1-1 © 2003 UMFK. Application Ser internet business models text and cases Tony Gauvin
Jan 06, 2016
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© 2003 UMFK.
Application Service Providers
internet business models
text and cases
Tony Gauvin
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© 2003 UMFK.
Overview
• Definition
• Taxonomy
• How do ASP’s create value?
• Barriers to Adoption
• ASP economics
• GBF??
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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
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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
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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
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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
• Vertical is for a specific industry– CollegeNET
• Enterprise is for large complex organizations
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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
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Breath of Application Solutions
• Single applications– SAP R/3
• Portfolio of products– May not be their products but that of another
vender (Microsoft)
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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
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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
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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?
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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
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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
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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