Is Sun Burning ASP Bridges?

Analysis: Last week Sun signed a deal with EDS to jointly market an expected $3 billion worth of Web hosting, outsourcing, and online software applications. With that single stroke, Sun risks wiping out all the goodwill it has built up in the ASP community.
At one time, application service providers for business thought their toughest competition would come from either giant telecommunications companies or from the "big five" systems integrators.

Now it's clear that where such companies try to compete in delivering hosted third-party software, they will be no more than a minor irritant to established enterprise ASPs. Indeed, a recent report from the Dataquest arm of analyst group Gartner has warned off telcos from attempting to set up ASP operations. They should stick to hosting ASPs -- a task they do very well -- but refrain from getting involved in applications management, which they don't understand at all, the report concluded.

As for the likes of "big five" integrators like Accenture, Deloitte Touche, and KPMG, they're turning out to be valuable allies for ASPs rather than hot competition. They have no interest in running data centers or tuning system architectures. In fact, it seems that calling them systems integrators has been a misnomer. What they really like to do is set up the automated business processes that run on top of the software systems. Leaving the technology layer to ASPs suits them well.

So ASPs are striking up close bonds with integrators and telecom companies, which have become allies providing complementary services. With ASPs edging ever further into the large enterprise market, partnership has become even more attractive for the integrators and telcos, since the size of deals ASPs can help deliver has swollen significantly.

All of that is bringing their primary competition sharply into focus. Top-tier enterprise ASPs -- led by companies such as USinternetworking, Qwest Cyber.Solutions, Bluestar Solutions, and Corio -- can see clearly that the main threat to their survival is coming from the likes of large consultancies and hosting businesses like EDS, CSC, and IBM Global Services.

So it must have come as something of a shock last week to see Sun Microsystems, which has made a great play of presenting itself as a friend and ally to the service provider sector, signing a deal with EDS to market jointly an expected $3 billion worth of Web hosting, outsourcing, and ASP solutions to Global 500 customers over the next three years.

With a single stroke, Sun risks wiping out all the goodwill built up by its investments in the SunTone certification program, by its ownership of the iPlanet family, by the development of Java and J2EE, and by its dominance as the server platform of choice for Internet computing. When ASPs go head-to-head with EDS for ASP contracts, who will Sun be rooting for?

This would be a smart move if Sun had picked the winning side. But EDS has no track record of success with the ASP model. ASPs have the know-how to become the ultimate winners of that head-to-head battle. Sun would do well to keep them on its side.

Compaq Goes with Utility Computing Scheme
Compaq last week became the latest hardware systems vendor to launch a pay-as-you-go scheme for customers deploying its high-end systems. The schemes allow customers to pre-install extra processors, storage, and other components in mainframe-class computer systems, without paying for them at the time of installation. Customers pay only when the specific component is activated.

The scheme was introduced for its high-end Alpha and Himalaya servers, but will be extended to include Proliant servers for PCs later this year. Compaq also offers prepackaged desktop PC bundles on pay-as-you-go terms, and last week announced a more flexible variation incorporating extra hardware and software options.

Compaq is following in the footsteps of Hewlett-Packard, which began offering similar schemes last year and two weeks ago introduced a new offering for its high-end Superdome servers that allows customers to switch off components as well as switch them on. This is an important distinction, since the Compaq scheme is more "pay-as-you-grow" than "pay-as-you-go." HP's latest offering caters for the once unthinkable possibility that a customer's computing needs may actually shrink as well as expand from month to month.

Phil Wainewright founded, an site where this article first appeared. He now serves as a consulting analyst based in London.

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