ASPs, it seemed, would soon join Kozmo.com delivery boys and the Pets.com sock puppet as Internet entities that never quite crossed the chasm. But USi and Corio have survived, smaller ASPs have remained quietly robust, and established software firms and outsourcers are now offering ASP-like service options to customers that want to be relieved of the burdens of software management.
In August, for example, Visa International began relying on Corio to manage its PeopleSoft human resource applications. Although Visa did not disclose terms, a company spokesman said that one primary driver was the desire to focus internal IT efforts on transaction processing, the heart of Visa's business.
John Ottman, Corio's executive vice president of worldwide markets, says that while most ASP deals usually result from a "precipitating event" such as a merger or a move to a new software system, increasingly companies are opting for ASPs simply as a way to "re-rationalize" their approaches to IT. "Visa didn't see HR as contributing a bottom-line benefit," says Ottman, "so it made sense to let someone else manage it."
Most ASPs, in fact, now concentrate on managing software versus renting it. Whereas they once harbored dreams of a "one-to-many" model in which they licensed software from vendors and then rented it to many clients, that has proved unfeasible (although software makers themselves do offer this option). Instead, ASPs now tout their implementation and managerial expertise; they are hired guns, not wholesalers.
This shift has been so profound that research firm Gartner says most ASPs should now be classified as "AMOs" (applications management outsourcers). "Pure play" ASPs do exist, but they tend to be smaller firms such as Salesforce.com, Employease, and WebEx, which make their own software available in a Web-based, pay-for-what-you-use model.
Despite their troubles, ASP pioneers USi and Corio continue their drive for critical mass. In August Corio announced plans to buy the ASP assets of Qwest CyberSolutions LLC, and in May USi completed a restructuring plan and merged with InterPath, a competitor and sibling (both are backed by Bain Capital). Gartner analyst Christopher Ambrose says the market shakeout has not yet been resolved. He sees growing demand for AMO and ASP services, but says such demand will also attract more competition from IBM, EDS, Accenture, Oracle, and a host of would-be ASPs.
"We know we have to prove ourselves every day, to new customers and existing clients," says Ottman. "But most companies haven't even looked seriously at the ASP option yet." When they do, he says, the advantages of having someone else manage complex software will be clear. --Scott Leibs
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