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Application Service Providers

Application Service Providers. internet. business models. text and cases. Tony Gauvin. Overview. Definition Taxonomy How do ASP’s create value? Barriers to Adoption ASP economics GBF??. The Future of Computing.

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Application Service Providers

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  1. Application Service Providers internet business models text and cases Tony Gauvin

  2. Overview • Definition • Taxonomy • How do ASP’s create value? • Barriers to Adoption • ASP economics • GBF??

  3. The Future of Computing Five years from now, if you’re a CIO with a head for business, you won’t be buying computers anymore. You won’t buy software either. You’ll rent all your resources from a resource provider. • Scott McNealy, CEO, Sun Microsystems • May 2000

  4. ASP • An ASP is a organization that manages and delivers application capabilities to multiple entities from a data center across a Wide Area Network • Software is “rented” for a recurring fee • Can add multiple service offerings • Application Software • System Integration Services • Data Center and Connectivity Services • Application Monitoring, Metering/billing, and End-user support • Defining characteristic was that an ASP is the sole owner of the customer relationship • Expected 6-fold increase from 2000 to 2003 • $1,964,000 to $11,311,000

  5. Taxonomy • Four dimensions • Solution Focus • Internal <> external • Horizontal <> vertical <> enterprise • Customer focus • Age, size, growth rate, complexity • Breath of application solutions • Single application <> portfolio • Applications sourcing strategy • Internet enabled vs. Web-native

  6. Solution Focus • Application classified along two vectors • Externally versus internally focused • External connects a company with outside partners • CRM, Supply Chain, • Internal used by company employees • HRM, Financials • Horizontally, vertically or enterprise focused • Horizontal is across a wide range of industries • E-mail • Vertical is for a specific industry • CollegeNET • Enterprise is for large complex organizations

  7. Customer Focus • Characteristics of Customers • Size • Small <100 employees • Medium >100 < 999 employees • Large >1000 < 4999 employees • Very Large > 5000 employees • Pace of Growth • Business Complexity

  8. Breath of Application Solutions • Single applications • SAP R/3 • Portfolio of products • May not be their products but that of another vender (Microsoft)

  9. Application Sourcing Strategy • Internet-enabled applications • Originally built for client/server and then retooled for the Internet • Often only had a web based front end • Web-native applications • Designed from inception to operate only over the Internet

  10. How ASPs Create Value • Create “Frictionless commerce” • Reduce high-cost of shrink wrap software • Reduce difficulty of recruiting and retraining IT staff • Reduce the need to build and maintain IT infrastructure • Compensate for lack of in-house expertise • Low up front investment and predictable cost • Speed of deployment • For ERP – 90 days versus 3 years

  11. Barriers to Adoption • Security • Internet • Outsider Data Center • Lack of personalization and customization • Generic (one size fits all) solutions • Untested business model • What happens if the ASP goes under?

  12. ASP Economics • Tough to collect data • Diversity of ASPs activity • Only a few ASPs were publicly traded • Sources of Revenue • Rental fees for software • Long term • Fees for Professional Services • Short term

  13. ASP Cost Factors • Cost of Services (mostly personnel) • Network operations • Data Center operations • Customer support • ? Licensing fees if using other vendors • Sales and marketing • Direct sales reps • Product Development • Depends on whether the ASP developed or bought Applications • G&A

  14. GBF or GIRF? • Network Effects • Varies based on application sourcing strategy • Higher for Web native then Internet enabled • Scale economies • Good if ASP developed their own applications • Operations costs vary with transaction volumes • Incremental gains • Customer retention • Very HIGH • First mover advantage • Lower for Web native then Internet enabled

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