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ASPs Find Success the Old-Fashion Way

Although many ASPs have either struggled or simply faded away in the past 18 months, there's also no shortage of success stories to be told. Finding a common thread — a silver bullet — that runs through those stories isn't simple. However, with these five ASP success stories, which come from five different markets, a few common themes do emerge.

Mind Your Own Business
One of the first things most successful ASPs have in common is focus. Although each of the five is capitalizing on the ASP model in different ways, they have all managed to clarify the scope of their offering or value proposition both to themselves and to their customers. Or, phrased another way, each of these survivors knows "what business it is in."

Keys to Success
Of the five companies highlighted, only two credit their current success to having a superior solution. The remainder, of course, all have high-quality products and services, but they credit their success to old-economy business practices like relationship building, good adherence to GAAP and wise use of resources early on.

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They do not try to be all things to all people. They don't enter into initially unprofitable relationships in the hopes of future profits or market share down the road. Most tried this method of annuity accounting early on and either found it wanting or got burned.

Another common trait is not spending massively on marketing to unresponsive customers like small businesses. And they all credit fiscal responsibility for their ability to achieve profitability, regardless of how marginal. Of the five, all are already profitable or expect to be this year.

Some companies, like healthcare ASP TriZetto, began as consulting firms and have used the ASP model to enhance and speed the delivery of their services — changing their business model in the process. Others, like enterprise ASP Corio, have succeeded with the original model of providing high-end software solutions to a broad range of customers, catering to the technical needs of companies either unwilling or unable to do for themselves.

"Basically, what we've done is focus on the business model," George Kadifa, Corio's chairman and CEO, told ASPnews. "We knew from day one, when capital was free, it was an anomaly that was not going to be maintained, so we had to build the company on solid financial and business model foundations.

"We elected to not leverage the company financially; we have a very clean balance sheet. You have to grow a business without being loaded and hindered by assets. Practically every ASP out there were talking of the need for owning data centers and network infrastructures and fiber optic cables and on and on and on. That was totally irrelevant to our customer value proposition. Our customers really didn't need more fiber or data centers to be successful. They needed people who knew how manage their applications in the proper way and to leverage knowledge across the board."

Reaching Out to New Markets
Another successful method being adopted by an increasing number of independent software vendors (ISVs) such as time and expense management provider Concur Technologies, is re-architecting software for the Web and using ASP delivery to penetrate markets otherwise out of reach. Four years ago, Concur saw the ASP model coming and decided it would be an excellent way to expand the business, Elena Donio, vice president of marketing, told ASPnews.

Success Secrets
The five ASPs covered here are all well-publicized companies. However, success comes in all sizes. For profiles for five smaller ASPs that found success, see Smaller ASPs Focus on Success.
"We've opened the door to the entire small- and mid-market though our ASP solution," she said. "In providing a successful service offering, you've got to have a product that not only works over the Web, but you have to have a product that can manage the needs of many, many organizations in a highly efficient, deployed model. If you look at our competition, some of them have not been able to make that transition from the product that services the large market customer to the service delivery model that services the small- and mid-market customer."

A similar model is being employed by dedicated ASPs, such as Salesforce.com, that decided to focus vertically by developing and fielding a "killer app" like customer relationship management (CRM) and then offering it horizontally to all comers. While Surebridge has combined Corio's model of offering top-shelf applications with a mid-market focus based on enterprise-level relationship selling that makes customers feel like family.

Of the five companies highlighted, only two (Salesforce.com and Concur) credit their current success to having a superior solution. The remainder, of course, all have high-quality products and services, but they credit their ability to weather the industry's many storms to old-economy business practices like relationship building, good adherence to GAAP accounting and wise use resources early on.

"Number one," Marc Benioff, Salesforce.com's founder, chairman and CEO, told ASPnews, "you have to have a great product. We have that. You have to have real customers that are referenceable. We have that. You have to have a world class management team that have fought these wars. We have that."

This last point is particularly telling. Benioff and most of his team emerged from Larry Ellison's tutelage at Oracle to launch Salesforce.com. When Benioff started at Oracle, it was a $50 million company. When he left, it had revenues in the billions. Today, just three years since its founding, Salesforce.com is perhaps the most successful ASP in terms of raw numbers. It boast 3,800 corporate customers and expects to do $50 million in sales this year.

Separate Lives and Budget Lines
For ASPs (like Corio, Surebridge and TriZetto) that offer systems integration (SI) and consulting services, another common trait is that all are careful to account for revenue streams separately. They also charge accordingly for separate services. Consulting is billed by the hour. SI services are based on the project and so on. This enables management to effectively track resources and ensures one group is not draining the time and talent of another to accomplish its assigned task. It also keeps its teams that bill on time and materials from ending up mired in unprofitable activities.

"The TriZetto model is a technology-acquisition model that says we'll use domain expertise to help you figure out what you need, then we'll deliver and operate it for you for a lower upfront cost on a predictable basis," Dan Spirek, TriZetto's president of Business Solutions, told ASPnews. "No one else has done this. The old outsourcing model was a cost-avoidance or work-avoidance model. TriZetto's pushing a capability-acquisition model. We're a way to do things better, not a way to quit doing stuff you find annoying."

Another "old economy" business practice all five companies rely on, and one that was once threatened with extinction by the dot-com boom, is good customer service. Although their sales models vary from depending exclusively on value-added resellers (VARs) in the case of Concur to using in-house direct salespeople to reach the mid-market, as in the case of Surebridge, they all credit good customer service as key in gaining and retaining clients.

The More Things Change ....
So while ASPs have not changed the world of business computing overnight, it is clear that success for some is based on the time-tested business practices of spending wisely, sheparding resources and being at the right place at the right time with the right product in the right package — all backed up by an experienced management team that delivers on its promises.

As Pradeep Khurana, founder and chairman of Surebridge, told ASPnews, "Why is Wal-Mart successful and Kmart not? It's all about the little things. Our business is about doing a thousand things right. It's about execution."