I'm well known for getting anxious about disasters that haven't yet--and might never--take place.
So keep that in mind when I suggest that small-business managers adopt the Boy Scout motto: Be prepared. Nonetheless, it seems the writing's on the wall for the hosted software and application service provider (ASP) industry in 2001. Last summer, Gartner issued a report predicting that a whopping 60 percent of all ASPs will go out of business by 2002.
Every month, another high-profile ASP, such as Pandesic, goes under. As I write this, the file-storage ASP JustOn is preparing its end-of-the-month shutdown. And another storage provider, netdrive.com, went offline last December.
Fend off doom and gloom
Before you panic, remember that the 60 percent failure prediction may not come to pass. Amy Mizoras, a senior analyst for ASP research with IDC, says, "Some of the disappearance will actually result from consolidation--companies buying each other out to gain a larger market base so that they can reach critical mass and grow more quickly." In that case, you, the end user, might not necessarily lose your services. Of course, you will have to weather an adjustment period while the ASP repositions itself.
Move to Plan B
Here's the moral of the story for ASP customers: Be ready for your hosted application provider to go through big changes. If you're lucky, the company will lead you gracefully through the process. For example, Agilera, an application and systems integration provider, notified its customers of its merger with the full-service ASP Applicast before it announced the merger to the public last December.
"We contacted a number of customers by phone and, in many cases, arranged for face-to-face meetings to discuss the strategic significance of the merger and how it would impact them," says Agilera CEO Paul Rudolph. "This proved to be very effective. We were even able to utilise several customers as references for the analyst community and media when we made the public announcement."
Of course, not all customers get this sort of treatment from ASPs in a state of flux. You may, for instance, find out that your ASP has been bought out or is folding only when the news appears in the media. In that case, you'll be one step ahead if you already have a contingency plan.
What is Plan B, anyway?
To protect yourself from the shock of suddenly losing an ASP and having to find a new one, practice these commonsense strategies and don't be reluctant to ask the company to share its financial projections with you, just as it would with an investor.
Take another look at the company that was originally your second-choice ASP. Find out whether this ASP has made progress since the last time you looked and keep connections open with the company just in case.
Plan for outsourcing disasters at the same time you make plans for catastrophic natural disasters such as power blackouts or earthquakes. Keep contact information for alternate ASPs on file and maintain a backup copy of all information you send to your hosting service.
Don't sign multiyear contracts. You may end up eating the last few years' worth if your ASP goes down.
The bottom line: Don't worry too much. While it may or may not be true that 60 percent of ASPs will fail by 2002, there will be consolidation and change in the industry, and fewer companies will be calling themselves ASPs as these services become less trendy. Make sure your provider has the infrastructure it needs to survive and be ready with your own exit strategy in case your ASP goes under.
