Charles Darwin would be jealous. Analysts today can watch a new species, the ASP, evolve. In these early days the species is exhibiting a wide variety. First, there’s the original stand-alone ASP version. But some ASPs are adding business process outsourcing to their dance cards. “A number of markets are converging. There’s not a one-size-fits-all dynamic,” says Ben Pring, principal analyst at Gartner Dataquest in Stamford, Connecticut.
The newness of the market is allowing companies to test a variety of business models to determine what works best for them. “They can play in other people’s space,” observes the analyst.
Some ASPs, who have provided just application management services, are realizing their offerings are not enough for their customers. Many important business needs are going unmet, which many threaten the ability of this business model to survive. “Some firms can’t carve out a long term future or a significant business differentiation,” notes Pring.
These ASPs believe they must migrate to the next level. They are attempting to wrap business process outsourcing around their applications. It’s a logical step, in his opinion.
However, Pring believes some ASPs will discover developing business process expertise can be difficult to execute. First, their job description is no longer just managing software. Second, the staff roster must include business process experts who can guide the ASP’s clients. He predicts ASPS may have to import these skills through acquisition.
BSP Offerings Are A Harder Sale
Finally, the act of selling these services to new clients rates a much higher degree of difficulty. It’s much easier to sell software services to a customer who doesn’t want to be bothered with the warp speed changes in today’s technology marketplace. Peddling business process outsourcing is “far harder,” believes Pring.
The analyst says certain functions are becoming the first wave in blurring the lines between ASP and BPO. NetLedger is a good example in the finance and accounting arena. Peopleease is a standout in the Human Resources sector. These companies are now providers of business services and not just ASPs.
Corio is another company that has enjoyed a metamorphosis. It has gone from managing and delivering other people’s software to providing business services, too.
Pring says these hybrid companies are becoming neutral about the software they employ. “It doesn’t matter if they’re using PeopleSoft or SAP. The customer doesn’t care because it’s buying a business solution,” says the analyst.
The newest iteration of this evolution is the Business Service Provider (BSP). Pring predicts many existing software companies will adopt this business format using the Internet. Companies specializing in SAP or PeopleSoft applications are already moving to this model. They will sell a bundled suite of software on top of their business services, he reports.
Another twist is large BPO providers like Andersen Consulting and PricewaterhouseCoopers (PwC) entering the ASP market. “Their vision is more BPO-centric,” says Pring. There are interested in the software side because they see the opportunity to outsource the entire business process, operating at a higher level. Now they can provide everything over the Net, delivering and managing large scale infrastructures.
Becoming the “Bechtel of the 21st Century”
“Andersen wants to become the Bechtel of the 21st century,” says Pring. “Andersen consultants have the same vision as a small ASP wanting to become a BSP.” Of course, Andersen’s market is Fortune 100 companies, which is not the typical ASP prospect.
Pring says the big, established BPO firms have to transition their operations to become a BSP. That can be a tough task because “they have to change the wheels while the wheels are moving.” The smaller companies have fleeter feet, but they don’t have the depth of understanding that the big companies possess, in his opinion.
Eventually, companies may buy business services like they buy telephone service. Companies that are able to move to the concept of delivering business services by bundling all the pieces will be the companies that will win, predicts Pring.
The situation is currently so fluid companies that are carefully finding their footing. Eventually, however, Pring predicts channel competition between these BSPs and the ASPs. For example, PeopleSoft has been developing ASP relationships with ASPs specializing in its applications. Now PeopleSoft is working on its own ASP. The outlines of this company may make it look no different than Corio offering PeopleSoft solutions. “The company will come into competition with some of its ASP partners,” Pring predicts.
An Interesting Future Ahead
It’s still in the first quarter. And lot can happen before the final whistle. “The future will be interesting to watch,” concludes the analyst.
Lessons from the Outsourcing Primer:
- The ASP market is so new that different companies are trying different things to determine what will become a sustainable model in the future.
- ASPs are realizing that just providing software is not enough. They want to provide business process outsourcing to fulfill their customers’ needs.
- Big BPO firms like Andersen Consulting and PwC are moving to add ASP services so they can supply the entire infrastructure.
- Some software companies are developing their own ASPs. That might create conflict with the ASPs they have worked with in the past.
- Some channel conflict might occur as companies begin to play in other people’s spaces.