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