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ASP – Where’s the Value?

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Guest Comment Despite the immense market optimism and analyst hype surrounding the ASP model the reality has been far more of a revelation for the IT world than a revolution for the business world.

Last year, all the analyst groups and most of the major players in the IT industry and the IT press were positioning the ASP model as the major paradigm shift of post-Y2K computing, tying it in with other major technological developments such as mobile/pervasive computing.

Even last week Mark Jarvis, senior vice president at Oracle commented: "Software is going to become a service over the Internet; it won't be a product. Our customers will let us run the systems for them." So why, even with all this heavyweight praise and support, is the uptake of many ASP services continuing to fall so far short of industry expectations?

In a recent paper Mark Roberts, Cap Gemini Ernst & Young ASP Strategy Director, claimed: "The major independent software vendors (ISVs) have got it wrong. This market cannot sustain SAP, Baan, Oracle, JD Edwards, Siebel and others merely shoehorning their client server architecture applications into a server and hosting it without any customisation. Nobody wants that." So what do people want?

The fact is that many ‘supposed’ ASPs jumped on an industry bandwagon and missed the point of the ASP model. ASP services are not simply about providing a hosted client-server solution over the Internet and charging customers on a per-user, per-day/hour basis. This model may provide limited benefits and on-paper savings, but for most companies these do not justify starting from scratch and rendering useless much of a company’s existing IT investment.

For ASPs to work, the movement has to be towards genuine service and not simply repackaging the distribution method and cost model for off-the-shelf solutions. With the development of open-source software, competitive, off-the-shelf solutions are increasingly available free of charge. This has already begun with operating systems, office software and components for software developers, but the overall direction is obvious.

To survive, software providers will have to offer customers a dynamic and evolving solution that provides the customer with the exact functionality they need as a part of an ongoing relationship. This, far more than the cost model, is the real key to the move from software as a product to software as a service.

End-user customisation, such as language and layout, is already incorporated into many enterprise software solutions. As the ASP market develops, this is likely to move from what is mostly a cosmetic front-end into core functionality. To accommodate this, software providers will have to design new far more flexible ‘one to many’ core software. Even then, the current limits of current database and application technology are likely force ASPs to focus solution more on vertical markets in order to achieve the necessary flexibility.

By taking the vertical approach, ASPs can look in more detail at their end users and the demands of particular business sectors. This focus facilitates closer dialogue and more understanding, and also circumvents some of the complexities that customisation would cause if the ASP were operating in a broader marketplace. The concentration on smaller market sectors will inevitably reduce the ASP’s potential customer base, but, using this model, revenues can also be increased.

The real benefits of software as a service are only really achieved by providing a comprehensive and readily accessible solution, which makes appropriate information available to all users across the enterprise, whether customers, suppliers or employees. The true value of the ASP model is where those users are able, with just a PC (or a handheld device) with an Internet connection, to gain access to a full range of software to meet the needs of all areas of their business.

Some ASPs have focused on providing one individual software solution to a broad marketplace, but solution providers can maintain their potential licensing revenue volumes and provide a more marketable service by providing the perfect range of compatible solutions for a vertical market,.

Paying for software as a service leaves consumers a lot freer to change providers without abandoning existing investment. As the model of software as a service develops further we will see a shift in bargaining power from the software provider towards consumers.

This new and vastly more competitive market will inevitably force software providers to find more new and innovative ways to add value. By providing a way of strategically sourcing all of a company’s IT needs beyond a PC/handheld and an Internet connection, to a solution which is tailored and responsive to the changing needs of their specific business, the initial value of the ASP become clearer. ®

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