The Lawsontone ASP Program
As John Whiteside sees it, independent software vendors have reached the proverbial fork in the road. "If the model is to move software into a utility, what is the best route to take?" Whiteside asks rhetorically.
Whiteside, the founder and CEO of netASPx Inc., an application service provider (ASP) based in Herndon, Virginia, says software vendors have to select one of three paths to incorporate the ASP method into their business model.
He calls the first path "the arms merchant" route. In this model the software vendor happily sells its software to anyone. Whiteside says this is "the least invasive form of change."
Software vendors can take the opposite route and fully embrace the ASP model themselves. They morph from a manufacturer into a software service delivery company by creating their own ASP around their software. Oracle and PeopleSoft have chosen this route.
Whiteside labels the third route "ASP enablement." The software vendor is not interested in becoming a service delivery company since that is not its core competency. Instead, it joins hands with a service delivery company like netASPx. Together, the dynamic duo agrees to share revenue from the ongoing revenue stream.
A Strategic Alliance
The Virginia ASP has formed its strategic alliance with Lawson Software in St. Paul, Minnesota. "Lawson is an expert in manufacturing software. We are experts in delivering services to customers. We don't want to invest in software development. Lawson doesn't want to aggregate customers," explains Whiteside. By aligning interests, the two companies are able to create a symbiotic outsourcing relationship.
NetASPx joined the Lawsontone program, according to Vicki Griffith, director of Net sourcing for the software manufacturer. The company devised the name to emulate the telephone dial tone. "Users have the ability to access our application any time, anywhere, just like the telephone," explains Griffith. Currently the program has 46 participants including netASPx.
Lawson started the program to tap into a new market for its products -- middle market companies "that have been priced out of the ERP software market," explains the executive. Lawson becomes "part of a market solution in a market we have never addressed."
The ASP's market research discovered middle market customers wanted the ability to use Tier I enterprise resource planning (ERP) software. But it was too expensive to buy and to hard to implement. They also didn't want to worry about upgrading the software or finding the people to maintain it.
They also demanded scalability "so they could adjust to the economic times," Whiteside reports. Variable not fixed costs attracted the buyers. And they wanted a speedy installation between 30 to 90 days.
NetASPx searched for a software partner. It ruled out every manufacturer who was creating its own ASP. And it wanted a vendor who had a suite of BPO services. "We didn't want to work with multiple partners. We wanted to be monogamous," says Whiteside. Lawson fit its selection criteria.
NetASPx joined the Lawsontone program soon after its inception in February, 2000. Its agreement with the software vendor allows netASPx to incorporate Lawson's BPO offerings -- finance and accounting, human resources, and supply chain management -- into its own utility, which also includes Lotus Notes. "We buy the software in bulk and sell it by the drink," says Whiteside.
Details of Revenue Sharing
The Lawsontone agreement includes a revenue sharing section, which has three parts. NetASPx pays Lawson a fee for sales and marketing support. The ASP also pays a portion of the license fee that Lawson would have received under the traditional sales arrangement. "This helps them manage their cash flow during this time of transition," explains Whiteside. Finally, netASPx pays Lawson a flat fee per user every month.
Whiteside says when you add up all three revenue streams, Lawson "makes more money per customer" in this arrangement than it would have made if it had pocketed the one-time licensing fee. "We like having a more predictable revenue stream," adds Griffith, a positive for Wall Street.
NetASPx likes the arrangement because the ASP "did not have to cough up" millions of dollars in licensing fees. In addition to saving its capital, "we share the business risk with our software partner."
The arrangement is also helping Lawson improve its software by incorporating customer demands. NetASPx, by listening to its customers, knows what the marketplace is needing. "ASPs like netASPx have put together more interesting and compelling market offerings than we can," says Griffith.
From the rumblings in the marketplace, NetASPx believes customers "want service levels, not operating agreements." He says these days customers don't care who the software provider is. "They just want to balance their general ledger at the end of the day," he says.
Eliminating Channel Contention
This third way also aligns the interests of the software vendor with its channel partner, eliminating channel contention. "Once you have your channel partner embedded in your revenue stream, they become dependent on you for their growth," Whiteside explains. The arrangement makes them "much more likely to listen to us." The result has made Lawson's offerings "more ASP friendly."
Griffith agrees. The Lawsontone agreements provide training and manpower to help netASPx build its business. "We want to make sure they have subscribers. That makes us focused on being a good partner for them."
And that's what aligning interests is all about.
Lessons from the Outsourcing Primer:
- The Lawsontone program aligns the interests of a software vendor with its ASP members.
- Aligning interests makes both partners eager to ensure the other remains profitable.
- A revenue sharing program keeps both partners working to make the partnership work.
- Revenue sharing provides more predictable revenue for software manufacturers.
- ASPs are amalgamating applications to provide one solution to their customers.