A few articles (issues) ago (Establishing New
Concepts, May 2, 2001), we wrote about how hard it is to get a new
idea established and how, in a general way, you can test to see if an
idea’s ready. As you may know, we’ve spent quite a lot of time in the
last few years looking at the ASP (Applications Service Provider)
market, watching it blaze into recognition, be hopelessly over-hyped,
and then nearly written off. As
usual, the truth is somewhere else.
It occurred to us that it might be a great idea
to apply some of the ideas in our early story to this specific market,
which we know very well, and to talk about where it’s at, why that
happened, and what you – as an ASP, an ISV, or a customer might
wisely do.
The first job for someone marketing a new
technology (other than finding the money to do the marketing with) is
to educate potential customers. “New
and exciting” is a powerful message, but if you can’t say compared
to what, it isn’t very meaningful.
The problem with something genuinely new is that it’s hard to
describe it in familiar terms.
That has given rise to a lamentable cliché – a
little chart you’ve surely seen.
It may be expressed as a rectangle, divided into four squares,
each labeled, or it may simply be shown as a rectangle formed by the
x-y axis, with values rising as you go up and to the right. Any
analyst worth his salt knows how to create a chart for a client where
the client’s product appears in the only possible position – the
upper-right-hand corner. Other
competitive products (not really competitive in the new product
owner’s eyes) are always displayed on such charts to the left and/or
below the prize winner.
In case you’re wondering, it doesn’t mean
much – unless you understand what the metrics are and you believe
(a) they’re the right metrics; (b) they’ve been fairly applied to
all the products on the chart; and (c) no one relevant has been
overlooked. That’s
rarely (unfortunately) true. Such
charts are games and a prize is awarded for making your client look
good.
New Businesses Can Be Hard to Understand
So the owner of a new business may be stuck with
trying to find something familiar and defining himself by explaining
how he’s like that, yet different and better.
The ASP model has had exactly this problem.
It’s really not possible to describe it by sticking to
familiar existing models. It’s
a little like a lot of things but exactly like none of them.
-
So old-timers think it’s just time-shared
computing resurfacing (forgetting
that when the desktop is itself a powerful computer, the
architecture may be very different).
-
Hosting companies (the source of a number of
the original ASPs) think it’s a way to expand the number of
customers who want hosting (forgetting that most ASP customers
want much more help in application selection, implementation, and
on-going support than any hosting model offers).
-
ISVs think offering an application via the
ASP route is a way to expand their customer base (but don’t
necessarily understand that it may require substantial
re-architecting to get to an application that’s efficient to
support in an on-line environment).
They may also overlook the fact that very few ASP customers
have in mind buying each of their applications from a separate
company and becoming systems integrators to glue them together,
but that’s another story.
All of this is a fancy way of saying that
existing vendors have a way of looking at new markets and trying to
force fit their existing products and business models to them.
Only rarely do they “get it” and understand that successful
participation in a new market may require creating new business
models, building migration bridges that move gracefully from the old
world to the new one, and creating or acquiring appropriate products
for the new market.
The Trouble With Early ASPs
Very few early ASPs had much of a business plan.
You can tell that by looking at how poorly many of them are
doing. Many tended to
ignore realities like the real cost of doing business in an ASP
environment (which is not mainly about hardware and software, but
mainly about paying people to do marketing and support).
-
ASPs were more likely to have good technical
skills than good business or marketing skills.
-
ASPs often ignored marketing altogether,
believing that if you built a good site on the web, customers
would mysteriously appear. In
case you’re wondering, they don’t.
This is particularly true for ASPs who choose to resell
popular products that are available from many ASP sources –
customers tend to choose based on what ELSE the ASP is offering
– other products (usually within a vertical market segment),
integration with other products, market knowledge, good support,
and pricing.
That’s why we see ASPs like JamCracker, who
specialize in specific vertical segments, and other niche players,
succeeding, while those who simply offered access to mainstream
applications to all comers found themselves with too few customers and
near-commodity prices.
Customer Focus By Vertical Segment
It’s good business for both the ASPs and their
customers to focus on a particular market segment (or on several if
they have the resources and expertise).
The ASP can command premium pricing for his more knowledgeable
services and the customer will get a portfolio offering that while not
customized (a really customized product isn’t really an ASP
offering) should be well suited for his needs.
A vertical segment focus also lets the ASP focus
his marketing efforts on a smaller and better defined set of
customers; that’s cheaper. It’s
also much easier to find compelling messages when they only need to
make sense to this smaller, more homogeneous group.
When the ASP is focused, his expertise tells him
what his customers needs (and they keep reminding him, too). Since resources are focused on that single market, it’s
possible to find better solutions to common problems and do (limited)
integration between common applications.
But You Still Have to Talk to the Customer
Marketing is still, however, required.
The ASP model doesn’t allow for much direct marketing with a
dedicated sales force unless the ASP has decided to go after a small
number of very large customers, where it might be justified.
We’ve seen two other techniques start to
succeed brilliantly.
Anyone an ASP might want to talk to, customer,
potential customer, or potential partner, is sure to be using email.
It’s our common tool. That
means communicating with your potential customers and partners on a
regular basis is easy and cheap.
A list server provider will help you get set up and send out
your messages for a few hundred dollars a
month. But what,
you say, would you tell them?
Hank Stroll and Jason Kassel at InternetVIZ
(www.internetviz.com/newsletter_offer.htm)
will create a custom newsletter for an ASP and arrange to send it to
their mailing list on a regular basis. These newsletters can be specific to the interests of
particular customers and typically include a dozen or so links to web
sites and articles. They’re
a fast and very seductive read. ASPs
can, of course, include their own content, including special offers or
other customer messages.
The other good trick is for ASPs to take
advantage of existing customer relationships with VARs (and SIs and ISVs).
Partnerships that allow the partner to offer hosted
applications to his customers (and an opportunity to provide any
necessary customization) plus a small slice of the ongoing revenue
stream, can provide an ongoing source of customers.
By pairing with VARs in their industry segments, ASPs can
improve their customer acquisition strategy and, at the same time,
enhance their expertise by that of their new partner.
We firmly believe that the ASP business –
whatever we end up calling it – will survive and thrive.
It is not just a place for small and medium businesses to
access application software, but rather a method for businesses of all
sizes to put someone else in charge of running software that may not
be part of their core competency or their central mission, reserving
their scarce resources for identifying and climbing the next mountain.
