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March 27, 2000

Solution Series: Vendor Strategies
Biggest Challenge? Find The Right Niche
ASPs try a wide range of offerings and strategies, but the market is still immature

By Jennifer Mateyaschuk

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ervice and software companies of all stripes may be rushing ahead with application service provider offerings, but that doesn't mean the ASP market is stable or mature. Unfortunately, customers are getting caught in the crossfire.

While many users are just looking to get their customer-relationship management systems or Web sites up and running, confusion about what ASPs do or don't offer is leading to misguided expectations and, very often, disappointment.

The ASP label does nothing more than lump many different services companies and offerings into one broad category adding to the confusion. To help, InformationWeek Research and Information Resource Group surveyed 165 application service providers and prepared a list of top ASPs. The list shows a wide mix of vendors--ranging from those with broad vertical-market expertise to narrowly defined single applications. Some closely resemble traditional outsourcing companies; others are emerging businesses recasting their services as they grow.

According to the survey, three types of services are most common. Many--about 44%--of the 165 respondents describe themselves as aggregators, providing a wide range of integrated services and applications from multiple vendors. The next-largest group, about 35%, focuses on specific vertical industries, providing integrated applications for one or more industries. About 21% of ASPs surveyed have just one application or service offering.

Within those three types of services are four distinct models. Providers such as Corio Inc. target vertical markets, offering industry- specific enterprise applications and customization at the application integration and front-end graphical user interface levels. These vendors deliver applications over WANs, virtual private networks, and Internet connections. In another model, ASPs, such as Intacct Inc., sell their own applications over the Internet, providing little or no customization or integration with other applications.

bar chart Another group provides highly customized applications and services and will go so far as to alter the core application code for customers who request it. These vendors, such as Qwest Cyber.Solutions LLC, charge high fees and resemble a traditional outsourcer. The difference, they say, is they don't take over a customer's entire IT department. The fourth category includes companies such as NaviSite Inc., which hosts Websites for customers and charges a monthly fee.

Nothing is set in stone, and most ASPs are still finding their niche. Some, like Intacct, go it alone, offering Internet accounting software to small and midsize businesses. Intacct founder David Thomas says his company's application has all the functionality of a similar program from Great Plains Software Inc. but costs much less because it's accessed via the Web. Vendors offering Great Plains typically charge $200 to $500 per month per user and let clients access the software over dedicated lines or the Internet. The Intacct program costs $50 per month for two users.

Mirronex Technologies Inc., a developer of workflow-management software, last month revealed its first customer for MxConnect workflow software. The Limited Technology Services, a division of The Limited Inc., is using Mirronex's hosted software to improve response time from its outside consulting and temporary staffing firms. Before using MxConnect, group VP Tom McFadden had to wait 30 to 90 days for a response from his consultants; now, he gets a response in about two weeks. IT managers send requests to Mirronex over the Web, Mirronex submits the requests to a predetermined list of consulting companies, and the companies post resumés of potential contractors on Mirronex's site. The software also coordinates hiring documents and delivers bills electronically.

Still, some wonder about the fate of these single-app ASPs. "Eventually, customers won't want to go to 27 different ASPs for their software," says Bill Martorelli, an analyst for the Hurwitz Group. Already, a new group of service companies may supercede the single-app ASP crowd. Software company Candle Corp. is gearing up to launch a service to link single-application ASPs together. Recently founded Jam Cracker Inc. is also marketing itself as a connector of ASPs, providing a single point of contact to the customer and among various online ASP offerings.

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