Fortune article part II
Webware for Rent
Part 2
Eric Nee
Jargon to the side, Web services are exploding. Exodus has had quarter-to-quarter revenue growth of more than 40% in the past two years and plans to open nine more data centers by year's end. CEO Ellen Hancock says that her company is adding two customers a day.
The entire Web services business seems ready to follow suit. For example, the ASP business is tiny now--companies did a meager $150 million in sales last year--but it should grow to $2 billion in 2003, says Clare Gillan, an analyst at International Data Corp. in Framingham, Mass. (She can claim the dubious distinction of having coined the term ASP.) Lewis Wilks, president of Internet and multimedia markets for Qwest, thinks Gillan's forecast grossly underestimates the market's potential. "It's going to grow a lot faster than we thought possible," he says.
The proliferation of service providers has given rise to some tangled arrangements. Take the case of Corio, an ASP in Redwood City, Calif. It uses computers at Exodus to run financial software it has licensed from PeopleSoft, a developer. Corio rents the use of the software to customers like the Internet portal company Excite, also in Redwood City. Using Web browsers, Excite's accounting staff accesses the PeopleSoft application in the Corio cage in Exodus' Internet data center in Santa Clara, 30 miles away. The setup requires elaborate business arrangements among Exodus, Corio, and PeopleSoft. But it simplifies things for Excite, which otherwise would have had to license the costly application from PeopleSoft, buy the computers, storage systems, and networking equipment on which the software runs, and hire experts to install and maintain the whole thing.
Instead, Excite simply pays a monthly fee for Corio's service. Charges to rent a PeopleSoft application from Corio range from $10 for a self-service user (e.g., an employee who uses the program to find out, say, how many sick days he is allowed) to $795 for an active user (an accountant who uses the application daily). That can add up to savings of 30% over five years, promises Jonathan Lee, founder and CEO of Corio.
Corio rents out only two applications; other upstarts, like USinternetworking, offer customers entire software suites. Hewlett-Packard Chairman Lew Platt has nicknamed such services "Apps on Tap," since they enable companies to plug in to a set of services, ranging from payroll and accounting software to inventory programs specifically designed for their industries. (See the list later in this story.) One BSP, Tibersoft, has created software for the food-distribution industry that connects vendors, distributors, and restaurants. Sysco, the largest distributor of food products in the U.S., with $15 billion in annual revenues, recently adopted Tibersoft software. Its 300,000 customers can now order supplies, schedule deliveries, and track the progress of their orders using a simple Web browser. They don't have to install any software on their own computers, since the programs that power this service run on machines at--you guessed it--Exodus.
Internet outsourcing has captured the imagination of software entrepreneurs. In June, Norwest Venture Partners, a venture firm in Palo Alto, held its annual Software Forum at the tony Hotel Sofitel in Redwood City. Past meetings explored such issues as how to build a direct sales force, crack the FORTUNE 500, or maneuver around business software giant SAP. While all are important topics, they're passe. This year, when entrepreneurs assembled from 32 Norwest-funded business-software startups, the buzz was about Internet business services. "Most of our enterprise software companies are moving in this direction," says Promod Haque, a partner at Norwest. "If they aren't yet, they will be soon." Yogen Dalal, a partner at Mayfield Fund, a Menlo Park, Calif., venture capital firm, agrees: "VCs are no longer funding traditional application software companies selling $100,000 to $500,000 enterprise applications." Mayfield continues to get business plans from entrepreneurs wanting to create such firms, he adds, but "we say, 'Guys, it's a great idea, but think about how to deliver it as a service, not sell the application.' " |
