sentence or paragraph to decide which of several meanings a word is being used to convey — in order to match advertisements appropriately to pages of content. For example, the word pool can refer to a swimming pool or a billiard-like ball game, but AdSense has been designed to figure out which of these may be being used in an article and then perhaps call up an advertisement for diving boards or cue retailers as appropriate. The company claims that this can lead to click through rates as high as 8 percent — much higher than the 0.3 per cent typical of ads.

In addition to offering a pool of advertisers to fill publishers' ad inventories to strengthen the case for its ASP offering, Applied Semantics also highlights the usual benefits of the ASP model to potential customers: "We can have lots of releases and constantly update the software, and we have created an architecture in which we can simply add Linux machines to make the system highly scaleable. And of course our data center provides load balancing and redundancy."

Two Reasons to Go ASP
Web ad serving applications are an intriguing market sector for the ASP industry because unlike many other sectors that ASPs are active in, there's no clear cut case that the model offers unique benefits to customers to make them choose an ASP solution rather than buying software outright and running it in-house. Rather, it seems the ASP model may offer financial convenience to ASPs like 24/7 Real Media, or it may be simply a case of "if you're building a product from scratch, why wouldn't build it as an ASP application?"

Tools:

Add aspnews.com to your favorites Add aspnews.com to your browser search box IE 7 | Firefox 2.0 | Firefox 1.5.x

Back to Trends