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Winning ASPs and xSPs

ASPs offering hosted apps for things such as ERP and supply-chain management (for material ordering and shipping) and collaboration (inter-department and inter-agency) are in a nice position to serve the federal government in the next decade. Multitudes of older workers in federal agencies will retire in coming years, and agencies will not replace them with less-expensive, under-30 ones. Instead, they'll downsize through attrition, implement technology to work smarter, and outsource work to ASPs and others instead of risking the adoption of soon-to-be-outmoded installed applications.

In the private sector, the best infrastructure service providers are poised to win big, too. These service providers lease resources such as data centers and servers to ASPs, and function as the common infrastructure backend for many ASPs simultaneously. In most mature IT markets, unique functionality gets absorbed upstream into larger players' offerings. So it's likely that more infrastructure service providers will eventually offer things such as hosted storage that ASPs offer now. They'll therefore compete with ASPs, even with those that might otherwise use them as an infrastructure backend.

For several years yet, Management Service Providers (MSPs) will perform an indispensable service. For monthly subscription fees, MSPs remotely monitor and manage the performance of an ASP's IT infrastructure, and report real-time information regularly to the ASP and its customers. This way, customers can verify that the ASP is meeting its service level agreements (SLAs).

Customers rate security, along with availability and performance, as the highest priorities when engaging an ASP. This will guarantee the success of Managed Security Providers (MSecPs). MSecPs provide all types of security services on a subscription basis for ASPs, from vulnerability assessments, to security audits, to intrusion detection and incident response. They in essence keep ASPs honest for their customers.

The best Full Service Providers (FSPs) also look promising. FSPs are one-stop ASPs that offer a raft of value-added services such as advanced customization and accelerated deployment. Most likely to succeed are those offering accelerated e-business applications with integration services at competitive rates to SMBs. The number of SMBs will explode in the next 10 years, and most will need e-commerce apps, and will need them integrated with their legacy backend systems.

Channel players like small system integrators (SIs) that have launched their own ASP operations will also find a ripe market with SMBs. They can do advanced integration, have mastered repeatable solutions, and are priced right for SMBs. This is a great advantage for them when competing upmarket with large SIs launching ASP operations because the latter tend to act according to a time-and-materials pricing model. Small SI ASPs are used to delivering on fixed price/time contracts.

Large SI ASPs, by contrast, will do well servicing the higher end. They know integration, and often they already own their data centers and networks, which cuts their investment costs. Unlike smaller SI ASPs, they usually have deep pockets, so cash flow does not present a problem. They just have to master the ASP business model and get used to its lower margins.

While it's been a challenging period for dotcoms, their numbers will also grow dramatically in the long run. ASPs rapidly deploying e-business infrastructures for them will do well. Dotcoms will always be pressed for cash and personnel, but their business model demands speed-to-market—hosted solutions are the fastest and most cost-effective for them.

Big telecom voice and data players will also prosper by selling hosted apps into their installed voice and data customer base. They often own their infrastructure, and have plenty of money. These larger, more traditional players will remain competitive with ASPs who've been in the trenches longer via "innovation through acquisition." They'll buy ASPs with innovative technology instead of building it themselves.

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