ASPs Heat To Red Hot

In the midst of early April’s [2000] major tech sell-off, a company called Software AG had an oversubscribed and successful IPO on the Neuer Markt, and analysts say that a major reason for the successful launch was that the Update is an early mover as an Application Service Provider, or ASP.

To many analysts, ASPs are simply revolutionary. “As a general trend,” says Charles Homs, Senior Analyst at Forrester Research, “ASPs will substantially change the overall facility delivery in the e-business market.”

The European ASP sector has gotten off to a slower start than in the USA, but it is definitely heating up, and a sector worth watching. And Europe-based ASP companies have a decided home-court advantage over American imports: industry movers like the Finnish Sonera, German Infomatec and England’s Netstore, and even giants such as SAP, understand that American solutions don’t work well out-of-the-box here.

ASPs offer businesses of all sizes offsite tools to store, retrieve and use information. When broadband hits Europe – in six to nine months for Scandinavia, and a year to a year and a half in most other countries – the spread of ASP is expected to catch on like wildfire.

Netstore, with 750,000 customers and a market cap of €895 million, and the Infomatec (IFO NM) offer customers centrally stored applications, such as spreadsheets and inventory control ystems, as well as providing storage for data – effectively allowing companies to outsource all their IT needs.

Sonera (SOY GR) focuses mainly on web-based transaction and delivery products, such as allowing sites to offer streaming media and other functions.

The road to European ASP market is fraught with problems that locals have a better time identifying. For example, said Homs, a company providing Customer Relationship Management software to a company in Germany is required by German law to physically maintain the server within the German borders, to comply with German data security laws.

But IBM, too, has been an early mover in the European ASP space, and have broad experience in implementation in Europe. For the past two years they’ve been actively developing ASP products.

What’s An ASP?
ASPs are large, ultra-reliable, high-capacity and high-speed servers that store not just a company’s databases and information, but also the applications that manipulate the data. Whereas companies now invest in traditional “fat clients” – the typical computer/operating system combination wherein applications are run and data stored – many companies in the US and Europe already employ a new system.

Using a fast wired or wireless internet connection and a “thin client” – a desktop, notebook or even palm-top device running just a simple operating system and a web browser – users can now download the shell of, say, a package tracking or inventory system, call up data they need, modify it and store the results, using only software stored on the ASP’s server.

For small to medium size enterprises, ASPs could be most valuable, allowing them to maintain one copy, not thousands, of a program, and administer it centrally.

“This is a really interesting sector, because these ASPs can really help small to mid-sized firms save lots of money,” said Peter Klostermeyer, analyst at VMR. “Today’s software applications are not as expensive as they used to be but the beauty of ASPs is that they bring down the costs of implementation and administration of systems”

A not-so-subtle differentiation in the ASP sector is between hosting and true ASP, and the most important question is the who is actually implementing the solutions. Some ASPs simply give you the platform and allow a client to load whatever you choose, while others set up all the infrastructure, running everything on the server. They often limit the flexibility to what can be customized.

But to small- and medium-sized enterprises, this second option brings a new world of computing power for far less than doing it yourself.

“These are the companies that stand to gain the most in the short term,” said Homs, ” because companies are finding it increasingly difficult to find the people to set up their systems and web systems – and it’s also very expensive. But this allows them to share the costs with other companies. I think this type of ASP is a very lucrative solution.”