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March 27, 2000

Solution Series:
The Next Frontier: Full-Service Providers
By Mary E. Thyfault

any application service providers realize they have to provide more than cheap, standardized applications. Companies want help conceiving, developing, and running those applications, too, and they want it all from one provider. To do this, a handful of ASPs, including AppNet, Breakaway Solutions, Luminant Worldwide, Qwest Cyber.Solutions, and Vectrix.com call themselves full-service providers, partnering with customers and offering everything from strategy to support.

"Full-service providers are valuable because they can help us in each stage of our development, from strategy to hosting," says James Lam, founder and president of eRisks.com, a New York subsidiary of Oliver, Wyman & Co. ERisks.com hired Breakaway Solutions to build a Web site that includes educational information, risk-management tools, benchmarks, and best practices. Breakaway's ability to provide end-to-end services helped it be first to market in its field, establishing a strategy within 10 days and developing and testing the business model within a month. Launch was two months later, on Oct. 19.

Full-service providers find themselves head to head with traditional system integrators such as EDS and IBM Global Services and big consulting firms such as Andersen Consulting, Cambridge Technology Partners, and Deloitte Consulting.

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The rise in business-to-business E-commerce is driving full-service providers to emphasize systems integration. AppNet, for example, is developing an Internet business-to-business marketplace for UCCnet, a subsidiary of the Uniform Universal Code Council. Using the Extensible Markup Language, AppNet is building an electronic network that will let as many as 240 companies in 23 industries, representing $300 billion in supply-chain transactions, update Universal Product Code information. While UCCnet will own the application, AppNet is offering ASP-like services.

EOutlets.com Inc, which is using AppNet to create an online outlet center to launch later this year, was prepared to go with a multivendor strategy, but then found that AppNet provided a full solution. Andy Spicer, chief technology officer of eOutlets.com, the E-commerce initiative of Prime Retail Inc. in Baltimore, says AppNet isn't subcontracting anything and offers a complete set of services, from application design to credit-card processing, fulfillment, and customer service. AppNet is developing the entire Web site, including home page, product catalog, search engine, transaction processing, and developing XML connections between vendors. "The fewer integration points, the better," Spicer says. "We needed a partner that we could count on for rapid implementation."

Some full-service providers offer pricing models that resemble partnerships instead of a straight fee for service. Andersen Consulting recently said it would trade equity for pay with some of its clients. And Breakaway is tying some of its fees directly to eRisks.com's success, basing payment on traffic and other operational business objectives.

Vectrix.com calls this model "performance marketing," with customers paying a flat fee for development plus a sliding fee based on the actions--such as Web purchases--taken by customers. For example, Emerson Radio Corp.'s payment to Vectrix is based on the number of sales Vectrix helps Emerson make through Internet ads. "It is shared risk," says Kenneth A. Corby, Emerson's assistant chief financial officer, in Parsippany, N.J. "We reward them for our success."

Return to main story, "Users Take Cautious Approach To Application Service Providers."

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