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Last gASP? I had lunch today with a friend from a large company that I helped to develop a web-hosting strategy last year. The company was considering deploying their technology via an ASP model, and they paid me to look into this strategy and ultimately explain to them why it wasn't a good idea. The advice turned out to be correct, but not necessarily for all the right reasons. After listening to my friend recite the project's post-consultation history, I developed some new ideas on why ASPs--in general--aren't working out.
When the on-line economy was growing quickly (1997-1999), the ISVs that fed the frenzy (e.g., Oracle) were raking it in along with their dot-com customers. So much so, that the ISVs couldn't service the needs of their second-tier customers. All of the major ISVs' resources were busy taking care of their biggest accounts. And due to unbridled demand, prices went through the roof. Oracle 8i cost $80,000 per CPU, for example. Can you say, "disincentive to buy?" But they could get away with it. Along came the idea of renting applications and outsourcing their day-to-day operations, and the Application Service Model was born.
But then the bottom fell out. The ISVs lost all their dot-com customers, and even the major accounts stopped buying. Prices fell, and it became easier for customers and ISVs alike to hire people to sell and operate the applications. Suddently there was no longer a need for the middleman. The ASP model was (and is) opportunistic. The value provided by an ASP doesn't match what most ASPs need to charge for their services. But they, too, were able to get away with it. Now they find they're competing with the same ISVs whose applications they supply and support. And the ISVs want to own those second-tier customers that they previously didn't have time to service.
The ASP model was born from the same irrational exuberance and excessive demand that gave birth to dot-com retailers. Now that the economy has not only flattened, but gone downhil, the ASP model is dying the same death. It was only a bubble.
Posted Tuesday, October 02, 2001 7:00:38 PM 
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