Spot the survivors
1,800 ASPs want your business. Fewer than half of them will survive this year.
The tech downturn last year stranded the fledgling ASP industry. Analysts rushed to change once-optimistic forecasts from a $1.2 billion market projection for 2001 to about one-third of that amount. Of 1,800 ASPs, only 40 percent would last the year, analysts said. "The phenomenon of 2001 will be the vultures circling," says Dave Boulanger of AMR Research.
In the fourth quarter of 2000, USinternetworking announced layoffs, then early this year USi, NaviSite, and Breakaway Solutions announced more layoffs. Still unprofitable, the darlings-turned-dogs traded below $2 a share in early May, having lost more than 90 percent of their value year on year. KPMG dropped its stake in Qwest Cyber Solution. And software makers like J.D. Edwards, which had recently gotten into direct hosting, quietly retreated to selling software the old way.
As a potential ASP customer, how do you spot the survivors? Look for companies with the potential for long-term customers. Smart ASPs offer applications and services to companies "where there is no way on earth they could begin to replicate that application themselves," says H. Peet Rapp, a former senior research analyst with Gartner. For example, a provider could take a payroll application for a sales-heavy field and add a way to incorporate bonuses and commissions based on a particular vertical industry.
Ultimately, the survivors will be more than just software partners. "Successful ASPs will need to own some technology," says Steve Crummey, cofounder and CEO of Intranets.com. "Applications are the glue."
