From Web Hosting Monthly, December 2003 edition
January 6, 2004 — (WEB HOST INDUSTRY REVIEW) — The coming out party of the be-all-end-all application service provider USinternetworking (usi.net), run by a bunch of Digex renegades, seems ages ago, though it’s been just five years. The big kick-off party featured Bob Dole, a $30 million venture round of funding and a sincere desire to grab a meaningful share of the $21 billion outsourcing market by 2001.
Industry participants may recall how the description of an ASP business model went back then. A service provider using the Internet as the next big, ubiquitous communications medium gets set up with a data center where it hosts software applications that enterprise customers use. Because this software is complex and expensive, ASPs offer it as a service on a per-seat basis, and enterprise customers buy it via big fat IP pipes. The world needs ASPs because enterprise customers get access to software they wouldn’t ordinarily buy – or get the same software they buy for less.
This business model was blown out of the water by the dot-com, and succeeding telecom, bubble bursts. Service providers that jumped into the business following USi quickly found hardware and installation costs spinning out of control, customers getting testy and software companies keeping iron-fisted control over the situation. Ventures like Cable & Wireless’s A-Services, a joint project between the service provider, Microsoft and Compaq, ended in a disaster. At the end of the day, software firms did what everyone expected them to do from day one – went into the business by themselves. Consider Oracle’s ASP service.
“The ASP niche definitely tanked,” said Richard Dym, a chief marketing officer at OpSource (opsource.net), a resurrected example of a managed service provider, a business model that developed head-to-head with ASPs. “I always suspected the best potential ASPs were the vendors themselves.” But, to paraphrase Mark Twain, reports of ASP death turned out to be greatly exaggerated. While many companies that started out with USi (though not USi itself) went belly-up, a new wave of ASPs has arrived and is delivering on the initial promise of the business model – to provide applications people couldn’t imagine before the Net.
Two such new ASPs are At Road (atroad.com), a Nasdaq-listed behemoth, and Xora (xora.com), a smaller start-up with a similar business model. While the two vendors would allow for the ASP term to be used only in describing a part of what they do, the similarities are unmistakable.
Essentially both companies deliver specialized software as a per-seat service to enterprise customers. The caveat is that the communication medium of choice is a mix of the Internet and wireless technology.
“We integrate a number of technological elements – there is the location-based identification location element; high speed wireless broadband; data mining that we do at our facilities; and finally as the fourth leg the ASP aspect of the business,” said J.D. Fay, At Road vice president of corporate affairs and general counsel.
Called a blue-collar ASP by some, At Road offers a fairly straightforward business model. Its end users are mobile workers – like plumbers and truck drivers. An example of an At Road-enabled service would be something called a mobile time sheet. To get paid, a plumber working for a larger contractor has to have his (or her) cell phone turned on. The GPS chip that most phones now have would supply information on plumber’s whereabouts to the central timesheet database maintained by At Road, where At Road’s back office systems would match location entries with outstanding service calls dispatched to the plumber’s mobile phone. If the plumber strays away from the route, his manager would get an e-mail alert.
A big part of At Road’s business plan is alignment of its long term plans with cellular service providers who ultimately are the ones delivering At Road’s customers. At Road essentially wholesales access to its service to cellular carriers, which in turn retail it to their business customers. This is an arrangement everyone can live with. The likes of NexTel get to sell more minutes by giving customers a service that has to eat a certain number of network bandwidth with data transfers, while At Road benefits from a steady revenue stream.
One can tell that At Road, which spent $140 million on developing its infrastructure, is onto something. Smaller startup competitors are going after the same market with a similar business model. While At Road is hard to catch, as it has 117,000 customers with plans to hit 225,000 by the end of next year, competitors like Xora are not worried – they believe this market is big enough for several ASPs.
“You buy call waiting – this is a similar service which we sell to carriers as an ASP,” said Ananth Rani, Xora vice president of products and services. “Our goal is 100,000 subscribers by 2005, and we are hiring sales force and expanding capacity.”
All this is music to the ears of Web hosts, for whom this whirlwind of activity is translating into long awaited sales of racks, bandwidth and some managed services if they can stick them in to accompany the above two products.
At Road, for instance, runs its service out of four data centers, two on each coast. At Road owns one data center and colocates its three other facilities with Qwest and AT&T. At Road already bursts to five Mbps and is an avid buyer of Sun’s Sunfire servers. In other words, At Road has the makings of a pretty lucrative client from the hosting perspective.
At Road’s young competitor Xora is taking up several racks at NTT Verio and is hardly the only ASP buying hosting there.
“I would say the majority of our customers are in this category, an ASP or MSP client or a Web hosting firm reselling its services – we even have a couple of ISPs running their hosting operations though us,” said John Scott, NTT Verio vice president.
Verio execs are with At Road’s execs in communicating that while many of the new clients look and behave like the ASPs of old, they are fundamentally different: they are focused on enabling a business cycle from the beginning to the end. Verio has an insight because it acts as an infrastructure provider to this new trend, being in a relationship with Accenture. Verio views its future with the likes of Accenture as a way to land really large enterprise clients that would come to Accenture for custom systems integration and need infrastructure to host pieces of the solution.
