A
market meant to simplify computing for businesses may end up a
confusing race pitting start-ups against the veterans of the
communications industry.
As the trend to outsource corporate computing tasks gains steam,
start-up businesses that offer a selection of application service
provider (ASP) services are finding that giant telephone companies
also have been drawn to the market. The influx may confuse the
broader ASP market, just as it seems poised to take off.
ASPs typically allow businesses to offload their technology
needs, including staff and equipment, for a monthly fee that covers
a rental of expensive software applications that small businesses
couldn't otherwise afford. Some analysts estimate there will be more
than 200 ASPs vying for customers by the end of the year, creating
the need for "aggregators" that offer a kind of one-stop shopping.
In this environment, start-ups Jamcracker and
ePanacea may be
at a disadvantage.
"The customer is going to say, 'Wait a minute, I don't know you,
and I don't know your ASP partners, so why should I give you my
money?'" Kneko Burney, director of markets and computing for Cahners
In-Stat Group, said.
ASPs' ascension
The worldwide
spending on application services is expected to explode over
the next five years. |
| Year |
Revenue |
| 1999 |
$296 million |
| 2004 |
$7.8 billion* |
*projected
Source:
International Data Corp.
|
Established companies like
AT&T, Sprint or Bell Atlantic boast sprawling networks and
time-tested relationships with customers, and these companies are
actively searching for talent, with agents around the world looking
for small applications companies that the giants can sign up and
offer over their networks. In some cases this is leading to
competition for the start-ups' business, as firms such as AT&T
and Qwest compete for exclusive relationships with promising
partners, according to some.
The campaigns are a huge boon to the small businesses, which can
play the giants off each other for a better deal. But ultimately,
they need the credibility and blue-chip corporate relationships the
large companies offer.
"At the (corporate) level, they're looking for
industrial-strength (networking) services," Dave Dorman, chief
executive of AT&T and British Telecommunications' Concert joint
venture, said. "An eight- or 10-person company has a hard time
convincing American Express that it can do this."
IDC
predicts that worldwide spending on ASP services will grow to $7.8
billion by 2004, up from $296 million last year. Meanwhile, Cahners
projects more than 3 million companies will spend $7 billion on
application services by 2004.
Analysts believe established ASPs serving larger corporations
will continue to have success selling directly, but that these
smaller, unknown ASPs targeting small businesses would be wise to
align themselves with communications companies, such as high-speed,
or "broadband," service providers.
"Small businesses are really going to trust companies like Bell
Atlantic, so it makes a lot of sense for a small-business ASP to
partner with companies that already have an in with small
businesses," Amy Mizoras, an ASP industry analyst with International
Data Corp., said.
For example, AT&T already has signed
several ASP partners, including USinternetworking, to deliver
services over its "Ecosystem for ASPs." Many of the high-speed
digital subscriber line providers have also considered
offering ASP services, according to executives.
According to analysts, Jamcracker and ePanacea, among several
others that are popping up, plan to aggregrate hundreds of ASP
offerings together in one place, in some cases repackaging them for
communications carriers to resell.
Start-up ePanacea, for example, is positioning itself as a "cure
all" for the ASP industry, which it believes will have trouble
expanding quickly and gaining distribution on communications
carriers' networks, according to executives.
"The aggregator has to emerge ... (But) we're the next level
beyond aggregator," according to ePanacea chief executive Matthew
Rosenhaft.
Backed by Exodus Communications founder K.B. Chandrasekhar,
Jamcracker is developing
a Web portal-like clearinghouse for dozens of Web-based ASP
services.
Based in Atlanta, ePanacea was launched last September and has
about $3 million in funding to date. The company has about 30
employees thus far and expects to name several ASP and
communications carrier partners in the coming weeks.
Jamcracker, meanwhile, announced $42 million in equity and debt
funding last month after being formed in July.
ePanacea will share revenue with both the ASPs and communications
companies, and plans to launch its service June 1, according to
executives.
