ASPs outside of Pandesic’s narrow B2C realm claim immunity to the low-revenue customers and sagging market demand that did in Pandesic. Yet whether they focus on plugging gaps in big companies’ application portfolios or on the lower volume, higher cost transactions of B2B e-commerce, these companies face the same problem Pandesic did: How to make their software specific enough to serve the individual needs of customers without allowing the code to grow out of control.

ASP Survival Guide

ASPs hoping to survive leaner times are going to need to specialize. "You won’t see good ASPs going after 20 different companies in 20 different industries anymore," says David Boulanger, AMR Research’s service director of enterprise applications. "The good ones are going to fight to get a reference customer in a particular industry and then try to resell that solution to other companies in that industry. It won’t be easy, but by the time you get to the eighth customer in an industry, it gets a little easier." He cites USi’s recent specialization in Internet-based CRM for the telecom industry as an example.

As ASPs move farther from their original mission and begin to create more specialized software and more individualized customer relationships, they become more vulnerable to competition from traditional providers like systems integrators on the one hand and big outsourcers on the other. Indeed, some of the major consulting houses such as New York City-based Ernst & Young and PricewaterhouseCoopers (PWC), and outsourcers like EDS in Plano, Texas, have already entered the market. Other consulting and outsourcing companies are poised quietly like vultures around the edges of the market, watching and waiting to see which ASP startups will bite the dust.

Defenders of the ASP market say that these outsiders will not be able to simply swoop in and snap up the orphaned customers. ASPs, they say, are developing skills that traditional outsourcers and systems integrators don’t have. "The traditional outsourcing mentality is that you take a customer’s applications and put them on autopilot for eight years," says Boulanger. "You make as few changes as possible and try to reduce your maintenance costs." Meanwhile, ASPs are driven by their subscription models to redesign and refresh their application technologies frequently with a creativity that most traditional outsourcing companies lack.

ASPs also have developed another advantage over traditional consulting companies—speed. Driven by their pricing schemes to minimize the costs of installing software, ASPs are get-ting good at being quick, installing complex ERP and CRM applications faster than the Big Five consulting outfits could ever dream of doing. "What ASPs are not doing is having a bunch of consultants sitting in a room for three months looking at their navels and drawing on a white board," says Boulanger.