John,
Some of the new interest may be from GPW 'positioning' in this rather new field of ASP's(article copied below). The transition from a "y2K" code factory to an ASP provider should be quite quick and smooth. It might even give GPW some advantages from having been in Y2K conversion, over a new ASP start-up. What do you think?
(Much better pricing today - I thought we might just have a "dead cat bounce" going on - but the price recovery seems to have a little more life in it than that - we'll see. . . )
Murray
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Application Service Providers
Software's third wave ready to break
Paul DeGroot
Special to the Globe and Mail
Get ready for the third wave in software.
The first wave involved users writing their own code; the second was “shrink-wrap” software, purchased off the shelf from a vendor, says Michelle Perry, vice-president of marketing for USInternetworking Inc. of Annapolis, Md.
The third wave? It's the renting of software - by the day, by the transaction or by the year – from a new breed of companies called application service providers (ASPs).
This rapidly growing industry promises to give small companies quick, easy and affordable access to the business world's most advanced software. And it could change the way software in general is created, distributed and upgraded.
IDC Canada estimates that the Canadian ASP business – a mere $15 million this year – will top $200 million in Canada and $2 billion worldwide by 2003. That's a growth rate of nearly 100 per cent a year.
A more aggressive forecast by Forrester Research Inc. of Cambridge, Mass., pegs the industry at $6 billion worldwide by 2001, and Giga Information Group of Norwell, Mass., has predicted that network-based rentals will be the most popular way to get desktop computing software by 2002.
Many of the hottest players in the ASP business are still counting their business history in months. USInternetworking will celebrate its first birthday in July, but it went public in April and has a market capitalization of more than $1 billion (US).
Calgary's FutureLink Distribution Corp. had its first paying customer in February 1998. IBM Canada Ltd. Of Markham, Ont., entered the ASP business a few months later. And in May, 25 companies formed the ASP Industry Consortium – the first industry body devoted to ASPs.
The basic idea behind the burgeoning ASP movement is to rent software applications on some kind of subscription basis and make them easily available to corporate customers, and eventually consumers, over private or public networks.
Unlike the CD-ROM rental movement, which faced serious copyright issues, the software never leaves the ASP's site. Instead, customers use fast networks to connect to computers at the ASP's premises, which are the host for the software.
The basic concept is not new – time-sharing dominated the computer business in the 1960s and 1970s – but the advent of cheap, fast networks, and companies that do almost everything digitally, have given the ASP movement new currency in a computing world dominated by the autonomous PC.
“We want software to be like dial tone,” says Cameron Chell, president of both FutureLink and the ASP Industry Consortium.
Internet tools such as Web browsers are one way to access applications on an ASP's server. Another common tool is WinFrame from Citrix Systems Inc. of Coral Springs, Fla., which transmits keystrokes and screen updates between the user and a Microsoft NT server. The application is actually running on the server, but the user sees it running in a window on his or her computer.
The key factors fuelling the ASP movement are business issues such as the high and often unpredictable costs of managing software, and the rapidly dropping cost of network bandwidth. A customer using an ASP, “doesn't need to build up a lot of technical expertise,” says David Achtemichuk, general manager of PeopleSoft Canada Co.
Although companies may still be required to train users or customize the application, the cost of installing the application, upgrading it and managing it on a day-to-day basis is done by the ASP.
FutureLink's “service-level agreement,” or SLA, guarantees that an application will be running 99.9 percent of the time, and offers refunds when it doesn't. That, Mr. Chell says, is better than the systems departments of most companies can promise.
The problem for many companies, he says, is that they can't justify the cost of building a robust computing infrastructure. By leveraging costs across several thousand customers, FutureLink can justify an office that is a showplace for redundancy and backup. It boasts 2,500 square feet devoted to servers and backup servers, a backup diesel-power generator in the basement, electrical power from multiple networks, high-speed Internet connections to several Internet providers and application specialists focused on keeping high-end applications running.
Another important driver is the availability of applications that otherwise would be beyond the reach of smaller companies. Indeed, says Lars Goransson, research manager for professional services at IDC Canada, much of the action in the ASP market is driven by vendors of enterprise resource planning (ERP) software such as Oracle Corp. or Redwood, Calif., SAP AG of Waldorf, Germany, and PeopleSoft Inc. of Pleasanton, Calif.
ERP software is generally aimed at companies with at least $250 million in annual sales, but that market is becoming saturated and growth will have to come from someplace else.
“All of the ERP vendors are trying to get into the small and medium-sized business market,” Mr. Goransson says. “They're trying to move downstream, to productize their offering” for companies with $100 million to $250 million in annual revenue.
Too small to justify the multi-million dollar cost of an ERP rollout and the substantial technical resources to manage it, these companies can be tempted into high-end software on a rental basis.
Mr. Chell does the numbers: A Great Plains accounting system (not considered a full-blown ERP product) for a $100 million company may cost $100,000 for the software, and another $200,000 to get computers upgraded, servers purchased, the application installed and customized and users trained. They may need a manager or technical expertise for another $50,000 a year.
Or, they could rent the whole thing for $200 to $600 a month per user, with 10 to 25 users having access to the application.
The difference: “Their cash flow looks much better. They know exactly what they'll be paying for the next 36 months. And it's a 100 per cent write-off,” Mr. Chell says.
“The business case is so compelling” because it reduces both the costs and the risks a small company faces when considering a high-end, run-the-company application, says Don Copeman, vice-president of applications and market development for Oracle Corp. Canada Inc., which is launching its own ASP service, Business OnLine, that Oracle itself will manage.
“We believe a very large percentage of $100 million to $500 million companies will get their software this way.” Patrick Dunn, manager of strategic alliances for SAP Canada Inc., says the opportunity to rent high-end software is particularly appealing to start-ups.
“They typically have to move very quickly, and they want something that will scale with them as they grow, but they need to preserve capital. They're willing to take risks, but they can't take the big fall, so they want to know they have a big company behind them.
Speed is an issue, too.
Purchasing and installing a major application can consume months or years, but USInternetworking can have many companies running a high-end package within 90 days, Ms. Perry says.
But, Mr. Goransson says, there is a big lack of market research proving that $100 million to $500 million companies want to use ASPs.
IBM Canada has a hosting deal with Great Plains Software Inc. of Fargo, N.D., but so far has signed up only 10 Canadian customers. That's not bad for a line of business launched in Canada only a year ago, but it doesn't prove a groundswell of demand.
Still, Mr. Goransson acknowledges that the concept is seductive to a wide range of powerful computer-industry players, from ERP vendors to Internet Service Providers who may provide much of the networking backbone for ASPs or even get into the business themselves.
“We see a huge market opportunity in Canada, where there are so many companies in the under $100 million category,” says Joanne Haywood, marketing director for ERP vendor J.D. Edwards Canada Ltd.
“These companies find it a challenge to make this kind of investment and don't have the expertise or the dollars to get it up and running.”
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