Some ASP news........
Who Will Host the Party? -- Industry giants are scrambling to get into the ASP market
Marcia Savage & Margie Semilof
San Francisco-Could the entry of industry giants crash the lucrative Web hosting party for the channel?
Intel Corp. jumped in with both feet last September with the launch of Intel Online Services.
Looking for new ways to attract business, the Santa Clara, Calif.-based chip maker's ambitious plans include the construction of a dozen global hosting sites, in addition to relationships with developers and integrators and a partnership with Uunet Technologies, Fairfax, Va., a division of MCI WorldCom Inc., for ISP service and support.
Other big names now dabbling in Web-based hosting include Hewlett-Packard Co., Compaq Computer Corp. and IBM Corp. Their efforts, however, remain on a smaller scale. HP, for one, joined forces with Denver-based telecommunications company Qwest Communications International Inc. to build data centers throughout the United States. And Compaq, Houston, recently teamed with Cable & Wireless plc, a London-based global carrier, to sell hosting services and provide support.
Whether the computer system vendors, as any company, will find success as hosting providers still is anyone's guess. After all, the business model still is in its infancy and, critics say, unproven. Assuming hosting becomes popular with customers, Intel and Compaq promise to leverage their channel relationships to increase sales, said company executives.
Still, resellers are leery of this vow.
The large computer companies' Web initiatives threaten to shut out VARs, said Larry Johnson, president of Soma Systems Inc., a reseller in Jacksonville, Fla.
"They all say they have their arms around the channel but they have their arm around the customer," Johnson said. "They are trying to appease both of us and control the customer."
Other VARs agreed that computer companies are inching toward taking business away from the channel.
"This will offend a lot of people who sell their product," said Dan Gallagher, manager of network sales at AAA Networks, a reseller in Falls Church, Va. "If these guys forget who their feet on the street are, there could be problems," Gallagher said.
Intel's plan is to be what it calls a wholesale ASP, company executives said. That means the company would sell a suite of applications that meet about 80 percent of customer needs. With help from some integrator partners, Intel will zero in on a few applications it identifies as being in high need. Then with Uunet's help, it will manage those applications, executives said.
Intel opened its first hosting facility this fall, an 83,000-square-foot building in Santa Clara, plus a development facility in Folsom, Calif. Another center, in Fairfax, is scheduled to open soon, followed by centers in Japan and England this year. Each site will house between 5,000 and 10,000 servers.
HP, Palo Alto, Calif., put up about $500 million in server hardware, software and services to be installed in Qwest's CyberCenters, in exchange for monthly fee revenue based on usage. Last fall, HP and Qwest added a high-end data-storage service. By the end of 1999, seven facilities were up and running across the United States. Plans call for adding another seven by the end of 2000.
Meanwhile, Cable & Wireless cut hosting deals with Compaq and IBM. The British carrier will use Compaq hardware in its data centers. Compaq will do the heavy lifting when it comes to developing the storage architecture, systems integration and managed services, company executives said.
Both companies committed $500-million over the next five years to this effort, intended to offer service in the United Kingdom and the rest of Europe initially. Next year, service is expected to expand to the Asia-Pacific region.
Not to be outdone, IBM, Armonk, N.Y., is working with Cable & Wireless USA, the carrier's domestic subsidiary, to develop e-business applications for small and midsize businesses.
But for all their high-profile efforts, none of the big names have a lock on hosting, said Steve Murray, an analyst at International Data Corp., a research firm in Framingham, Mass.
In 1998, "top-tier" providers accounted for 53.4 percent of the market, Murray said. Last year, the top 20 dropped a few more points, suggesting that more growth has happened outside the top tier of the market, where a small number of high-value customers account for a lot of the revenue, he said.
"It seems it's a relatively fragmented market," Murray said. "The systems integrators are probably getting a fair amount of that business [outside the top tier]."
Intel's hosting service opens the door for more systems integrators and resellers to get into the business of selling application hosting to their large customers without the burden of managing the hosting service themselves, said Kelly Spang, an analyst at Technology Business Research, Hampton, N.H.
And with competition heating up in the hosting market, VARs have many vendors to choose from as partners, Spang said. Resellers can decide which vendor offers the best network infrastructure, the most uptime and the best margins, she said.
But it remains to be seen just how fast, or even if, customers will take advantage of hosting. The number of customers asking about hosting services remains small despite the media hype, said AAA Networks' Gallagher.
"Business is not flying in the doors," Gallagher said.
And even if hosting does become wildly successful among enterprise customers, often the largest competitors are easy competition, said one VAR.
"I tell customers, 'You are one in a million for them, but one in a hundred for me,' " said Soma System's Johnson.
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