The key to success in becoming an application service provider is to choose one's role as a low-cost provider, niche specialist or full-service player, said an executive here today at ASP World.
"There's been a lot of turbulence in the last three or four years as the market has grown," said Terrence Ozan, a member of the board at Cap Gemini Ernst & Young, in his keynote address. Some ASPs, he said, "are causing confusion in the customer space, at the very time when they were just starting to understand it."
Companies best suited for the ASP model are those at the "hypergrowth" stage, Ozan said, whereas small-business involvement in the ASP model has been slower than expected, and large businesses' needs may be too complex for today's ASPs to handle.
Companies in the hypergrowth stage are already comfortable with Internet business, have lower upfront costs, are in tune with the core competency angle and have faster times to market, he said. Also, as those companies evolve from initial launch to hypergrowth to reinvention, they'll need alliances with outside experts along the way.
As for the industry shakeout predicted by many analysts, Ozan said, "The reason we think it's inevitable is because history repeats itself. We can see that there's a lot of entrants into a marketplace, rapid growth and then a lot of consolidation with a few winners."
However, Ozan added, some caution should be taken along the way, both for ASPs and their customers. For example, he said, it's important to ensure that an ASP's alliances are real.
"So many alliances are announced that they can't all be substantive," he said. A good test for customers is to note whether the alliance partners "show up and behave as a team" during the initial sales stages, or if a single vendor arrives representing the group.
Further, Ozan said, every promising ASP must eventually show more than just alliances and promises. "Growth and profitability are the only two things that will continue to attract capital," he said.
