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March 27, 2000

Solution Series: USi
USinternetworking Rides The Wave
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Close contact with customers also means USinternetworking can offer services that go far beyond the traditional ASP role. When the Luggage Center Inc. turned to USinternetworking to host its BroadVision E-commerce application, the ASP also provided in-house graphics design capabilities to help the online luggage retailer create its first online presence.

Eric Erlendsson, the Luggage Center's IT director, says USinternetworking can add these new functions because it has effective internal commu- nications. "I've got one relationship to manage, as opposed to half a dozen if I followed the more traditional [vendor] models," he says. While outsourcing theoretically could mean an IT director has less control over an application, Erlendsson hasn't seen that occur.

USinternetworking also works closely with its application partners. McCleary notes that half of the ASP's business comes from companies that have already selected the application software; USinternetworking serves only as the intermediary, which pleases software vendors as well as customers. "Our relationship with USinternetworking has opened up new channels in the market for us," says Gino Padua, BroadVision's VP and general manager of worldwide channel organizations. Since some BroadVision clients don't have the internal resources to quickly implement their software and maintain it going forward, USinternetworking's ability to get the application up and running, often within 60 to 90 days, removes one potential obstacle to a sale.

USinternetworking appears well-positioned to ride the expected ASP boom, but the market is still in its formative stages and nothing is assured. Analysts as well as one of the company's main competitors say it may be several years before the clear winners emerge. "Right now, the market is bigger than the number of players," says George Kadifa, president and CEO of rival Corio Inc.

Kadifa suggests that USinternetworking's emphasis on data centers and Web hosting may end up drawing it into some markets where the competition is already well-established. "What's valuable to an ASP is not having data centers," he says, "because today the game of having networks and data centers is a commodity business that's already being serviced by very large, well-established companies." Kadifa contends that ASPs should concentrate on servicing applications and partnering with other companies to provide data centers and Web hosting.

McManus, president and general manager of USinternetworking's Web electronic-commerce business unit, says the ASP's major challenge is maintaining client focus in an ever-changing marketplace. "How do you make sure that all we're talking about and demonstrating and learning in each of our client engagements gets fostered through the entire organization?" he says.

Another challenge is keeping abreast of clients and partners as new business models emerge, particularly in the world of E-commerce. For instance, USinternetworking retains ownership of the applications it offers clients that, in essence, buy a subscription license paid as part of the monthly fee. But application companies themselves could soon end up offering monthly subscription licenses, which could force the ASP to change its model, says analyst Todd Weller of Legg, Mason, Wood, Walker.

McManus is well aware that competition also comes from another source: the internal IT team. "Outsourcing may not be the way they see it coming together for them," he says.

Even ASP advocates such as Liberty Financials' Jaffe qualifies his support. "For applications that I'd consider a commodity, such as human resources, the ASP model works great," he says. "For applications that aren't a commodity, that may be proprietary, then you really have to think long and hard about whether or not you want to outsource."

Ultimately, USinternetworking may be selling peace of mind. "I don't know if I sleep better," says Jaffe. "But this is one thing I don't have to worry about. It's become their problem, not our problem."

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