Say good-bye to software as we know it and hello to ASP start-ups.
Software on the Web
ASPs are coming ASAP
The entire software industry is about to be turned upside down. Say good-bye to software as we know it
You know the computer industry is innovating too fast when it has to start recycling its acronyms.
The term ASP was once known in Webspeak as an "active server page," referring to a Web page that's generated at the time it's downloaded. But the term has recently taken on another meaning, and a host of start-ups are using the idea behind it to turn the traditional, shrink-wrapped software industry on its head.
The "new" ASP refers to a type of computer business called an application service provider, which offers outsourcing with an Internet twist. An ASP hosts software applications, which its customers access over the Web instead of running them on their own computers. ASPs aim to save their customers the costs and hassle of owning and managing technology, by "renting" to them whatever software they need. Rather than wrestling with a new upgrade, say, an ASP's customers are free to focus on better things. "We tell our customers to mind their own businesses," explains Jostein Eikeland, a 32-year-old Norwegian former rock-video and movie producer, who launched one of the first ASPs and is credited with having coined the term ASP in 1996.
The exciting -- and befuddling -- thing about ASPs is that the software they offer can be anything under the sun, ranging from a consumer application like Microsoft's Hotmail (a free Web-based E-mail service that the Redmond giant hosts -- which made the company an ASP before the term came into vogue), to bundled office suites (spreadsheets, word processing, and so on), to complicated enterprise applications like customer-relationship management or sales-force automation. But as with any big market change, this upheaval has created a window of opportunity.
Right now that window is incredibly wide. Many different kinds of companies are jumping into the ASP industry, including computer hardware and software makers (such as Sun and Microsoft), network service providers (AT&T and Qwest), Internet service providers (UUNet), and newly minted start-ups. As Forrester Research senior analyst Stacie McCullough wrote in a recent report on the ASP industry: "More than 300 vendors claim to be an ASP -- each offering a different story and solution. ... It's no wonder users are confused and skeptical."
Lost amid the hype is the fact that the ASP sector, with $933 million in revenues last year, is still minuscule compared with the $74-billion software-application market. McCullough estimates that less than 1% of companies are renting their software through ASPs, though that number is projected to grow exponentially as the market swells to $11.3 billion by 2003. What follows is a selection of the variety of ways start-ups are joining the ASP gold rush.
The ASP department store
Jostein Eikeland happened on the idea of a one-stop, soup-to-nuts ASP in 1995 -- the equivalent of ASP ancient history. Back then he was a 27-year-old working in sales for a systems integrator, which was having a bear of a time completing a massive software installation for a Norwegian bank. Eikeland's hunt for a solution led him to Citrix, whose technology allowed the bank's desktop applications to run from a centralized server managed remotely. It struck Eikeland that "this would be the new wave of outsourcing."
Five years, some 200 employees, and some $50 million in funding later, Eikeland's company, TeleComputing Inc., based in Fort Lauderdale, Fla., is one of the leaders in the ASP field. TeleComputing has more than 100 customers and hosts hundreds of applications, including industry-specific systems, such as those for car dealerships and law firms, as well as business-function-specific software, for operations like accounting or human-resources management. Customers pay an average of $350 per month per user for a three- to five-year contract. Given that so many companies are reinventing themselves to jump onto the ASP bandwagon, Eikeland is particularly proud to be the bandwagon. "Every revenue dollar that we have has come solely from ASP services," he says.
Enabling other ASPs
One of the trickier aspects of launching an ASP is figuring out how to charge for your services. Pricing models in the industry are almost as numerous as the applications themselves. Many companies even offer customers a choice of how they would like to pay -- by subscriber, by transaction, or by number of ports or concurrent users. So billing can quickly become an ASP entrepreneur's biggest nightmare. And as Scott Swartz, CEO of MetraTech, likes to say, "without billing, it's just a hobby." Swartz, who in a former life helped Fortune 500 companies develop their accounts-receivable systems, entered the ASP market almost serendipitously, in late 1997, when he started MetraTech to sell a "next-generation Web-based billing system." His plan was to build, host, and sell his system piece by piece to customers -- largely telecommunications companies -- on an as-needed basis. "I can't tell you I started off going after the ASP market," he readily concedes.
Swartz quickly realized that MetraTech's flexible billing software could help ASPs of all sizes -- from "one person in a shoe box to a tier-one telecom company" -- price their services. "We ASP to the ASPs, allowing them to do their ASPing," he says with a straight face. The privately funded Waltham, Mass., company began selling its products (ranging in price from $20,000 to $1.5 million) in mid-December and expects to achieve revenues of $6 million this year.
Zeroing in on one industry
AristaSoft's story sounds like the quintessential Silicon Valley soap-opera plot. Venture capitalist named Rich issues $10-million challenge in Upside magazine to find the person who can deliver enterprise resource planning (ERP) software -- which manufacturers use to integrate all their internal applications -- over high-speed phone lines. Indian technologist -- call him Lucky -- who has written a white paper on software as a shared rental service, reads Upside article and sends Rich E-mail. Rich (last name Shapero), managing partner of Crosspoint Venture Partners, meets with Lucky (a.k.a. Amar "Lucky" Lakhtakia). Three months later, in January 1999, Lucky is in business in an ASP start-up positioning itself as the IT department for high-tech manufacturers, with an enviable $5 million in the bank and a top-notch CEO. Ten months later Lucky's company, AristaSoft, in Mountain View, Calif., has $30 million more in the bank, 60 employees, and its first live customer, a Silicon Valley high-tech manufacturing start-up.
