As the application service provider business makes its transition from "next big thing" to "what's happening now," we offer this glossary of useful terms to help define the hosted software industry.
Application service provider (ASP): A company that hosts and manages software for another company, especially applications used for the internal operations of the customer.
Bandwidth that is cheap, plentiful and reliable is a necessary prerequisite to Web delivery of critical apps. Colocation is the hosting of the hoster, wherein an ASP sets up its servers at the heavy-duty data center of an Exodus Communications, UUnet, et al. Some ASPs have their own facilities. As infrastructure players, the colocation companies have one of the tastier business models in the ASP industry.
Dot coms are a natural constituency for ASPs, which can scale down to meet the needs of a start-up and then scale up to meet rapid growth, all while off-loading the expense of an information technology staff.
Estimates of the ASP market range from huge to enormous, depending on the definition of terms. To ask if it's really going to be a US$20 billion market by 2003 misses the point -- which is that if this stuff works like it's supposed to, a whole bunch of people will be using it before long.
Funding from venture capitalists is still available for young ASPs, though the April correction could help tighten the supply later this year if business models don't seem to be aging well. Public markets were not kind in said correction.
Guarantees from ASPs make customers feel better about locating critical apps outside their direct control -- but could hurt the service providers' bottom lines if they don't live up to their promises.
Hype is in plentiful supply in this sector, percolating at roughly the level that surrounded the business-to-business market last fall.
Integration of several applications from different vendors is a selling point for many ASPs, while a new company called CSPSource is promising the next phase: integrating hosted services.
Jargon is as plentiful as hype, from the category-defining acronym to colocation services with clustered servers hosting your app-on-tap.
Killing off conventional methods of delivering software, such as the CD-ROM, is what its more aggressive proponents say the ASP model will do.
Large companies, such as dot coms, have become an increasingly important target market for ASPs. Managing applications is an expensive business, so figuring out how to grow while controlling personnel costs will be a key to success for some hosters.
Nothing is what some ASPs charge for their services, but they all expect something in return. Sun Microsystems is giving away access to its StarOffice software to boost sales of its servers, while newcomer Biztro plans to make money by taking a cut of the business it drives to channel partners.
Oracle says it won't let other companies host its software on a rental basis, but it is letting Portera Systems include some apps in a package solution. Traditional software vendors are scrambling to adjust to the ASP world.
Profits are a distant rumor for most ASPs, but the pressure to explain where they'll come from will increase as the year goes on.
Quick implementation, even of balky systems such as Enterprise Resource Planning (ERP), is a promise that ASPs are keeping.
Rental income is how most ASPs plan to make money, though many sell big packages such as ERP on a lease-to-own deal, and some don't charge users at all.
Staff, or lack thereof, is one of the charms of an ASP from the customer point of view, as the customer doesn't need to hire expensive people to implement and maintain its software.
TriZetto Group is the first ASP stock supernova -- the health-care industry ASP traded as high as US$91.25 per share. That was before making an audacious deal to merge with IMS Health; it now trades at about $23 per share.
USinternetworking, a leading ASP, booked US$75 million in new business during the first quarter, with 42 new service contracts.
Vertical service provider: an industry portal on steroids. The VSP is an ASP that rents applications to a particular industry, also providing access to other business services and relevant content.
Web-enabled software is a must for ASPs, giving start-ups that have developed their apps specifically for ASP delivery an edge over their more established competitors.
X-Men movie coming out this summer could be pretty cool. Years of predictable earnings from renting applications, rather than fat and lean quarters from selling them, are one reason software companies like the ASP business.
Zero is the number of large, established companies yet to convert to hosted apps for their core business systems.
