ASP or Not to Be

CLECs that have invested in Internet access services may consider looking to hosting services as another source of revenue. The logical next step is to look at jumping into the Applications Service Provider (ASP) arena. But is becoming an ASP the right step for most CLECs? The answer as always, is that it depends. This article explores your options and provides suggestions for your consideration.

What is an ASP?
An Applications Provider - what we once called a software developer - creates the software and applications that make up solutions. This includes software developers and independent software vendors (ISVs), whose products ASPs and service integrators deliver. An Applications Service Provider generally hosts their own applications or those assembled from other organizations and delivers them as online services.

ASPs tend to focus on specific suites of applications, on specific industry segments, or sometimes both. An example of an ASP focusing on supply chain management in the automotive industry is Covisint (www.covisint.com). Covisint is the planned automotive e-business trading exchange, which is supported by General Motors, Ford and DaimlerChrysler, and joined by Renault/Nissan. Covisint helps original equipment manufacturers (OEMs) bring efficiencies to their business operations and suppliers in their respective supply chains and ultimately reduce costs. Covisint says that it "harnesses the power of Internet technology to create visibility within a company's supply chain -- transforming the linear chain into a far more productive and efficient networked model."

For ASPs to function, however, they must be robustly connected to network and computing infrastructure resources. Where do CLECs fit into this puzzle?

The Role of Infrastructure Providers
Infrastructure providers are responsible for the physical elements of the network. These include telecommunications carriers who provide Internet backbone services, CLECs who offer local services, and Internet data centers who provide services for collocation and hosting. In addition, some of these providers offer software and services for the Internet computing infrastructure. This includes a new breed of provider - the AIP (ASP Infrastructure Provider), which operates hosting facilities specially designed for application hosting. AIPs often work with infrastructure ASPs, who deliver specific elements of the infrastructure, such as billing and metering, directory services, or payment processing.

Should CLECs become an ASP or AIP?
The ASP model has not achieved rapid market acceptance as many industry observers and investors had anticipated. Customers are not lining up as predicted and this is hurting the ASP market's ability to turn a profit and attract capital.

On the other hand, Intira (www.intira.com), a Pleasanton CA-based AIP has attracted over $385 million in investment dollars since its inception 30 months ago. Intira characterizes itself as a leading provider of netsourcing - high-end IT/network infrastructure outsourcing services - which are designed to provide mission-critical e-businesses with maximum application availability, fast time-to-market, and low total cost of ownership. What is the message here for CLECs?

From a practical perspective, CLECs are, for the most part, facilities-based communications providers. Internet access services are a logical extension of these roots, and hosting and collocation services are clearly the next step up the Internet services ladder.

Once you get to hosting and collocation, it appears that the most logical extension is to focus on AIP services and support multiple ASPs rather than compete against them. As demonstrated by the Intira example, financial sources are more interested in the sustainability of AIP investments than simply ASP services.

CLECs are in a wonderful position to migrate into the AIP world. You may not need to change much other than semantics and your specific targets. The type of ASPs you wish to attract and the nature of their hardware and network requirements will drive capital investment.

Consider identifying the ASPs that are interested in your target markets. Create a suite of products targeted towards those ASPs, and call yourself a C-AIP (It's shorter than CLEC AIP and rolls off the tongue easier). CLECs have already created an infrastructure environment and can extend both their market reach and capital raising opportunities by considering the C-AIP model. With this, you may offer ASP-related services that can raise your bottom line.

Joel Maloff is founder of Maloff Group International, an Internet business consulting organization. Maloff has been an executive in local exchange and interexchange telecommunications since 1973, and has been involved in various aspects of the Internet since 1987. Maloff is the author of four books and hundreds of articles regarding Internet.