The Death, Burial & Resurrection Of ASPs

by Hinesh Jethwani    Sep 16, 2004

Ever wondered what happened to your friendly neighborhood Application Service Provider? Well, for starters they did take quite a beating in the dotcom downdraft, but true to the style of die-hard trailblazing ventures, they have managed to rise back again, literally what some people would describe as, “from the dead”.

Pay-per-use, enterprise apps on rent, CRM on a tap, probably sounded far-fetched in 1998, but they have moved closer to reality with a steady recovery of the Internet service model.

One company that is waiting to capture the ASP market is Pune-based Proquest Solutions, which is the exclusive reseller in the country of a hosted solution called NetSuite. Oracle CEO and chairman, Larry Ellison, is the majority stakeholder of NetSuite, which is being touted as the first integrated ERP, CRM, and e-commerce hosted platform in the market.

Biswas Nair, managing director, Proquest Solutions, spoke exclusively to CXOtoday on the benefits of walking the ASP way.

CXOtoday: Most people believe that the ASP model is dead. How do you justify your decision to begin operations in the Indian market as an Application Service Provider?

Biswas: Opinions on the ASP model have ranged widely over the past few years — from being touted as the future of software, to being considered as outdated jargon. Initially, ASPs had lots of expectations from the market but just couldn’t match the functionality offered by packaged solution providers. That’s exactly the point that we have managed to address with our solution, NetSuite. We are moving towards functional equality with applications from Siebel, Peoplesoft and SAP. If ASPs can match these brands in functionality, then we can easily crush them on a costs basis.

The future is clear. CIOs will no longer feel the need to purchase enterprise applications when they have an option of simply renting them out. ERPs are well on their way to become commodities of the future. With hosted solutions, enterprises have full control of the paradigm. If you are not happy with what you see, you can simply switch off the tap. No risks, no outage planning, no capital investments in hardware infrastructure and most importantly, no more horror stories on massive ERP installations going wrong.

Considering the pressure that CIO’s face today to prove ROI’s on package implementations, the very nature of subscription-based offerings makes us more customer-friendly.

CXOtoday: CIOs are still apprehensive of using rented mission critical applications because of the Internet medium that creates a separation barrier. Your comments?

Biswas: If you recollect, when ASP started initially in India (around 1998-1999) the total Internet bandwidth coming into the country was only 350 Mbps and VSNL was the only player. Today the pipe is 10 times larger, with multiple service providers in the market, changing the scenario completely. US and Europe already have a large number of active hosted solution players, and the trend is all set to make its mark in India. Its encouraging to see large players like Siebel and Peoplesoft offering hosted solutions globally (Siebel recently acquired a hosted CRM company called Upshot).

CXOtoday: Where do ASPs stand today, and what can we expect in future?

Biswas: It’s clear that today’s ASP market is very different than the immature market that was over-hyped a few years ago. I still believe that the on-demand model will become a disruptive innovation that will replace traditional enterprise software in 5-7 years. In another 6-8 months there’s going to be a mindset change, software will no longer be seen as a product, but as a service. My prediction is that in the next two years we should see SAP, Oracle, etc. offering hosted versions of their solutions.

CXOtoday: Hosted solutions are primarily meant for SMB users. Most of the large ERP players have already introduced scaled-down offerings for SMBs. How do you plan to compete?

Biswas: We are definitely not eyeing large enterprises like the Tata’s and the Birla’s with NetSuite. It’s the SMB space that we are battling for. We are ready to go head-on with other vendors in this space. Lets look at the SMB price offering of SAPfor example. It begins at about Rs 25 lakh, excluding infrastructure, maintenance, integration, deployment, and associated expenses. We are charging a monthly fee of Rs 3000-5000 per user per month. That translates into Rs 5-10 lakh a year for mid-sized customers, all inclusive. That’s a far cry from writing a million-dollar check on day one. If you look at it from another angle, what we are charging is just about 25-30% higher than what customers typically pay as AMC charges to these vendors.

CXOtoday: How do you plan to tackle the concerns of security and downtime risks?

Biswas: We offer access to our systems online with 128 bit encryption. Our data centers in California use a Level 3 risk management system, giving us the confidence to offer a 99.5% SLA along with a refund policy for downtime, which we believe is a very aggressive move for any ASP.

CXOtoday: How do Indian CIOs react to the concept of hosted solutions, and what are the frequent issues that you have to contend with?

Biswas: Generally CIOs are open to doing business with ASPs, as hosted solutions give them complete peace of mind and an opportunity to reallign focus back to core strategic issues. They can simply pass the buck to us for everything and rid themselves of daily hassles. However, IT heads generally display a stiff resistance to the idea, as they think that their kingdom will be shaken up once their software infrastructure is outsourced. Theres a deep problem here in their general understanding of the ASP model; we are not here to take away their jobs, but to make them easier.

NetSuite has already bagged three clients in India — Calcutta-based RS Software, Ahmedabad-based Finar Chemicals, and Microintelligence, within just 45 days of its operation. Proquest is aiming to win around 50 customers by the end of this fiscal year.