While awaiting the anticipated application service provider (ASP) shakeout, I regularly check key websites to get the latest industry tally. It still seems to be growing. This week, ASPnews.com lists a whopping 1,870, and ASPStreet.com counts 1,763. But when I search for ASPs such as Sallie Mae, RMX and Sabre eMergo, the message I get is, “There are no companies matching your criteria.”
But these ASPs do exist — and they have something in common. Each was recently launched or spun out of an industry-focused corporation to provide ASP services to businesses within the parent company’s industry. Although they are flying below the radar of the ASP industry at large, these corporate-backed ASPs bring some interesting differentiators to the ASP sky.
To begin with, they are vertical service providers (VSPs). As discussed in our November 2000 SummitVision ViewPoint, The ASP Microclimate (and in my last ASPnews column, “VSPs Bloom in the ASP Microclimate”), VSPs provide solutions and services to specific industries. They know these target industries, focus intently on them and fine-tune their offerings accordingly.
Prepare for Take-Off
In contrast to the flocks of newly hatched dotcom ASPs (both horizontally and vertically oriented) that must borrow heavily from venture capitalists, corporate ASPs have been prepared for take-off by their well-funded corporate parents. And, thanks to their lineage, they already have brand presence, channels and credibility in their target markets. Here is a snapshot of each:
- Sallie Mae Solutions is a new division of Sallie Mae, which manages an outstanding balance of $66.7 billion in student loans. The new division will provide colleges and universities with financial aid, registration, electronic bill presentment and payment, loan management and payroll solutions to help them automate these operations. Sallie Mae Solutions plans to integrate with portal vendors that provide complementary services for the higher education market.
- RMX, or RetailersMarketXchange This company provides a customized online service designed to help convenience stores and small retailers – a combined $180 billion sector – do business more easily with their suppliers. It evolved from the Chevron Retailer Alliance program, which Chevron created to re-invent its business processes online. Today, RMX targets convenience and small retailers that independently own and operate stores, though they belong to franchises or chains.
- Sabre eMergo is a division of Sabre, a $2.4 billion company that provides software and marketing solutions for the travel industry. Its Sabre eMergo ASP unit, launched in November, provides business-management solutions for the airline and railroad industries. Solutions include airport, crew management, dining and cabin services, flight operations, reservations, business planning, and sales and marketing for airlines; and rail revenue, scheduling and capacity monitoring for the rail market. During the next two years, Sabre eMergo plans to invest more than $40 million in the endeavor, and to enhance and offer more than 30 applications in the ASP model.
All three vendors, besides capitalizing on existing brand equity in their industries, can leverage proven track records with their services for added market lift. RMX, for instance, can point to Chevron’s successful rollout, which it claims saved Chevron more than $25 million in the first year. Sabre eMergo has been providing solutions to the travel industry for 40 years.
Industry-focused corporate ASPs often tailor their pricing strategies to specific attributes of their target markets, and consequently deviate from the per-user, per-month, pricing model of many horizontal ASPs (discussed in detail in our November 2000 report, ASP Pricing Strategies: The Push to Profitability). Sallie Mae, for instance, maps its pricing to each institution’s total enrollment. Similarly, RMX not only sells software subscriptions and hosting services for outsourced extranet services, but also secures transaction fees for auction, RFP, catalog and promotional sales.
Both vendors also appear to be well on their way to becoming virtual workplaces for their industries (see our October 2000 SummitVision View From the Summit article, Virtual Workplace as the Top Rung of the B2B Evolutionary Ladder), as they round out their offerings with targeted content, community, workflow and collaborative services. RMX, as indicated above, conducts auctions and provides members with industry news, information, chat, library and message boards. And Sallie Mae will partner with Mascot Network and Embark to provide colleges and universities with related student services.
Competitors or Potential Partners?
Clearly, corporate ASP engines enjoy many advantages to help them get off the ground: brand credibility, proven track records and offerings, and precise focus on target markets. Because of their potential to propel themselves rapidly to leadership positions in their industries, these ASPs will, of course, provide formidable competition for horizontal ASPs that can’t provide the same depth of domain expertise, and for vertically oriented ASP startups that lack brand equity.
But, for other players that can provide corporate ASPs with complementary infrastructure, hardware, software and data-center services, the corporate ASPs’ sky will be quite friendly – especially when they can leverage existing sales and partner relationships. From either perspective, corporate ASPs will add some interesting bumps to the ASP ride, and all participants are advised to keep them on the radar. //
Laurie McCabe is Vice President and Service Director with Summit Strategies, Inc. (www.summitstrat.com), an independent market strategy, research, and consulting services firm based in Boston MA. Summit Strategies helps technology companies understand the implications of formulative trends and how these trends will affect their company, customers, partners and competitors. It has tracked the rise of Internet applications hosting since mid-1998 and is a recognized authority on the emerging ASP industry.