IDC to ASPs: ‘Focus, Focus, Focus’

“ASPs that try to be all things to all people, end up being not much of anything to anyone.” That’s the advice from IDC’s Jessica Goepfert, program manager for ASP and Application Management Services research.

In U.S. Application Service Provider Forecast, 2002-2006: A Vertical View, IDC looks at which vertical markets present the best opportunities for ASPs in the next five years.

In the report, IDC identifies 18 vertical markets that hold promise for ASPs. For example, Goepfert told ASPnews that healthcare, professional services, discrete manufacturing (e.g. computer systems and components), banking, financial services, local government, retail and education are among the industries that will be spending money for ASP services.

In 2001, for example, professional services companies spent $245 on ASP services, more than any other market segment. Discrete manufacturing, despite an economic slowdown, followed spending $221 on hosted applications, according to IDC.

In the next two years, IDC expects the healthcare sector will experience rapid growth and increased spending. “This will be driven by healthcare providers preparing to comply with HIPAA (the Health Insurance Portability and Accountability Act),” Goepfert told ASPnews. (HIPAA mandates the standardization of electronic medical transactions in the U.S. by October 2002.)

The healthcare market also boasts one of the ASP industry best vertical success stories in TriZetto, a Newport Beach, Calif.-based ASP. “TriZetto is well-positioned. They have the domain expertise, they speak the language,” Goepfert said.

It’s important to note that TriZetto didn’t simply hatch one day as a healthcare ASP. Goepfert points out that TriZetto’s expertise in healthcare long predates the ASP market. The members of the management team have an average of 20 years experience in healthcare or healthcare IT.

The secrets of success go beyond vertical industries. Focusing on company size is also an appropriate tack. “Ideally, it’s both,” Goepfert said. She notes that while some large horizontal ASPs have struggled, Surebridge has succeeded by narrowing its customer base.

“Its approach is similar to other horizontal ASP that target large enterprises; however, Surebridge concentrates on a few specific industries and on midmarket companies,” Goepfert told ASPnews. The Lexington, Mass.-based Surebridge offers applications by PeopleSoft, Siebel, Vignette, Microsoft Great Plains and others, but focuses on financial services, discrete manufacturing, healthcare/pharmaceutical, professional services and publishing industries.

Targetting appropriate vertical markets is matter of matching expertise with industry trends. Markets experiencing a lot of mergers and acquisition are prime candidates for ASP services because they suddenly become geographically dispersed operations. “Look for trends that drive an industry to the ASP model and then look for the applications that drive that industry,” Goepfert told ASPnews.

That’s what Campbell, Calif.-based professional services automation ASP Portera did. In 1998 Portera recognized that project-based services firms could benefit from the anytime, anywhere nature of the subscription-based services over the public Internet. Its ServicePort suite for PSA is designed to enable organizations serving commercial and government clients to manage their finances, resources, projects and relationships. “Portera is a good example of a company that solved a specific problem for a specific industry,” Goepfert said.

However, ASPs can’t afford to be blinded by dollar signs. ASPs need to have the valid vertical expertise to tackle end-user concerns and cut down the time and expense of the implementations, Goepfert said. Not being able to deliver proves costly quickly in vertical markets. “By focusing on specific markets, word of mouth becomes even more important. People tend to talk,” Goepfert said.

Also, some vertical markets are tough to crack. Healthcare, for example, is well-served by TriZetto. Plus, ASPs aren’t competing only with other ASPs. Goepfert notes that system integration firms such as Perot Systems and Computer Sciences Corp (CSC) have well-established healthcare ASP divisions.

The government is also potentially fool’s gold for ASPs. “In the government sector, there are strong incumbents. IBM is every level. And a lot of revenue will be captured by outsourcing firms like EDS. “If ASPs try to get a foot in the door simply by making the lowest bid, they’ll fail,” Goepfert told ASPnews. Partnering with large systems integration and outsourcing firms may be the way to get government work. “That market is nervous about working with smaller companies.

The other caveat that Goepfert cites is the danger in hitching your application services to the wrong star. “It can be a double-edged sword. You need to be focused, but don’t focus so narrowly that if a particularly industry nose dives, you do, too.”

TriZetto, Surebridge and Portera are listed on ASPnews list of Top 20 Providers.

Do you have a comment or question about this article or the ASP industry in general? Speak out in the ASP Discussion Forum.

News Around the Web