ASPs: RIP?

This is the second part of a two-part series on Domino, Notes and ASPs. The first part can be viewed at: http://searchdomino.com/searchDomino_Tip_Item/1,1426,496917,00.html

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With the recent ups and downs in the dot-com world, consider this: Will your application service provider (ASP) survive the dot-com shakeout? Lured by the promise of affordable technology and shorter implementation cycles, small and medium-size businesses are rushing into relationships with providers they may outlive. There are a lot of issues to consider, and they are changing rapidly.

"A lot of companies jumped into the market a year ago, calling themselves ASPs, without even knowing what that really means," says IDC analyst Meredith Whalen. "Now many of them are wondering if that's what they want to be doing."

Even conservative estimates from Cap Gemini Ernst & Young put the failure/buyout rate for ASPs over the coming years at 50%. But Lotus and its partners continue to wave in small to medium-sized businesses and fast growers with positive words about their business model, which lets customers pay a per-user fee for Lotus applications on shared servers.

Even Lotus concedes that users must look closely at the financial health of Domino and Notes providers. "Yes, you should be concerned about the changes in the ASP market," says Bill Bliss, director of hosted applications marketing at Lotus. "But it's not like these [ASPs] are experiencing single-digit growth. If you look at their fundamental business strategies, many of them look very strong." Lotus ASP partner Interliant Inc. reported third-quarter revenues of $44.3 million on Nov. 1, almost a four-fold increase over Q3 1999. But by Nov. 7, Interliant's share price still languished below the $10 mark, 82% off its 52-week high of $55.50.

"It's definitely an interesting time for ASPs," says Henrik Rosendahl, vice president for e-business at IT Factory Inc., which makes Notes/Domino software and development tools for ASPs and ISVs. Rosendahl sees two types of ASPs vying for subscribers: clean-slate startups, which have deep pockets for marketing but few customers, and more established, high-end systems integrators. Of the two, the clean-slates are going to have the hardest time competing, Rosendahl says, "because they lack a revenue stream from current customers."

Lotus' ASP partnership program can offer some security to users, since its members rely on the same technology, according to Bliss. "If one of our partners buys out another, you can rest assured that your new solution will be compatible," he says.

While Wall Street and others are waiting to see which clean-slate ASPs will become profitable, small to midsize- businesses and fast growers are already banking heavily on some of them. Customers who spent just $300 million on ASPs last year will be contributing to a $7.8 billion market by 2004, IDC's Whalen says.

But the overwhelming majority of ASP adopters do not seem to know what they are paying for. "On the customer side, we've found that only 6% of companies have a detailed understanding of what the ASP model is," Whalen says. "So there will have to be a lot more market education coming from vendors."

To find out more about ASPs and how to assess them, check out the following web sites:

 http://www.idc.com/aspadvisor/aa20001025.stm 
Read IDC analyst Tom Gilmore's report about the trials and tribulations of early ASP customers. Many of them suggest learning the difference between uptime and connectivity, and the nature of service level agreements, before signing with an ASP.

 http://www.lotus.com/home.nsf/welcome/hostedsolutions 
Meet Lotus' Hosted Solutions partners, which include rentable software vendor Encanto Networks Inc., Domino- based developer Coordimax and Lotus ASP netASPx.

 http://www.irgintl.com/publications/whitepapers/usi_asp.pdf 
This Internet Research Group paper weighs the pluses and minuses of the ASP model, and lists ASPs according to their relative sizes in this highly volatile market. (Requires Adobe Acrobat Reader.)

 http://www.aspnews.com/analysis/analyst_cols/article/0,2350,4431_501791,00.html 
ICL business strategist Peter Slavid urges potential ASP users to ask their providers "what happens if the company fails. Depending on how critical [your] data is to your business, you may well need to seek some protection," he says.

 http://www.SearchASP.com 
An ASP-specific portal from TechTarget.com, the creators of SearchDomino.com. Provides Industry and ASP-specific news, Web sites, articles and tips on ASP.

Mark Baard is a contributing editor in Milton, Mass.


This was first published in November 2000

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