The ASP concept may have been over-hyped when it was first promoted to the industry and the end-user community. But it has not gone away. It is alive and kicking. Companies such as Salesforce.com – the hosted CRM specialist that is establishing a firm foothold in the UK and Europe – and others, such as Netsuite and Rightnow are thriving.
In addition to these fast-growing players, an increasing number of companies that offer hosted email, security and backup services are building up their customer bases and taking users a step closer to the full-blown ASP concept. Email filtering has grown quickly, with companies such as Messagelabs, Blackspider and Postini establishing themselves and working closely with the channel most of the time. There are hosted telephony services and almost everyone already has someone else hosting their web site and, in some situations, their e-commerce.
Ben Pring, research vice-president at analyst Gartner, said: “Salesforce.com likes to use the phrase ‘the end of software’ when talking about hosted applications. But it’s not the end, it’s the blend of software. We are going to see the old and the new models co-existing for some time to come.”
Momentum is gradually building up behind ASPs, Pring added. “For people who have not been paying attention, the bubble burst and dispersed a few years ago, but it didn’t go away,” he said. “Most of it is going on under the radar, but hosted applications are becoming more and more mainstream and most sizeable software vendors have some presence in this space now.”
Sage has various CRM offerings pitched at different levels and based around the Accpac software and technology it acquired from CA. Oracle has also bought its way into this part of the market – and into CRM as well – through the acquisition of Siebel. Microsoft is also looking to make a splash in the sector: Hosted Exchange has been available for some time and Microsoft is pushing the latest of its CRM packages hard as a hosted solution.
According to James Murfin, hosted applications product manager at Microsoft UK, there are already about 300 partners in the UK offering some kind of ASP or on-demand applications service. Some already offer hosted SQL and even Office applications and Microsoft is signing up more partners every week, Murfin said.
Some are already very well established; e-know.net has 55 customers and more than 1,300 users in 14 countries. Managing director Nigel Redwood said that while many potential users may have been distracted and put off by the dot-com crash, which occurred around the same time as the initial clamour over ASPs, they can now approach the concept with real confidence. “The surviving ASPs are financially stronger and more experienced, while the communications are more available, robust and cost effective,” he said.
Does this mean that resellers that provide traditional boxed and licensed software should be concerned? Pring said it is certainly conceivable that traditional software distributors and resellers could be “disintermediated” by the rise of the ASP model. This effect is one of the reasons that Gartner has predicted that the VAR population will dwindle by as much as a third over the next seven years.
But ASPs are not necessarily a direct threat to channel players. Most vendors involved are trying to engage the partner community in providing hosting services. Microsoft in particular has been promoting the idea of its partners providing a hosted service with the CRM application or the hosted version of Exchange and even Office, and e-know.net is just one of many third parties already providing these services – some of them work direct with the end-user, some with partners.
Michael Frisby, business development director at Cobweb Solutions, a Microsoft Gold Partner for Hosted Exchange, partners with resellers who act as aggregators for the company’s services.
“A large part of the growth we have seen at Cobweb in the past 12 to 18 months has been driven by our reseller partners,” he said. “They are closer to the customer and typically include our portfolio of managed services within a broader solution, allowing them to create a recurring revenue stream and at the same time increase the average revenue per customer.”
Meanwhile, ActiveIS is a Microsoft Business and Applications partner and an agent for a specialist in hosted applications called ThinHost. Gerard McMurtie, managing director of ActiveIS, told CRN that while the hosted business is ramping up, sales of licences and boxed product are still healthy and the potential to add value remains.
“The hosted solution still requires business analysis and consultancy and we find that different clients want different things,” he said.
Whoever the early adopters are, most observers believe the rise of hosted applications will be gradual and that there will be potential for the broader reseller community to get profitably involved. But the change could be quite dramatic when it comes, Frisby said, especially when Microsoft starts to promote the concept seriously.
“The plans for Office 12 and plans for Office Live have the potential to open the floodgates for this model,” he said. “That will increase the viability and credibility of alternatives and has the potential to create the biggest disruption in the software market seen to date.”
Murfin poured some cold water on this assertion. He told CRN that what is on offer right now with Office is really a thin-client configuration, rather than a true hosted ASP service. There is no ‘hosted’ version of Office as yet. Even Office Live, which is being launched in the US this year, will not really allow you to do this. It will simply make extended Office functionality more easily available over the web.
The next major version of the application, Office 12, cannot be expected to make any great leaps forward in terms of its hosting capabilities either, Murfin added.
“It will enable some scenarios, but it has not been designed around the ASP model,” he said.
While they are already available today, the scalability of hosted productivity tools is limited. SMEs might take this route, but larger customers are more likely to run their own thin-client offerings.
But it might not be Microsoft that makes the running in this sector, according to Frisby. There is a potential for Office-like tools to be made available via open source and some services are already springing up. The ubiquity of broadband makes it very easy to take advantage of this option. The current 2Mbps is more than enough for most clusters of users now. With 8Mbps coming, there will be no question over bandwidth.
Even so, David Bradshaw, principal analyst at Ovum, does not think there will be room for everyone to act as an ASP or even as aggregator – he thinks that software vendors might find that they will be better off with fewer hosted applications resellers in the long run.
“I’m not so sure resellers will benefit because you will end up with lots of different people doing the work that Microsoft could be doing centrally, and lots of slightly different versions of the same thing,” he said.
Having a lot of companies involved will also fragment the market and keep many firms away from it. Without the scale it may be difficult to make money as an ASP. Ultimately, there will need to be only a few key players providing the hosted applications themselves but this need not rule resellers out, Bradshaw said.
“You could see yourself as a reseller of hosted services and even have some kind of intellectual property that you would sell into that market,” he said.
In other words, if ASPs win through and hosted applications take off, resellers will have to find new ways to add value, either through the provision of services, integration or software skills.
Bob Tarzey, services director at Quocirca, said it is a very real opportunity for genuine VARs. “There is a whole lot more that they can do around the process and the integration and configuration so from that point of view, it’s the same as it ever was,” he said.
Channel-pro ASPs are eager to back this point up. With its CRM and ERP applications, Netsuite claims to offer much higher margins to resellers than traditional client-server based software vendors and the bonus of recurring revenues that bring customers back year after year.
Dean Mansfield, vice-president of worldwide sales at Netsuite, told CRN: “Software as a service is a new concept, and the channel needs to adapt to that. There are some very good benefits and some things that resellers used to do that they are not going to do any more.”
Specifically, VARs will no longer supply the box or the licence; that comes from the ASP. The reseller acts as their agent, but in return, gets a guaranteed income for several years, according to Mansfield.
“We don’t pay margin based on the RRP – we pay it on the price agreed between us and the end-user. So resellers are always guaranteed the same margin,” he said. Some resellers have stopped selling rival solutions and switched to Netsuite because, Mansfield claims, it gives VARs a better return over a five-year period.
Not only does being an agent for an ASP do nothing to reduce the value-added potential, it does not erode customer ownership either.
“Obviously we are involved with the customer, but the day-to-day management is left to the reseller,” Mansfield added.
Chris Barling, managing director of e-commerce firm Actinic, which is itself preparing to launch an ASP service, believes that providers need the channel.
“The key benefit of ASP is that the cost of the core infrastructure, the technical deployment and ongoing maintenance is lower than the traditional approach,” he said. “The benefits of the channel are local rela-
tionships and the ability to add value. The key thing is to join the benefits together. Any ASP service that cannot leverage the channel is unlikely to succeed.”
But resellers, he added, will need to be properly rewarded for the value that they add. If they are not, they are likely to regard ASPs as the enemy. However, there does not seem to be any doubt that this is happening and the appeal of the hosted solution is that, as long as the Netsuite type of approach is adopted, there is a steady and recurring margin for the reseller every year.
While business models and the shape of the channel will certainly change the era of software as a service, there is no need to panic. But complacency is not advisable either.
Like Pring, Bradshaw expects there to be a gradual blending of hosted with in-house deployments. “There is a good deal further to go. In terms of the balance I think there will be a split,” Bradshaw said. “But I suspect that, at some point, a good proportion of applications will be hosted.”
It may then, be time for resellers to get involved, even if they shunned the concept the last time around or got their fingers burned.
“There is no disgrace in being an early follower,” Pring said. “There is enough evidence to suggest that this may be a good time to jump onto the bandwagon.”
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