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Brian Livingston  
ASP Musical Chairs
By Brian Livingston

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Remember ASPs? Providing applications remotely to enterprises, usually over the Internet, was once a hot business model, but it cooled off fast. Survivors are emerging, though, and it's beginning to look like it might be safe once again to partake of hosted applications.

"The companies that survived were the ones that were built from the ground up to be delivered over the Internet," said Sheryl Kingstone, an analyst at The Yankee Group.

Despite the high mortality rate over the past few years, the prospects of a complete disruption of ASP services to enterprise customers are now relatively small, Kingstone said. "We're over the hump on that. The majority of [failing] companies are going to merge rather than shut down," she said.

Finding the strongest ASPs left standing is fairly simple, judging by their financial and managerial strength, she added. "The top three ASPs that I'm watching in the CRM space are Salesforce. com, UpShot/Siebel and RightNow Technologies."

Another survivor is Corio. It manages financial and procurement systems for Ingersoll-Rand, human resources applications for 40,000 employees of the U.S. Coast Guard, and enterprise resource planning systems for Pfizer, among many others. George Kadifa, CEO of Corio, said the past three years have been brutal: "There were 6,000 companies in 2000 in the U.S. that called themselves ASPs. Now, maybe 50 are left."

Kadifa said there will be still more consolidation. "At the end of the day, there may be five or six left." Not surprisingly, Kadifa is confident that his company will be in this handful.

As for, its fiscal year doesn't end until Jan. 31, but in its last three quarters, ended Oct. 31, the company generated $65 million in revenue—an 86 percent increase over the same period one year earlier, with a $4.6 million profit. The company filed a preliminary prospectus with the SEC last month, a necessary step prior to going public sometime this year.'s director of product marketing, Kaiser Mulla-Feroze, emphasized that his company has a distinctly different approach from most ASPs. "They're taking existing enterprise applications and delivering them on an ASP model," he said. "We are fundamentally building a new application based on Web services." provides CRM software via the Web to about 8,000 clients representing 110,000 users in some 70 countries, according to its prospectus.

Even though dependence on an outside company continues to pose some risk as providers continue to consolidate, some customers have found the ASP model to their liking.

Magma Design Automation, a publicly traded electronic design automation company, has almost 500 workers using and is negotiating a deal with another large ASP for a compensation management application.

David Brooks, Magma's director of CRM, wouldn't reveal the name of the new ASP but said, "We're working with them as a front end to Callidus TrueComp instead of buying the Callidus software."

Because Magma uses a mix of Linux and Sun workstations as well as Windows/Intel PCs and laptops, the company is moving away from client software that must be installed locally, which often comes only in a Windows version. "One of the benefits of using ASPs is that they're browser-based, so they work with anything," Brooks said.

To determine which vendor might be the best choice in your case, The Yankee Group's Kingstone advises you not to simply rank the contenders by their profit margin or growth rate and then pick the one that heads the list. While financial factors are important to consider, she said, you should also rate the vendors by the strength of their top executives and their track record with previous projects or in previous positions.

Now that the musical chairs part of the recent dance is almost over, the alternatives you can choose from are fewer, but for the most part, they're stronger. You should be able to place a bet without as much fear of your chosen provider going belly up.

Brian Livingston is editor of BriansBuzz. com. His column appears every other week in eWEEK. To send tips, visit www. Send your comments to

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