Firms can ?rent? latest software save on costs

Businesses looking to keep up with the ever-changing world of technology would put themselves out of business buying software and hardware systems every other quarter. But where there is a need, there is someone selling a “solution.” And so came the application service provider, or ASP.

Like an appliance rental store, an ASP can rent its services so businesses can save on cost of software, hardware, IT personnel and maintenance.

ASPs can hook up a business with just about anything. A dentist’s office can subscribe for payroll software or database programs. The cost of buying a new software package and managing it in-house inhibits many businesses from making the purchase. But with an ASP, which generally hosts the software your business uses on a remote server, a company accesses the software through the Internet and either downloads it to the system or keeps it hosted on the ASP’s server.

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This saves a bundle on the cost of buying the software and the server. For a monthly subscription fee to the ASP, you can have the latest and greatest offerings.

The reason the ASP is catching on, says Wall Street analyst Bill Dering, is that it takes advantage of outsourcing and technology, both of which he says are responsible for our increased efficiency and growing economy.

Businesses can focus on what they do best, rather than worry about managing intricate systems. Just like the evolution of the professional employer organization (PEO) that handles all the human resources functions for your business, the ASP will handle all your application needs and probably suggest some apps you didn’t know you needed.

Dering suggests that ASPs eventually will seek a larger piece of the pie by changing from

subscription-based fees to transaction-based fees, allowing them to earn a little each time a business uses their service.

The beauty of the ASP is that it comes over your LAN (local area network), WAN (wide area network), Ethernet, whatever big pipe you have to the outside world. If it is just a modem with Internet access, fear not, you still can download applications from the ASP’s server on a Web site. Just type in a password and away you go.

Not all ASPs provide IP-based services. Cbeyond Communications, based in Atlanta, soon will launch what they call broadband ASP services. Most of the executives who formed Cbeyond came from a telephony background. They have come together to offer a package

of telephony services through the ASP model.

A customer of Cbeyond will be hooked up with local and long-distance service and Internet access through a T-1 line, all on its own private broadband connection. That way the business won’t have to contend with public Internet network problems to receive its services.

Chris Gatch, vice president of business development at Cbeyond Communications, says, “We call ourselves a broadband ASP. It’s very broad. It’s almost like saying I’m in the software industry.

“Our first product is a bundle for a small business. They buy from us the equivalent of local phone service, a block of long-distance minutes, and they get a T-1 connection to the Internet for free. It takes a small business from narrow band to broadband.”

For around $450-$500 a month, Cbeyond will provide long distance, local phone service, basic messaging and T-1 connectivity. The company intends to go national with its service, entering Los Angeles, Atlanta and Philadelphia first, then moving on to 22 markets over the next few years. Cbeyond raised $141 million in March to launch this national campaign. “We are looking to make this a big play,” Gatch says.

What services can be had through an ASP?

Just about anything you can think of. MessageMedia, a Boulder-based e-mail messaging company, sells its UnityMail software (acquired with the purchase of Revnet Systems) to corporations such as Martha Stewart, which operate it in-house. But back in December 1999, MessageMedia decided to license the software to ASPs that would offer it to their customers. The results have been very profitable.

“We launched our ASP program in December 1999, and it has grown from six companies using the UnityMail software to 25, including international companies,´ said Tom Ferrell, director of corporate communications for MessageMedia.

For the second quarter ending June 30, MessageMedia reported a new high in ASP software sales, signing new service contracts of $10.2 million, compared with $6.3 million for the first quarter. Ferrell says that as new services are developed, MessageMedia will offer them

directly to customers or through ASPs.

The Gartner Group/Dataquest projects the ASP market to grow from $2.7 billion in 1999 to $22.7 billion in 2003. The growing market has lured the large software, hardware, ISPs and service providers to the pool.

According to the Telecommunications Industry Association, giants including Microsoft, Oracle, Sun Microsystems, Hewlett-Packard, Intel, EDS, Qwest and Cisco have jumped in, as well. Like MessageMedia, they will continue to offer their own products through the vendor route but also license them as an ASP. These companies are large enough to develop an ASP division to handle the marketing and licensing agreements.

Microsoft announced in July its entrance into the ASP market, saying it hopes to stem piracy of its software in the small- to medium-sized business arena. Well known to Microsoft is the widespread copying of Windows operating systems and application software. Small

businesses otherwise could not afford to buy individual software for each machine in the business.

But Microsoft thinks its ASP program will be attractive to those pirates who are looking for the latest software without the cost and maintenance. David Ostroff, a Microsoft employee who developed the company’s ASP strategy, left Microsoft this summer to become an independent consultant on ASPs. He says that Microsoft is targeting small- to medium-sized companies that have never been able to take advantage of its volume discount programs.