September/October 2001

Go Right To: [ Interview With Charley Pitcher ]

The ASP Industry Consortium is the premier global advocacy group promoting the application service provider industry. We asked Paula Hunter, the chairman and a founding member of the consortium, what she thought about the emerging communications ASP marketplace and its impact on conventional communications.

Q: What do you think about the communications segment of the ASP market, including communications ASPs, telephony ASPs, wireless ASPs, management ASPs, and BLECs? Where is this segment of the market heading?

A: I don't think there's anyone in business who hasn't experienced some level of frustration with his or her communications systems. Between phone systems, e-mail, voice mail, unified messaging... the systems continue to become more and more complex, but at the same time, they're becoming more and more critical to the operations of our businesses.

Couple this increasing complexity and the mission-critical nature of communications with the fact that businesses everywhere are having to cut back on their costs, and I think the value proposition of a communications ASP becomes quite clear. You're able to leave the maintenance of your communications systems to someone else, which allows you to focus on your own core competencies. That in and of itself is a more cost-effective way of doing business. But they're also able to help you avoid some significant capital expenditures, which, in this day and age, is music to the ears of the CFO and the CEO. More to the point, our world is increasingly becoming more and more mobile, which means our communications systems have to become flexible, scalable, interoperable, and mobile.

The communications sector represents tremendous opportunity in the ASP market. It's not a sector that we often hear mentioned when discussing trends or forecasts for the ASP industry, but the potential, I think, is significant. Whether it's through channels or a direct ASP delivery, it's a model that's not going away.

Q: What do communications ASPs need to do to differentiate themselves from legacy enterprise-based offerings, as well as increasing competition in the hosted space?

A: Communications ASPs need to present a value proposition that's just too good to ignore. The first thing they need to do is to create a way for customers to get a highly accurate picture of what their current costs and service needs are. If you're stepping off from an inaccurate starting point, you're never going to be able to make your case. For example, think of all the lost resources and energy spent on communications troubleshooting and transfer those to your core business. With someone else handling those tasks for you, you can make much better use of your internal resources.

You also need to present the case that the solution you're offering is not only a bottom-line but also a top-line improvement to the customer. Yes, the ASP model allows you to avoid many of the major capital expenditures you'd have to make if you went it on your own, but that's only one part of the puzzle. You're also getting access to much more sophisticated technology and talent than you would probably be able to access on your own, thus improving your business performance.

Q: What are the traits of the strong players in the hosted communications space?

A: When it comes to hosted communications, I think ease of use and reliability are common traits among the strongest players. You're looking at a relatively standard set of offerings -- conferencing, unified messaging, etc. What's going to set any player apart are a couple of basic questions: First, is my service reliable? Am I going to deliver what I said, when I said, for how much I said? Secondly, is my service going to be easy to use? Can my customer set personal preferences? Is there a single browser interface? Finally, is my service going to allow customers to do more? Am I adding new functionality or reducing the number of vendors the customer has to work with?

Q: Is the enterprise world ready for hosted communications solutions? Do you think larger enterprises or small to medium-sized businesses will be the first to begin to contract these types of services?

A: Well, when the ASP market first began to develop, I think most of the pundits agreed that the key market segment would be the small- to medium-sized businesses. After all, this is the market segment that would seem to have the toughest time attracting the best talent in a tight IT labor market, and would seem to be most receptive to the idea of buying into a "collaborative," if you will, of applications and personnel.

But what our research has shown us -- and what the market development has come to confirm -- is that the enterprise world is very used to the concept of outsourcing, and, therefore, is much more comfortable trying and adapting to the ASP model. They may not use an ASP for all of their needs, but they seem much more comfortable with the notion of outsourcing in general, which gives ASPs of all kinds a leg up in that market.

Q: What kind of impact are communications ASPs having in the contact center/customer service space?

A: One of the areas where you're seeing an impact is in customer service centers that integrate a number of communications features, making it as easy as possible on the customer to access that contact point.

A customer service center that integrates all the communications options -- whether it's voice, Web, e-mail, fax... whatever -- is able to provide quicker and more efficient service, and these are the operations that are best poised to succeed in the future.

Q: Do you have some basic words of advice for service providers in constructing service level agreements (SLAs)/guarantees that will protect them as well as their customers and partners?

A: There are five basic "building blocks," if you will, that have to be integrated into, and consolidated within, any service level agreement: Dispute avoidance and resolution; the application; the network; the hosting component; and customer interaction.

Within these categories there need to be more detailed considerations factored in, such as availability and uptime; response time; security; etc.

The ASP Industry Consortium has for the last year had a dedicated team within our Best Practices Committee studying the subject of service level agreements, and has produced a very comprehensive and widely lauded white paper on SLAs. While that white paper is only available to members of the ASP Industry Consortium, a basic guide to service level agreements is available to anyone free of charge through the Consortium's Web site, which is www.allaboutasp.org.

Q: Do you believe enough is being done to address security in the hosted communications space?

A: There's always more to be done in the area of security, because it's a constantly evolving space. We know that security continues to be an area of primary concern among ASP customers, but I don't think it occupies quite the same place in customers' minds as it did even a year ago. The ASP Industry Consortium is in the midst of the largest research survey of the ASP market ever undertaken -- we're surveying both vendors and users in 17 countries around the world -- and we were surprised to see that security does not rank as highly as it had in previous surveys on the list of customer concerns.

Now, I'd be nave to say that security is not an issue with potential customers. But I think many have come to realize that security is a core competency of an ASP. It's what they do, 24 hours a day, seven days a week, 365 days a year. They employ encryption, firewalls, and physical security ranging from raised floors and steel cages to redundancy systems that contemplate everything from earthquakes to rolling blackouts.

So I guess my answer is that security is being addressed in a very comprehensive way by the ASP industry, but that there will naturally always be new innovations and evolutions in security techniques that the industry will need to implement to ensure continuing customer satisfaction.

The ASP Industry Consortium has recently created a new insurance program for ASPs to cover the area of security. In order to purchase the insurance, they need to go through an independent security audit. We are confident that as ASPs purchase this insurance, they are sending a message to their customers that this is an ongoing, high priority issue.

Q: What are some of the barriers to rolling out hosted services in the current economy? What can service providers/solution providers do to overcome these obstacles?

A: I think a lot of early entrants tried to take on too much of the delivery challenges, which was costly and labor intensive. We have seen a lot of players strengthen their partnering with best in class providers in order to reduce upfront costs and hiring needs. Like with all ASP offerings, what this current generation of ASPs is learning from the first generation is that they'll all eventually have to in some way adopt a replicable, scalable solution that takes advantage of the true one-to-many delivery model. Especially in this current economy, that's a business strategy that's become more important than ever.

To overcome these kinds of obstacles, there needs to be a sharing of ideas and an ongoing dialogue. That's the reason groups like the ASP Industry Consortium exist. For example, the Consortium's Technology Committee has had a sub-group studying common billing interface definitions for several months now, and they're very close to producing a white paper on the subject. This type of information will, I think, prove very valuable to anyone in the ASP space.

Q: Do you believe wireless will play an important role in the future of hosted communications? What types of services will be pervasive for wireless?

A: I think wireless will play a tremendously important role in the future of hosted communications. We're moving increasingly to a mobile society, and the wireless revolution is going to demand that ASPs keep up with that movement. Diversified work forces, travel requirements, the global marketplace... it's very clear that users are not going to want to be tied down. And, just as importantly, they need a ready access to data.

Q: What do you think are some of the up and coming hosted communications services?

A: I think things like IP-conferencing services are going to continue to play an important role for businesses. When that can be done very quickly and easily -- for example, without having to engage an operator -- I think businesses will find that a very attractive option. They're also going to look for a provider who can offer features like private chats, file sharing, etc., and for an offering they can customize to some degree. And these services have to be able to accommodate a large number of users.

Obviously, unified messaging is also going to play a large role going forward. People want to get their information and their messages quickly and easily. They don't want to jump through a lot of hoops to get voice mail, e-mail, faxes... whatever. The provider who can come up with the best way of unifying these functions is going to have a very large market to sell into.

Q: Do you have any other comments on hosted communications technology and services you'd like to add?

A: One of the things I'd like to note is that representatives from the Association of Communications Enterprises (ASCENT) and the ASP Industry Consortium (ASPIC) recently met to flesh out ideas on how the two organizations can help their members enter into beneficial business relationships. We looked at the business interests of various types of service providers in both organizations to see if there were joint business opportunities that could be forged and a platform developed to foster the creation of business partnerships among the members. ASCENT's membership is made up of CLECs, ISPs, local, international, wireless, prepaid, data, cable, energy, and other advanced service providers, so we've set in motion a joint project that we hope will produce advances for both organizations and their members in some areas that we agree are poised for significant growth. Stay tuned for some more news on this front in the coming weeks and months.

Paula Hunter is chairman and a founding member of the ASP Industry Consortium. She is also chief market strategist for Xevo Corp., where she drives company strategy regarding market selection, segmentation, and targeting, and also offers an understanding of the evolving ASP/AIP market. Hunter launched the first committees of ASPIC, driving committee chairs on issues such as Best Practices, Research, Membership, and Education.

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We had an opportunity to ask Charley Pitcher, solution unit manager at Microsoft, about the future of hosted communications, and how Microsoft's .NET strategy fits into the big picture. He had some unique insight into this space.

Q: What are your impressions of the hosted communications space? How will the ASP model change the way voice communications are handled?

A: Once high-speed DSL access becomes prevalent, hosted voice over IP (VoIP) phone data exchanges mature, and telcos begin to drive and deliver the service, hosted communications will present significant opportunities for services providers. The impact on classic plain old telephone service (POTS) will be minimal -- Centrex is already a hosted service in that space. A similar model and analogous market will develop independently in the VoIP space as that grows -- and the equivalent to Centrex will emerge for that market.

Q: What kind of advice would you offer to an ISV or startup getting into the hosted communications space?

A: To ensure success in the hosted communications space, an ISV or startup must understand three key components and how they interrelate:

1. What does the customer want/will they pay for?
    
2. How can I build and deliver at great customer service levels?
    
3. How can I do all of the above with great margins? (i.e. development, operations, and sales and marketing)

To address these questions requires that the market is clearly understood, that you can build applications that leverage a great development and operations platform, and most importantly --that you have the investment dollars to build out your service.

Building out your service requires that you understand the "standardize, automate, self-help cycle" that all profitable hosted services go through. The first step, standardization, requires your best people -- because a standard is something that will get replicated hundreds or thousands or millions of times -- and all you get is a white paper. The next step, automation, delivers real value -- automation increases service levels and decreases costs at the same time. Many companies only get to this point -- the really successful ones go one step further and self help every function they can. This means they enable the appropriate people in the value chain -- reseller, customer administrator, end customer -- to do for themselves everything they should be able to do. Think how you track a FedEx package: You go to the Web site and enter the tracking numbers, thus becoming a FedEx data entry clerk and improving their margins -- and you feel empowered! This is the key to great hosted solutions -- how to move the jobs from your profit and loss (P&L) onto the customers and make them feel good about it.

Q: Who are some of the major players in this space? Which types of companies and services do you believe will have the strongest impact and success rate in this market space?

A: Those players who will have the strongest impact and are well positioned for success in this market are well represented by Microsoft's Gold Certified Partners program. These Certified Partners have passed a rigorous certification process, ensuring their customers they meet high operational best practices, benchmarks, and principles based on the Information Technology Infrastructure Library. So as they host a range of services from Exchange and Great Plains to PeopleSoft to Siebel on the Microsoft platform, their customers have the assurance that they can provide the highest levels of quality and performance. USinternetworking, TeleComputing, ManagedOps.com, Netstore, and Equant all have successful offerings, and in the application infrastructure provider (AIP) space, companies like Digex, Qwest, and Data Return are well positioned for continuing success.

Q: How will .NET enable development and deployment of hosted voice services?

A: .NET is many things -- a vision for how applications will leverage the Internet, a set of development tools to develop those applications, an operations platform composed of the .NET servers and the .NET framework to run those applications, and a wide range of clients to interact with the platform to create new and compelling user experiences. .NET makes building hosted Web services, integrating them, and delivering them to multiple clients, all much easier. The integration of voice, streaming media, and data services that are easy to use and easy to build, will spur development of the overall hosted market very quickly. This platform will also enable a new generation of collaboration tools that leverage the capabilities of the platform and OfficeXP.

Q: Which companies/types of companies does Microsoft plan to work with to offer hosted voice services?

A: Microsoft is working with a wide range of wireline, IP, and wireless carriers, as well as systems integrators around the world to enable the hosting of all .NET Web Services. These companies recognize that a new generation of communication and data applications will be created, integrating many different functions, new high-speed networks, and new client functionality into compelling new experiences for customers. The ability to rapidly and dependably integrate many different kinds of data together into one interface for the user enables new services. These companies tend to fall into two categories -- industry leaders who are looking how to increase their already strong positions; and many small and medium-sized businesses that see new opportunities and are both agile and quick enough to recognize them.

Q: What are some of the advantages/disadvantages of offering a hosted service in the current economic climate?

A: Hosting any service with a competent and certified host provides strong key advantages, among the greatest are a shortened time to market and lower costs. Hosting also allows IT resources to be refocused on other projects, offers security for applications that connect to partners and customers, and provides the ability to accommodate sudden demands for more bandwidth, storage, or computing capacity. As the user no longer directly controls the applications -- tradeoffs are made in the level of customization that can be supported for a specific application. But as hosting offers the many benefits listed above, with carrier-grade operations and reliability, it is a compelling model for small and large businesses to utilize.

Q: What is the future for the communications ASP business model? Is there anything service providers should be doing differently to facilitate acceptance of hosted services?

A: As XML interfaces to all types of data, high-speed networks, and new client technologies all come together -- many new business models and services will get created. Most of them we can't predict (who thought laser printers would create a huge desktop publishing business?) So I believe acceptance is a function of creating great .NET applications that work together seamlessly, leveraging high-speed networks, and utilizing a whole range of great new clients coming to market.

Charley Pitcher is solution unit manager, Web services and application hosting, for Microsoft. Microsoft has developed the .NET platform for XML Web services, enabling applications to communicate and share data over the Internet, regardless of operating system or programming language. For more information, visit the .NET Web site.

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