InformationWeek

December 18/25, 2000

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ASPs Seek To Hone Vertical Industry Expertise

Deep knowledge of a client's business practices is essential for success

By Jennifer Maselli

More on ASP's:

TechWeb: ASPs Strive For Wider Acceptance (12/12/00)

Internet Week: BBB Seeks Growth Behind An ASP (12/4/00)

Computer Reseller News: MANAGEDOPS.COM TRIUMPHS AS ASP (12/4/00)

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hat do potential customers of hosted applications really want? A growing number of application service providers say one requirement is deep knowledge of a client's specific business processes, and they're taking steps to develop or increase their expertise in vertical markets.

Portera Inc., which delivers its own professional-services automation software via an ASP model, will reveal this week that it has acquired Maxwell Business Systems, a leading provider of professional-services automation and accounting software for government contractors. Portera currently provides its software to vendors that cater to other select markets, including the consulting and public-relations industries.

Also this week, Agilera Inc., an ASP that provides enterprise software to the retail and financial sectors, will disclose that it's merging with Applicast Inc., an ASP that services the manufacturing industry. And Corio Inc., which more than a year ago abandoned plans to focus on vertical markets, is re-evaluating that strategy as it renegotiates its contract to host PeopleSoft enterprise resource planning software.

By delivering software templates specific to particular industries, ASPs are hoping to get a handle on the high up-front costs of deploying hosted enterprise applications. Few ASPs have yet developed the repeatable deployment processes required to support cost-efficient business models, so they've had to spend time and money customizing offerings for clients. ASPs can't afford to keep that up, say analysts, not when competition is fierce, customer adoption is slower than originally expected, and Wall Street is hammering the stocks of even the frontrunners in the market. Gartner predicts that about 60% of the 1,500 ASPs now in existence will go out of business or be acquired during the next 12 months.

Intimate familiarity with the manufacturing business won Applicast Inc. a contract with Tilia Inc. before the ASP merged with Agilera. Keith Knutter, director of IT for the San Francisco manufacturer of the FoodSaver product line, evaluated Agilera, Applicast, and Corio earlier this year for a Siebel Systems Inc. customer-relationship management implementation. Neither Agilera nor Corio had the business expertise Tilia sought, says Knutter, who adds that Corio's prices were twice as high as Applicast's. "I didn't understand how they could justify the high price without that," he says.

Keith Knutter Photo by Alan Blaustein Corio is "trying to understand how much out-of-the-box software from PeopleSoft [can be] vertically oriented," says president and CEO George Kadifa. Meanwhile, PeopleSoft says it's clear that ASPs are going to need a vertical strategy to survive. "We're turning to all our partners and asking them if they're getting a vertical strategy,"

says Carolee Gearhart Harari, VP of channels at PeopleSoft. Adds Deepak Gupta, VP and general manager for PeopleSoft's eCenter ASP division, "We'll probably swap some [ASP partners] out over the coming months."

Will pursuing a vertical strategy help ensure the viability of an ASP? Corio, which reported $13.8 million in revenue for the quarter ended Sept. 30, up 33% over the previous year, and losses of $20 million, or 44 cents a share, isn't counting on that alone. As part of its contract renegotiations with PeopleSoft, Corio wants to secure the right to offer hosted ERP apps to large clients with more than $250 million in revenue. To support them, Corio also plans to host and integrate legacy apps with the ERP system. And it's preparing to extend its managed firewall and security services beyond its packaged applications to include legacy apps and other software.

That's smart, says Bob Stimson, VP of Internet distributed devices for Merrill Lynch & Co. "These infrastructure services are a higher-margin business and will let Corio infiltrate larger companies," he says. When such companies are ready to upgrade to significantly enhanced new ERP releases, Corio will have an upsell-ing opportunity for its packaged apps.

Analysts also see opportunities for network and telecom providers to expand their interest in ASPs that figure out how to grab big slices of the multibillion-dollar hosting pie. Networking provider Verio Inc. already invests in Agilera. And, says Pascal Aguirre, VP and global practice leader for strategic consulting firm Adventis, "I wouldn't be surprised if Verio gobbles up Agilera should the ASP's business model succeed."