FOCUS/ASPs: No Vanilla for India, Please

The slowdown in the US and its impact on the Indian industry is not just
about software and services…let’s also look deeper and talk allied sectors,
for instance, let’s talk application service providers. Already in the grip of
a wave of mergers and acquisitions targeted at consolidation, ASP business
models are in constant state of flux, with corporate demand for weakly
integrated vanilla application functions as a ‘service’ being unheard of.
The quiet decision by significant player JD Edwards’ to withdraw from the
arena is signal enough of that.

ASPs in the US are in the midst of a rapid consolidation binge. Hurt by the
current economic downturn, several top players, including Red Gorilla and
HotOffice Technologies have gone out of business. Jessica Goepfert, senior
analyst, IDC (US), acknowledged that a period of reemergence for ASPs was
underway. "Companies like Red Gorilla just disappeared overnight, with
their customers left hanging. Others like Applicast, recently acquired by
Agilera, have worked to ensure smooth transition for its people and customers.
Everyone will be watching, and it’s important to those waiting in the wings to
see some order," she says.

In a recent study, AMR Research predicted that the ASP market would see a
wave of failures and consolidation. "By 2002, 40% of enterprise ASPs and
60% of the broader market would be acquired," it announced.

Indian time lag: Blessing in disguise?

The ASP market in India is about 12-18 months behind the US. A significant
advantage in the Indian market is that experienced IT players have entered the
ASP market here, unlike the US, where startups proliferated. "Indian
players seem to have done a good amount of research and are applying good
business principles," according to Phil Osborne, business development
manager, iBusiness, Citrix Systems. He adds that Indian ASP markets also have
the advantage of learning from the mistakes of those in the US. "In terms
of adoption of business models, Indians have this distinct advantage of knowing
the mistakes in the US, hence they can shorten their learning curve."

Anil Bakht, chairman and managing director, Eastern Software Systems says,
"I do not think there are many ASPs in India at the moment. A lot of
organizations have announced an intent to become one. Since becoming an ASP is a
capital-intensive game, I do not see many Indian companies venturing in this
space." Parag Patankar, CIO, Apnaloan.com feels the Indian market is
different culturally from the US and customers have not yet gone through the
"hype-cycle", as the Gartner Group calls it. Anil Menon, marketing
director, Citrix India says the Indian market is in the "learning
phase" as far as ASP business models go.

Challenges and opportunities

The Indian ASP market was valued at around Rs. 4.7 crore in 2000 and is
expected to boom to Rs 360 crore by 2004, according to IDC India. Opportunities
are high, with Osborne rating Australia, India and China as "promising
markets" in the Asia-Pacific region. He adds that India is ahead of China
in terms of ASP usage and awareness. Infrastructure is the major challenge that
India faces. "The quality of optic fiber being laid in your metros is
world-class, but the real challenge will be in the last mile connectivity in
smaller towns and industrial locations far away from the metros," he warns.

While the SME segment seems to have been the focus of the initial ASP thrust,
larger organizations appear to hold greater potential than previously thought.
Patankar says, "SMEs have little high-end infrastructure and seem to be a
natural candidate for availing of this service. However, large businesses often
have complex existing IT infrastructure and have a greater ability to invest as
compared to the SMEs." Applications for vertical segments like banking and
freight seem to hold greater potential as compared to broad-based industries.

Is customization offered to a major extent?

Bakht feels, "Pure play ASPs offer no customization as their model is to
rent out the same application to multiple users. Commodity applications like
e-mail and word processing will work fine in this model but back office
applications like ERP are having a tough time getting implemented in this mold,
called the ‘one-to-many model’."

Patankar adds that organizations are not going to accept change without
value-adds so easily. "It will be some time before organizations accept ERP-like
applications without customization. ASPs are walking a thin line when they say
no customization can be done. This becomes particularly true when ASP services
are marketed to large businesses where customization is a necessary condition,
given the level of current integration in most companies."

The road ahead

With the Indian ASP model yet to reach its maturity curve, predicting the
road ahead is not easy. While Bakht feels pure-play ASPs will not survive in the
short term, given the lack of maturity of Indian users, Menon is of the opinion
that vertically-focussed ASPs are better positioned to survive. Patankar says
while ASPs renting out their own products might survive for a while, it will be
only the pure-play ASPs that make good in the long run, more so as they move up
the learning curve.

"ASPs will find it cost-effective to operate from
India"

Interview with Rajeev Mehrotra, CEO and co-founder, Corpserve. A pure-play
ASP, corpserve is also one of the founding members of the Forum of Application
Service Providers in India (FASPIN)

Amit Sarkar in New Delhi