January/February 2001

BY JOHN MORENCY

The dust may finally be settling. Dawn may soon be breaking. Theories are turning into reality. The promise of cost and service quality improvements offered by ASP implementations are coming to fruition as real users begin obtaining and measuring real service and cost improvements. While many more will be required in order to effectively convince the broader market, these initial success stories are nonetheless beginning to make the case that mainstream implementation of ASP services is a distinct possibility.

Consider some recent research. CIC Research and Key3Media Group found that early adopter enterprise customers have indeed derived substantive benefits and constitute a sound reference base for long-term ASP viability. Nearly 75 percent of the study sample who were using one or more ASPs achieved payback periods on their service costs of less than one year. However, in this particular study, the average annual ASP deal size was relatively small, averaging less than $1 million per year for nearly three quarters of the user sample. Nonetheless, the average deal size is likely to increase as these users become more confident with the broader service implementation and support capabilities of the ASP community.

As a result of their experiences, however, these users are also becoming increasingly ASP savvy and are likely to become much more demanding relative to both service quality and its associated cost. Effectively meeting the expectations of users will become the key challenge for both large and small ASPs over the next 12 to 24 months.

Ironically, these success stories along with their attendant increase in user expectations are occurring at a time when many large and small ASPs are still struggling with profitability and a number of major players have seen dramatic reductions in the size of their market caps. For example, the stock value of early market leader USinternetworking has declined by over 90 percent in the past year and the stock valuations of other previously high flyers such as Corio, Interliant  and others have all declined by at least 75 percent or more. In addition, all of these firms and many others are still a long way from achieving consistent profitability.

THE KEYS TO ASP SUCCESS
While there is no one simple answer as to whether ASPs will be able to meet increasingly higher user expectations while simultaneously achieving sustained profitability, two things are clear. First, the future market and financial success of ASPs will be largely determined by the degree to which these players successfully leverage economies of scale. This success factor will play out with respect to standardization of service provider offerings, the number of different markets that can be addressed with a given service portfolio, and the degree to which a core set of physical and logical infrastructure can concurrently leverage excellent service delivery while minimizing the associated operations costs.

Especially important will be the degree to which ASPs can transform themselves into application infrastructure providers (AIP) and be able to generate greater revenue via a more diverse set of network transport and application hosting services to large enterprise customers as well as to other providers. AIPs have recently become an attractive option for venture capital dollars as investors begin to look more closely at the sometimes-lengthy time-to-profitability curves many ASPs face. These investors, wary of the fading dot-com-like glimmer of the early ASP days, have begun to search for companies that can show a shorter time and clearer line to profitability. We refer to that class of provider who delivers both AIP and ASP services as an AxP.

These economic and technological considerations profoundly affect the product and implementation choices that providers need to make for network, application, and service management. Unlike the case for enterprise networks, selection of best-in-breed products that deliver good-to-excellent point functionality in addition to integration with one or more industry standard management platforms (e.g. HP OpenView, Tivoli TME, or CA Unicenter) will not even remotely suffice for this class of provider.

ASP SERVICE MANAGEMENT ESSENTIALS
For one thing, service management products often need to support a complete suite of functionality that includes everything from initial service provisioning through comprehensive and accurate customer billing. In addition, a strong requirement also exists among provider customers for new capabilities such as the option to perform customer self-service and near real-time service delivery quality monitoring.

This diverse set of legacy and advanced functionality will generally require interface, workflow, and data integration within the suite itself in order to support even basic provider functionality. This same suite will need to both functionally and economically scale from supporting thousands to millions of concurrent subscribers in order to support the required levels of business growth.

But AxP needs will hardly stop there. Unlike traditional carrier product suites that supported similar design and engineering, provisioning, customer care, operations management, and billing functionality, AxP management platforms will also need to evolve in a significant way. Besides supporting the more traditional metrics and quality targets associated with network and application availability, response time, throughput, and latency, AxP management systems will need to evolve to include support for the reporting of metrics that are largely Internet business-specific. Representative metrics in this latter category include items such as:

• The ratio of abandoned electronic shopping carts to completed purchases;
• The number of merchandise items per abandoned e-cart versus the number in e-carts that are associated with successful e-transactions;
• The qualified visitor acquisition cost, which is the ratio of the total number of Web site visitors who purchase goods and/or services to the costs of the marketing programs required to generate those visitors and transactions;
• The qualified e-promotion prospect rate, which is the ratio of total e-promotional click-throughs to the total number of e-promotional page views served.

Support for these and related metrics will increasingly be required for a simple reason. E-service and content providers (that is, the AxP's customers) will increasingly need to closely correlate service infrastructure status with service transaction status in order to ensure that network and application service quality are being effectively applied and managed on behalf of the most significant revenue generators. This cannot be effectively done through today's separate management products for infrastructure and transactions that have little if anything to do with each other. Integrating these disparate product technologies and thereby enabling a complete set of service management that delivers more direct business value is likely to be one of the key industry challenges over the next couple of years.

John Morency is senior vice president of Response Networks, Inc. Response is an industry leader in the delivery of provider-class management solutions that effectively measure and manage the performance, availability, and reliability of e-business transactions in order to improve performance, verify service delivery quality, and increase service-user satisfaction. 

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