The bad news started in September, when Pandesic LLC, the much-touted SAP AG and Intel joint venture, announced it was cutting its losses and ending its e-commerce ASP services. Osborn was worried. eVineyard had built its business, starting in 1999, on Pandesic. The ASP provided eVineyard's core distribution, order and inventory management, and accounts receivable applications built on SAP's R/3 ERP (enterprise resource planning) system.
As if such a disruption weren't bad enough, it forced eVineyard to hire more IT staff and rush the purchase and implementation of an ERP system, history repeated itself last month. Much to Osborn's dismay, ShopTok [an ASP eVineyard had been relying on to provide a live online chat application for customer service] went belly up after it couldn't find enough investors.
"It's a nuisance, and it's a project you don't expect to be having to spend time on," said Osborn. "I'm just a wee bit sceptical about this ASP issue. The ASP model to me has been unpredictable."
He's not alone. A growing number of ASP customers are learning that when a provider fails, they have to make tough choices about whether to take over management of the technology themselves or investigate new ASPs. They often face short deadlines under which to make a switch to avoid downtime and lost productivity. All the while, they must navigate new ASP contracts and the migration of data and application set ups in-house or to another ASP.
The lesson for companies using or considering ASPs is clear: More upfront due diligence and the inclusion of contract provisions that ensure migration of data and software licenses are critical to avert an ASP disaster.
A good year for dead ASPs
Pandesic's announcement last year was the first of what came to be a crop of ASP consolidations. Since then, smaller providers that had developed niche applications specifically for the Web have been hit hard. Such ASPs as intranet provider HotOffice.com, recruiting human resources application provider iSearch, and time and expense application provider Red Gorilla have closed shop. Others, such as FutureLink and Interliant, have refocused their application offerings. Even the larger ASP pioneers focused on enterprise applications, such as USinternetworking and Corio, are battling tanking stock prices.
The worst may lie ahead. Gartner predicted in August that as many as 60 percent of the then 480 ASPs operating could fail by the end of this year. By 2004, the number of viable ASPs will shrink further, with about 20 focusing on enterprise-class applications such as ERP and 100 more offering single-function applications, according to Gartner.
At least for eVineyard, the sting of Pandesic's death wasn't fatal. Within two months of the ASP's September announcement, and before the service ended completely, Osborn finally could raise a toast to successfully transitioning from the provider's service. In November, eVineyard completed implementation of Epicor Software's eDistribution software to replace the ERP functionality it was losing from Pandesic. This time, eVineyard bought the application the old-fashioned way, in a client/server license, and opted to manage it with internal resources.
eVineyard's bad luck was enough reason for Osborn to ditch the ASP model in favour of the Epicor software, but it wasn't the only one. Choosing Epicor made sense because eVineyard had already completed the implementation of the ERP vendor's eFinancial suite for accounts payable and general ledger applications in conjunction with integrator CTR.
Not surprisingly after all this, Osborn isn't interested in pursuing any future ASP deals. While eVineyard had only 35 minutes of downtime throughout the entire transition from Pandesic, the move came with extra costs. The e-tailer had to purchase additional components of the ERP system and rush the implementation. It also increased its IT staff by three, mainly to manage the applications. Osborn declined to give details on how much the changes cost. What matters is that eVineyard is now in charge of its technological destiny.
"You just have to know the risk is that there's another organisation, another board, another set of constituencies that's not going to be looking after your own best interests," Osborn said. "Whereas my own team, they're clearly focused on selling wine every day."
But one ASP's failure doesn't always turn customers off to using the model. Especially when dealing with applications less mission-critical than ERP, companies may turn to surviving ASP competitors, and those providers are more than happy to oblige. Many ASPs have even begun to target customers of failed competitors as a way of garnering more business.
