Vertical service providers: a serious new offering

The latest terminology being touted around the ASP (application service provider) space is ‘VSP’, the vertical service provider. Far from being yet another acronym to foist onto the customer base, VSPs are so-called to differentiate them from the more generalist ASPs that offer hosted business IT and networking services. It’s a worthwhile differentiation: the key point is VSPs have something specific and useful to offer their chosen vertical market. The belief too is that success in the hitherto scratchy take-up in the ASP market will stem from VSPs. An ASP is a software vendor that rents a company an application or applications that the company accesses remotely over the Internet rather than runs directly on its own servers. Essentially, the company would rent the application and access it from the ASP’s server via the Internet. Generalist ASPs are considered less likely to fare well in the manufacturing sector simply because they are not offering the right applications and are not capable of offering a useful service. A study by independent manufacturing industry researcher Benchmark tends to corroborate this statement. Guy Washer, Benchmark’s managing director, points to statistics showing 25% of the manufacturing universe would consider running their enterprise (ERP) systems via an ASP provider, but that today only 4% are. Getting users’ trust? Why aren’t more manufacturing companies moving into ASP? Different reasons, but 33% cite lack of control, 21% the Internet is too insecure and the technology too new/experimental, and 19% that it’s too expensive. To gain manufacturing application users’ trust, those that can truthfully call themselves ‘VSPs’ have to prove that they can deal with these arguments by guaranteeing their service level agreements (SLAs), maintaining mission-critical application performance, and having a firm understanding of the application’s importance in the specific manufacturing business. The VSP should mirror all this in the way it delivers, manages and controls the application. Do that, and worries over ‘lack of control’ and ‘security’ will evaporate, says Washer. Steve Vanterpool, UK chairman of the ASP Industry Consortium (ASPIC), says, “For some time I have been urging the ASP model to go vertical. The horizontal services route is non-viable. Focus is required and vertical is the key, with manufacturing one example. Trust is core to all developments. First though we need to drop the term ASP and replace it with the more relevant ‘on-line outsourcing’.” Some 18 months ago, e-know.net was set up right from the start as a genuine independent VSP to rent/host manufacturing and business software to SMEs. But while smaller businesses are taking time to latch onto the VSP concept, multi-nationals and others are making considerable headway, according to Sally-Ann James, e-know.net’s marketing director. “The market has taken much greater root in the US than it has in Europe. We do have live VSP customers and are operating in as secure an environment as it’s possible to achieve.” Examples include start-up customers like stair lift manufacturer Minivator of Dudley, Worcestershire, and Deio, off-shoot of $1 billion turnover company Datex, with sites in France, Belgium, Finland, Germany and the US – with Spain and Italy now coming on stream. Analyst Cambashi’s consultant Ralph Seeley is critical. “Manufacturing covers far too wide a spectrum for the ‘vertical’ metaphor to make much sense. Does the one-off, make-to-order high-tech designer and manufacturer of say automated food processing lines have many of the same needs as the volume producer of say plastic guttering?,” he asks. “What about producers of food, chemicals, pharmaceuticals, packing materials, PCBs, platinum catalysts, mass spectrometers, etc. What software requirements have they in common that non-manufacturers lack?” But that’s very purist, and there’s rather more to it. “Where ‘vertical’ applies to a much smaller segment of the market,” he concedes, “I think there may be opportunities. A VSP might usefully merge the vision of a ‘trading hub’ with an industry-specific ASP by doing more for its chosen sector than merely enabling ruthless competition.” Seeley points to one company whose business model was along these lines and which claimed to be making headway. Service characteristics were: tightly-defined market; highly-competitive sector which nevertheless had interests in common and which therefore needed to communicate; a need to standardise communication; and no existing services. “It wasn’t in manufacturing as it happens,” he says, but it proves the model. The way to go And ASP consultant Adrian Gonzalez at analyst ARC thinks VSP is the approach. “The ASP market has not lived up to its hype… As ARC predicted, the ‘be everything to everyone’ approach has failed. The winners will be those that focus on serving specific vertical industries. Service providers must simplify their pricing models, improve their marketing campaigns, and enhance their overall value proposition.” Gonzalez urges customers to give preference to software applications that were designed specifically for the web and hosting, as opposed to client-server applications that are just web-enabled. And ARC’s enterprise software consultant Simon Bragg opines that “VSP is no pot of gold at the end of the rainbow,” and that for many applications “you have to have a separate server for each customer so that the ASP/VSP can create any serious service guarantees.” However, he does add, “This is changing as some applications will support multiple customers on a single server. [But] the IT industry has built such a reputation for stiffing clients, not understanding manufacturing, poor service, astronomical fee rates, and excellent presentations, that self-respecting manufacturers are rather hoping their competitors will be first to adopt this technology.” It does seem there is a valuable service type for manufacturers in the shape of VSP, certainly with e-know.net. “Every customer issue is different,” says James. “There are no fixed fees – rather think of charges at about £250 per user seat, per month.” And she adds, “Do note our core business is the assured delivery of software over the Internet.” Here the company stands out from the rag-bag of failed ASPs and dot.coms in that e-know.net operates along traditional manufacturing business model lines with specific and very extensive discrete manufacturing experience to back it. And it also eschews the up-front licences and yearly maintenance charges of traditional software companies. More manufacturers should at least consider VSP as a viable service option. The key benefit the VSP model can bring to users (small businesses and multi-nationals alike) is business efficiency. Who’d want to question that?