Good article. ISPs in midst of service evolution
[ASND greatly benefits from this outsourcing trend. Mory mentioned this at the 5/98 shareholders meeting.]
news.com
By Tim Clark
Staff Writer, CNET NEWS.COM
August 20, 1998, 4:20 a.m. PT
SAN FRANCISCO--The term "ISP" is already
becoming passe.
Sun Microsystems, Netscape Communications,
Oracle, and Microsoft are talking up "applications
hosting" for corporate customers as the next
frontier for Internet service providers dissatisfied
with the slim profit margins of the online access
business.
"A transition is happening from ISPs to commerce
service providers to application service providers,"
Sun CEO Scott McNealy said this week here
during Sun's conference for ISPs, dubbing the final
stage "full service provider."
Application hosting means that big companies
would move their internal applications, such as
human resources systems and intranet applications,
off of their own computer systems and onto
systems housed at an ISP's location. To a
company's users, the transition to a hosted
application would be nearly imperceptible, since
they would still access the applications through a
Web browser as if they were intranet systems
hosted locally.
Also, the cost savings for big companies could be
huge, since they no longer need to maintain systems
locally.
While many ISPs host Web sites and some host
virtual storefronts, few are yet embracing an
emerging trend of hosting other applications.
"ISPs are confused and scared about outsourcing
applications," said Tim Sloane, an analyst at
Aberdeen Group. "It means an entire change in the
way they do business. They are rightly hesitating to
ask if the business model has to change that
dramatically."
Adds editor Jack Rickard of ISP trade magazine
Boardwatch: "They don't think it will sell," Rickard
said.
But demand from corporate customers is beginning
to appear.
"More and more customers want to push things out
to the Internet, but within their organizations, they
don't have the infrastructure" said Warren Recicar,
a vice president at GTE Internetworking, which
hosts Lotus Notes and its own proprietary
groupware applications, among others. "People still
have a big fear about security."
Many ISPs are already into something called
"co-location," running "server farms" where
companies house their Internet servers at an ISP's
secure site where a staff oversees whether the
hardware is running properly. Exodus, Digex, and
GlobalCenter Frontier run major co-location
facilities.
Applications hosting moves beyond watching the
hardware to managing the applications that run on
the hardware. Hosting Web pages is a simple form,
and commercial service providers running Web
storefronts is another variant. Such providers,
already dubbed "CSPs," often host e-commerce
software from Open Market, iCat, and Intershop.
IBM subsidiary Lotus has created a hosting
program for its resellers and ISPs like Netcom,
GTE Internetworking, and Digex to host that
complex collaboration software on servers for
customers. With ISP US West Interprise,
customers can even rent a hosted version of Lotus
Notes for a specific period of time.
Start-up U.S. Internetworking was formed
specifically to become an applications service
provider, specializing in hosting enterprise software
from Siebel Systems and PeopleSoft.
International Data Corporation analyst Meredith
McCarty notes that application service providers
face a host of issues: What is their relationship with
the software companies whose applications they
host or sell? How do they charge customers for
their service?
At one time, ISPs served as a distribution channel
for network hardware vendors, Livingstone
Enterprises, for example, before it was acquired by
Lucent Technologies. The applications service
providers may play a similar role for software,
McCarty believes, actually selling the software they
host.
Remy Malan, director of marketing for Sun's
Network Software Group, thinks new kinds of
applications will emerge for the hosting market. He
mentions service bureaus that offer software for
targeted email based on addresses from messages,
not a database. Or a software developer might
offer a service to show Web developers what their
site looks like to different browsers.
Despite hesitations by ISPs to host applications,
analyst Susan Almeida said it provides them a way
to move out from the commodity business of
providing Internet access and Web hosting.
Greg Howard, senior analyst at Infonetics, thinks
customer demand will push ISPs into the
applications hosting business. "We interviewed 13
national ISPs, and less than half were planning to
host applications for the customers," Howard said.
Applications they would host are based almost
entirely on what customers demand.
"Service providers don't have a lot of capital to
throw into services that are risky," Howard said.
"To deploy new services that are extremely costly,
shelling out $50,000 to $150,000 for a service they
don't know if it will fly--the money may be best
suited in upgrading parts of their network."
Indeed, in a Tuesday session on outsourcing
e-commerce applications, virtually all questions
from ISPs in the audience centered on how much
software vendors on a panel would charge to offer
their software to ISPs for hosting.
"We want to share in your success," said Kent
Godfrey, CEO of Andromedia, which created a
version of its Web tracking software specifically for
ISPs to host. "We have eight ISPs as current
customers and on average they pay $20,000 to get
started. Then it's pure revenue-sharing."
Related news stories
Big names struggle for ISP email August 11, 1998
Microsoft eases software rentals August 5, 1998
Sun ups ISP focus June 9, 1998
Microsoft unveils software for ISPs May 6, 1998
Netscape targets ISPs April 28, 1998
Lotus to play landlord October 15, 1996
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