The Mouse That Roared | Article

computer mouse“The ASP market is the mouse that roared,” says Art Williams, director, Giga Information Group in Cambridge, Massachusetts. Although ASPs form a small percentage of the outsourcing market, they have attracted an enormous amount of industry attention. Currently the ASP model has the highest ratio of vendors to revenue in the outsourcing world.

Williams says the ASP buzz is “all about speed.” ASPs are proving their business model and method of delivery are the fastest way for start-up companies to reach profitability and old line companies to participate in the new economy. They offer the quickest way to get complicated applications running and they provide a beeline to ecommerce.

ASPs also solve the intransigent technology personnel problem. Seasoned programmers are scarce. They are hard to find and even harder to retain, according to Williams. Turning the IT processes over to an ASP wipes this problem off the “to do” list. The analyst says qualified tech people are “better off” working for an ASP where they can flourish among their compadres.

The only thing holding ASPs back is breakage. Williams defines breakage as the disruption caused by business change. “Whenever you introduce something new, something else breaks,” he explains. Breakage tends to put a brake on change.

Many businesses resist change because they are hamstrung by their sunk costs. “It’s hard to sell someone a new solution if they have just sunk significant dollars into their old solution,” Williams points out.

Breakage a Tough Nut to Crack

In his experience, breakage can be “a tough nut to crack.” He says ASPs thought, like Kevin Costner did in the film “Field of Dreams,” that if they built it, their customers would come. “That’s not been true because of breakage,” Williams says.

The analyst says companies need a major motivation to change to make breakage palatable. For example, a small business used to running its accounting function on QuickBooks realizes it has outgrown the software. It is forced by select another application like Great Plains. This company is willing to bear the disruptions of switching software because it was going to suffer breakage anyway, Williams explains. Companies like this are the perfect prospect for ASP salespeople.

Old economy companies that realize they need an ecommerce solution are also willing to shoulder the dislocations that come with ASP outsourcing. “There’s not much to break,” says Williams with a chuckle.

Williams predicts that in the next six months the big outsourcing providers “will get their act together and figure out how to get into the story.” These players view the ASP business model as a way to peddle their services to the small to medium market. Before ASPs appeared on the scene, Williams says “none had a clue how to do it.”

Identifying the Low Hanging Fruit

ASPs are experimenting with their format “to identify the low hanging fruit.” Business Process Outsourcing (BPO) is one of the options.

Today ASPs come in as many colors as a peacock’s tail. Some are growing by an annual factor of 80, he says incredulously. Williams described three radically different ASPs to demonstrate the diversity in the field.

The first is, a new ASP created by two attorneys who handled insurance claims. The lawyers developed software to speed up the settlement process. When the ASP model gained popularity, the attorneys formed, which settles claims by matching offers and demands on a blind network-secured site. The disputants can settle a claim in minutes instead of months over the Web.

A completely different type of ASP is Applied Terravision Systems which provides accounting information on revenue-generating assets with multiple owners. The company started in the petroleum industry with oil wells. Applied Terravision became an ASP offering its application over the Web to oil and gas owners.

The company realized that trust accounts also have multiple owners. So it just sold the same software to the Bank of America for its trust departments. “The company cut its teeth in its vertical market but now is broadening its revenue base,” says Williams.

Let The Sponsors Pay!

Williams says the ASP with the most chutzpah is Biztro. Its founders discovered a source of anxiety for large banks and telecommunications companies. Both sectors have a difficult time with customer retention. Biztro assembled a suite of services for small businesses, then talked big companies like FleetBoston Financial and Bell Atlantic into paying for it. Now customers of these companies can use Biztro’s suite of services, which include office automation and procurement, free on the Web, a gift from their banker or telco.

What will happen after the Wild West environment of today’s ASPs calms down? Williams doesn’t think it’s impossible that when the dust settles, every company will migrate to the rental model.

Lessons from the Outsourcing Primer:

  • ASP’s unique selling proposition is speed. They can get difficult applications working quickly.
  • Breakage is the major brake on ASP growth. Old line companies needing an ecommerce solution and start ups requiring profitability are good ASP candidates because there is very little breakage in their situations.
  • The rental model may predominant when the dust settles.
  • ASPs come in all flavors. They are experimenting with their business models.

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