From ZDNET: ASP GALAXY GOES SUPERNOVA
zdnet.com
ASP Galaxy Goes Supernova
By Max Smetannikov and Mel Duvall, Inter@ctive Week
October 18, 1999 9:07 AM ET
Two hours before his flight, Charles Feld's pager went off, just as planned. As a result, Feld, chief information officer at Delta Air Lines, knew his flight from Atlanta to Dallas would be on time. It was a costly page.
It had taken Delta a year and about $200 million to make this particular page happen.
Delta was afraid its computer systems would not make it to Jan. 1, 2000, because its decade-old personal computers weren't "Y2K''-compliant and could fail at the turn of the millennium.
"We had to bulldozer down the technology that we had in all major airports and rebuild it," Feld said.
By Christmas, Delta is set to unveil a new generation of Internet technology-enabled services, code-named project "E-Delta." At a new Delta Web portal, Delta-Air.com, customers will buy tickets, reserve cars and make hotel arrangements. Two hours before a scheduled departure, customers can get a page confirming the status of their flight. Counter clerks will know immediately what privileges a passenger is entitled to, because of how much traveling the person does on Delta.
These features are possible because all Delta databases - from reservations to baggage handling to traffic control - are now part of one global network. But is Delta running all those databases and maintaining the network? No. That job falls to Worldspan, a data center company that Feld is using to host his 6,000-transactions-per-second reservations and flight information database. Worldspan can be considered an application service provider (ASP), even if its own operations predate the advent of the World Wide Web.
It is a willingness to use such outsiders not just to run systems, but also to host them that is making a new wave of Internet integrators salivate. No longer is Web hosting enough. The new game is to run and maintain applications critical to day-to-day operations.
All in all, the ASP market could be in the vicinity of $30 billion by 2001, according to Boston-based The Yankee Group. By the end of 2001, carriers supporting front-office and back-office applications for companies will rake in $2.37 billion. The Web hosting and e-commerce infrastructure market will reach $5.4 billion. Web site hosting will hit $8.4 billion, and Internet data transport will total $24 billion.
Outsourcing by any other name
It's a new twist on an old practice sometimes called "outsourcing.'' In the old days, it may have been outsiders running the show, but they typically came to the customer's campus to run it. They even "owned,'' or at least leased, the communications network.
Now, companies are moving their data and applications onto the site of the ASP, and the communications infrastructure may well be the Internet. And pushing it is the scarcity of raw intellectual talent, forced by the Net itself.
Demand for information technology specialists is so high, companies can't find or afford the talent they need to run their critical applications. Even when they do find the talent, they are under constant threat of losing those specialists to headhunters.
In addition, chief information officers (CIOs) are being asked to roll out electronic commerce initiatives in weeks, not months, and be ready to adapt or draw up entirely new strategies at a moment's notice.
The labor crunch, speed of change and the emergence of broadband networks, has set the stage for ASPs to emerge as the white knights in silicon armor. Let us host, manage and secure your applications, they say, and you can concentrate on business.
And the trend is giving hope to a host of new entrants into the field. "This [Delta] is exactly the kind of customer that we would like to have," said Bernie Schneider, president and chief executive of St. Louis, Mo.-based ASP Digital Broadcast Network, recently renamed Intira. As he was making this comment, Schneider was standing in the middle of his brand new, largely empty $10 million facility in New York built to support projects like E-Delta.
Murray Dennis is also a convert. Last fall, he started to get the kind of calls every CEO dreads.
Angry customers wanted to know what had happened to their flatbed scanner orders. Retailers had sent in orders to Dennis' company, Visioneer, by electronic data interchange (EDI). But the scanners hadn't arrived. The retailers had ads running in newspapers on the weekend and they wanted to know what Dennis was going to do about it.
"I was on the phone saying, 'What orders?'" Dennis said. "The fact of the matter is our SAP system couldn't handle the volume of orders coming in, and they were getting lost. All of our systems had come to a crashing halt."
Visioneer, of Fremont, Calif., managed to hobble its way through the Christmas quarter, but Dennis knew the company had to do something fast about its SAP system. Sales were doubling every quarter and showed no signs of slowing heading into the new year.
As a relatively small company, with 130 employees, hiring a highly paid SAP specialist didn't seem like a palatable answer. After getting on the phone with several of the top SAP consulting firms, Dennis was presented with a somewhat radical offer.
Why not outsource the entire operation to an ASP?
Visioneer decided to outsource its SAP supply chain management system to Qwest Communications International, which launched an ASP initiative with KPMG last spring. Qwest now hosts Visioneer's application at one of seven CyberCenters it has built across the country and is responsible for making sure the application can grow with Visioneer's business.
"We finalized the outsourcing in June and haven't had a hiccup since," Dennis said. "We grew 40 percent in our July-August-September quarter, and it had no problems handling the growth."
Opportunities that both Delta and Visioneer have found in using Internet-inspired business models to help run their companies are exactly the kind of fuel that propels these Internet-age integrators.
The demand for such services is rising so fast that computer software and hardware companies are falling over each other to form partnerships and get in the game. Participants range from Intel, Microsoft and Qwest to consultants such as KPMG to computer companies such as Hewlett-Packard and IBM. In fact, in one year, the underlying question has changed from "What is an ASP?" to "Who isn't an ASP?"
But before you pay to get into this club, consider this - one currency that ASPs are not yet trading in is trust. Before things click between gentlemen like Feld and Schneider, CIOs like Feld would have to understand that CEOs like Schneider could indeed be reliable partners.
On the face of it, Feld doesn't mind oursourcing at all. "I think you need to outsource some - great CIOs are like great orchestra leaders - they know their instruments and when to use them," Feld said.
That's why Feld turned over the reservations and flight information database to Worldspan, a data center operator not very well-known outside the airline industry. Founded by some of the people who built Delta's very first reservation system in 1968, Worldspan specializes in global app hosting and distribution for "travel service providers" - read, airlines.
Companies such as Worldspan are the old-world competitors that have the ear of companies such as Delta - and whose backs companies such as Intira and Qwest would seek to break by leveraging the Internet as the new communications medium and technology.
Going with non-Internet-savvy players sometimes means diving into the outsourcing world of the 1980s, where reportedly as many as half of all outsourcing agreements had to be axed or rewritten after the first year.
Companies that ride the Internet wave into the ASP field have arguably built a better mousetrap.
Benjamin Chen, chief technology officer at iXL Enterprises, an Internet systems integrator that has also thrown its hat into the ASP arena, said the old world of computing was plagued by proprietary applications, incompatible databases and multiple operating systems.
"We now have a standard base - IP [Internet Protocol] - to build on that's open and global," he said. "The Web browser has standardized the user interface, and technologies like XML [eXtensible Markup Language] have eliminated problems associated with integrating legacy systems."
Chen said in order to compete in the Internet age, companies will have to adopt what he calls "Speed-fra-culture." That means building a computing model based on contracted services that can quickly adapt to changes in technology and the industry.
"Those companies that haven't figured out how to jettison or rethink their business models risk falling off the Dow," he warned.
That's a great approach for the corporate Web site, say CIOs like Feld, but ASPs would have to show they can do more than Web hits before they get serious business from companies like Delta.
"Worldspan is different from some emerging Internet providers - you might do something with Exodus, but it would not be mission-critical," Feld said.
Understandable skepticism
Feld's skepticism toward the viability of service providers that come from a Web hosting or Internet access background is understandable. Even people within the ASP industry often point to the fact that while many people talk about state-of-the-art facilities, very few of those are actually operational and have paying customers. Also, ASPs have to prove they can work with complex applications. The whole industry, these people say, is in such infancy that it's hard to accept an ASP's claims without a grain of salt.
"Outsourcing applications like ERP [Enterprise Resource Planning] is crazy. These costs are already invested, so the only real hosting out there is Web hosting," said Kevin Lo, chairman and CEO of X-collaboration, a Boston-based developer of Internet-based groupware applications. "So I am worried that one of the big ASP guys would blow it with one of these big complex applications, and ruin it for all of us."
To make sure nothing of the kind happens, a flood of ASP strategy announcements, partnerships and infrastructure builds has been unleashed in the past six months, with one purpose in mind - to convince customers like Feld and worriers like Lo that outsourcing with ASPs is OK: safe, reliable and inexpensive.
Everybody who is anybody in the data infrastructure, application development, high-tech consulting and systems integration businesses is joining the party. The list of companies that now brand their business as an ASP reads as a who's who of the Internet: AT&T, Cable & Wireless, Digital Island, Exodus, Global Crossing, GTE Internetworking, Intel, NaviSite, Qwest, Sandpiper Networks, UUnet and so on.
Qwest, which announced last spring that it would build seven CyberCenters across the country in partnership with KPMG and HP, said last month it was doubling the effort based on market response. The CyberCenters were also being expanded to include data warehouses that would feed the applications hosted by Qwest.
John Charters, head of Qwest's ASP initiative, said as much as $1 billion worth of ASP contracts are now in the pipeline. "We thought we were being ambitious in May, and here it is October and we're basically doubling our forecasts," Charters said. "It seems like all of the components [to offer ASP services] and industry drivers are coming together at the same time."
Oracle also stepped up its ASP plans this month with CEO Larry Ellison announcing the company will team with Exodus Communications, one of the biggest players in the Web hosting business, as well as Bell Canada and British Telecommunications.
Unlike SAP and PeopleSoft, which have partnered with ASPs to deliver their applications, Oracle said it plans to be its own ASP. "Everyone else has it wrong. We have it right. That's why all the 'dot coms' are coming to us," Ellison said in his typical fashion when announcing the strategy.
Oracle claims to already have 30 companies using its Business Online offerings, and is aiming for 10,000 individual users by the end of 1999. Ellison predicts that figure could soar to 100,000 users by the end of next year.
Intel, the world's largest computer chipmaker, opened the first of a series of datacenters last month, which it plans to use to host Web sites and applications for small and midsized businesses. Sprint also announced plans to enter the ASP market early next year, but with a twist. In addition to targeting large corporations with business apps, Sprint said it will host everything from interactive games to distance learning and home management applications. The services will reside on "nodes" as part of Sprint's Integrated On-Demand Network, a high-speed network for carrying voice, video and other information as data packets. Sprint is activating 17 nodes in major centers.
New ASPs are emerging every week to try to compete for a share of the market, and that hasn't escaped the attention of the world's richest man, Bill Gates.
Microsoft has formed a partnership with Internet systems integrator USWeb/CKS to develop a framework to deliver and manage applications over the Web. Microsoft will spend $67.5 million to build the technology, called iFrame, and is investing another $14.9 million directly into USWeb/CKS.
All these business models, however, are so different that instead of instilling confidence in potential customers that the ASP market is for real, all this activity has confused most of them. In fact, the group of companies that want to be ASPs is so big that the very term "ASP" has lost most of its original meaning.
All ASPs born different
The abbreviation, introduced into the mainstream by Annapolis, Md.-based pioneer USinternetworking, was coined to describe companies that are in the business of renting out applications to businesses that can't afford to buy the software on their own. A boon for companies such as The Baan Co., this business model didn't do much for a vast majority of Internet service providers (ISPs) and Web hosters, which at the time - 12 months ago - had the highest concentration of the engineering talent.
The real opportunity pursued by the so-called "ASP" market is geared to support projects like E-Delta, which reportedly account for a vast majority of requests for proposals thrown at service providers. This is a different business from app renting, where a corporate customer just "rents'' the use of an application when it needs to use it.
Since explaining what a non-ASP, non-ISP, non-Web hosting carrier involved with something like E-Delta could do is complicated, most companies went with the flow, calling their new business direction an "ASP strategy," or coming up with yet another term.
"We want to provide what we call the e-business infrastructure," said Joel Whitman, GTE Internetworking director of Internet strategy and planning.
The closest the industry has gotten to explaining what supporting a project like E-Delta would entail is the concept of "E-sourcing," a term coined by The Yankee Group. One of the first major consultancies to focus on this new market, The Yankee Group breaks down businesses seeking to capitalize on this opportunity into four categories:
Data center and transport companies: Web hosters such as AboveNet and Exodus, ISPs such as PSINet and UUnet, and long-distance operators such as AT&T Global Network and Global Crossing.
Systems integrators: Agency.com, Cambridge Partners, Electronic Data Systems, Ernst & Young, iXL Enterprises, Sapient, Scient, Viant.
Application providers proper, i.e. software developers: Captura Software, Corio, FutureLink, X-collaboration.
E-support companies: folks charged with watching applications run at 3 a.m.: big-five consultancies and emerging practices within E-sourcing players such as NaviSite.
In essence, at the core of most E-sourcing strategies lies the realization by players in each niche that they can't pull out a deployment like E-Delta alone.
"While we are providing things like security, hosting and access, when it comes to projects like systems integration we tell our customers: 'Hey, we have really good friends who do this,' " said GTE Internetworking's Whitman.
The most ambitious of E-sourcers, such as Intira, want to do it all: data transport, systems integration and e-support on regional, national and international levels. The reasons for that are purely financial. Schneider estimates that while an average ISP customer yields revenue of under $10,000 per month, Intira's customers already yield $35,000 per month, going on $100,000.
One of the bigger tests of the ASP model will take place later this year when General Motors rolls out a Web-based expense management system. Qwest will host an application from Captura Software that will allow General Motors employees to file and process a variety of expenses, including travel, corporate credit cards, phone charges and vehicle leases. When fully installed, the system could have as many as 100,000 users.
Ted Klein, finance manager for GM's purchasing fleet card program, said the company's IT experts went over the system with a fine-toothed comb before granting their approval.
So how long will it be before Delta, GM and Visioneer are being hailed as pioneers and visionaries, and everybody and their mother is in bed with an ASP? Maybe half a year, a lot of participants are saying. Companies that already have tiptoed into the cold water of ASP business are quickly realizing that the first step was just the beginning - now they have to swim faster.
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