Is Asia ready for the ASP model?

From an entirely economic point of view, application service providers (ASPs) make a lot of sense. If you are a small or a medium-scale enterprise, IT investments can run into millions of dollars depending on your Internet strategy. Whether you are establishing a mere Web presence for your business or you intend to plunge head on into e-Business and e-commerce, you have to spend for software licenses, servers, hardware, systems management and administration, etc.

Now, under the ASP model, customers outsource Web-based business applications software and often rent them on a per user, per month basis instead of having to configure, provision and manage the software themselves. In essence, an ASP provides a total solution to companies or customers so they can adapt to new cutting-edge technologies at a faster and much more predictable cost.

With the Internet boom in Asia, ASPs are increasingly gaining popularity, especially as the region has been touted as a latecomer in the Internet revolution and that it has a lot of catching up to do not only in terms of infrastructure and strategy but in terms of access to the latest software and technologies from abroad.

Expectedly, when Asia’s e-Business executives, computer experts and IT journalists converged at the Shanghai International Convention Center early this month for CA-World Asia 2000, the first ever technology and e-commerce conference to be held in Asia by one of the world’s leading software developers, Computer Associates International Inc. (CA), ASPs were again at the forefront of discussions.

While it is true that the global ASP market is just starting to evolve and gain popularity, market projections on its future are very bullish. CA chairman and founder Charles Wang himself shared in his keynote speech during the opening day of CA-World Asia 2000 that market research firms have predicted that the size of this virtually untapped market will exceed $5 billion by 2003.

Obviously, what will fuel this growth is simple economics. If through outsourcing business applications software, requirements for capital investment would be far less and would prove more cost-effective in the long-run for e-Businesses, then there is no reason why the ASP market won’t be able to take off and reach its projected potential.

ASPs: are they here to stay or are they merely a passing fad in the often fickle world of the networked world? If the confidence of one of the world’s largest software developers is any indication that there is indeed a future for ASPs in the region, then the world has reason to look into their direction.

Partnerships

CA is currently investing heavily in Asia. It recently spun off an independent company called iCanASP to serve the infrastructure needs of ASPs. It also has formed partnerships and joint ventures with Asia’s leading telcos, Internet service providers (ISPs) and broadband providers. These include Cable and Wireless of Hong Kong Telecom, India’s Satyam Computer Services Ltd., Korea Telecom’s Hitel, Shanghai Telecom, the Broadband Division of Taiwan’s Acer Group, Singapore’s Keppel Telecommunications and Transportation and Japan’s NTT Communications Corp.

"What we have done in terms of iCanASP," said Wang, "is to provide the management, not of the infrastructure, of the ASP model. iCanASP offers innovative technologies for provisioning applications and ensuring quality of the service and enforcing service level agreements."

"We are rapidly opening up in terms of technology," he added. "However, there is a lot of local conditions that we don’t understand well enough so what we do is engage with partners and form joint ventures to help the local marketplace grow."

During the three-day event in Shanghai, CA, together with its local joint-venture partner, Fudan Grand Horizon Information Technology Co. Ltd, Shanghai’s largest information technology enterprise, announced the initial availability of a fully localized accounting, payroll and human resources management solutions under an ASP model. This is only the beginning. Guangha-CA also plans to launch other services and offerings that leverage CA’s strengths in enterprise management and security.

The company’s strategy is the same throughout the region. "We need local partners to help us understand the marketplace better and make sure the solutions we create jointly will address the needs of that marketplace," Wang said.

CA is unfazed that the ASP marketplace is still very small, not only in China but all over Asia. He revealed that different countries in Asia are at different stages of development and obviously those that have more robust infrastructure will be the first ones to take advantage of the ASP model.

While CA is very optimistic of the future of ASP, market researches point to the fact that more than 60 percent of ASPs will not succeed.

"You can’t build a business on prototype," Wang said. "The fundamental requirements for ASPs are the same as (for ISPs, MSPs or other enterprises) that want to make use of the Internet. Is this secure, is it reliable, is it available? Can we manage it and can we manage that process from the Web presence all the way to the back office? The ones that will succeed are those that have the right infrastructure. You have to build it on the correct infrastructure. Then you have to manage it."

CA has more than enough good reason to look at the sunny side of things. Toby Weiss, senior vice president of CA’s Field Service Group, said that in 1999 alone, there were $8 billion worth of e-Business done in Asia. This is projected to balloon further in the next three years. "The potential for Asia to overtake the West in terms of e-commerce is not a matter of ‘if’ but a matter of ‘when.’ And what we are doing right now at CA is to locally foster this growth," said Weiss.

It is a well-known fact that computer security issues and software piracy are big issues in Asia. Is the ASP model a solution to this dilemma? "I think we should not think of the ASP model as a silver bullet, or the only solution," Wang said. "There would be people who access technology and solutions through an ASP model . But it’s not the only model. It is not the answer to computer security concerns nor is it the answer to software piracy. It is simply another way for people to access technology."

New concept

In the Philippines, the ASP model is a relatively new concept. Said Lysander Salcedo, CA’s Philippine country manager, "Like any technology trend, there will be early adopters, with the majority of the market willing to follow once the trend gains momentum and moves closer to becoming a standard business practice. Early market entrants must be prepared to make a long-term investment and educate the market." He said the Philippines is an important market for CA, and like in other parts of Asia, CA has invested heavily in its Philippine operations.

So, is Asia ready for ASPs?

In a recent article in Asiaweek, SunMicrosystems Inc. CEO Scott McNeally aptly described the future, not only of ASPs, but the entire IT industry when he wrote: "If you believe that building a dam makes more sense than digging a well in every backyard, if you believe in running water rather than hauling it in buckets, then you have to believe that the computer industry is due for a change. Think of software as the water supply of the Internet economy and you begin to understand how dramatic the change will be and in many ways already is."

In many ways Charles Wang is correct: "This is not the beginning of the end but the end of the beginning."