It allows them to handle unexpected demand without the expense of owning rarely used “extra” resources.

It offers the opportunity to transform capital investments in equipment into expense items on the balance sheet.

To the extent that their e-business on demand supplier offers the right mix of applications, they can get started right away, without the need to go through planning, design, and implementation cycles that would ordinarily take at least months and sometimes longer.  This faster road to market can enhance revenue opportunities, increase customer satisfaction, or provide other benefits with solid bottom line impact.

They didn’t understand how important it was to make the application offering a standard one, with little or no customization.   Many ASPs lost their shirts signing up customers by promising and providing free customization that ate up all their future profits.  IBM, for example, limits customization in this model, to simple preferences, expressed by customers via dialogues.

Early ASPs emphasized price as a major differentiator and found themselves embroiled in no-win price wars that commoditized their offerings and left them unable to provide differentiating services.  New (and surviving) ASPs know that their value is in the incremental services they provide – scarce skills and expertise, convenience, and time savings. Cost savings are based on centralized infrastructure and support.  Customers wouldn’t implement an ASP solution that was MORE expensive than an in-house solution, but they don’t necessarily expect or demand that the benefit be all in deep price differentials.

Marketing was an overlooked issue to many ASPs.  They built on a “if we build it, they will come” model.  Unfortunately, they hadn’t considered the problem of how prospective customers would know to come – or how, early in a new concept market, they would understand the business proposition being offered.  High-end service providers like IBM’s e-business on demand offering build direct marketing, by their own sales force, right into the model.  They are also prepared to partner with ISVs, consultants, and others who will guide customers in their direction or directly make sales.

Many early customers of ASPs were personally led through the process of becoming enabled.  This expensive hand-holding – and equally expensive ongoing support for the predictable administrative changes required – made ASPs costs skyrocket.  New-style ASPs focus on self-service provisioning and administrative support, letting customers customize the system to suit themselves, but making these changes at their own expense.

The business model we tried in the first round was wrong.  It didn’t take into account how services needed to be limited in order to provide consistent services at a consistent price while providing a profit to ensure that the business could continue.

The customers didn’t understand the advantages of the ASP model because early ASPs kept trying to convince them it was all about price; it wasn’t.  These on-demand services are all about convenience and value.

We have fixed the business model.  xSPs who want to make money can now see what they need to do.  We hope that they manage to do it.

The customers have figured out the concept and seem to like it, not for everything, but for many applications, especially for applications, which are important, but NOT about the core competencies or competitive advantage of the organization.  I suspect, for instance, that the number of companies that will choose to support Email as an internal application is going to start to go way down over the next three years.