Few categories of technology providers are demonstrating clear and fast return on investment for their clients. Still, if any companies have good stories to tell, it's the application service providers (ASPs)--but only if they play their marketing cards right.
In any market where new concepts need to be communicated, marketing messages are clearly critical to convincing customers to take the plunge. So far, ASPs don't seem to be translating their strengths to get that message through to customers.
Undoubtedly, many companies in the small and medium-sized business sector are looking to make savings, but there are right and wrong ways to go about it.
Benefits during troubled times
There are two clear benefits for coping with an economic slowdown that ASPs can explain to prospects. First, customers make predictable monthly payments for services, so there's no large up-front investment for software. The pay-as-you-go model is attractive to small and medium-sized businesses looking to cut costs.
Second, using an ASP for standard applications gives the customer's information-technology team more time to focus on cutting costs elsewhere. The customer can concentrate more on strategy and worry less about day-to-day maintenance issues.
ASPs--particularly "second wave" entrants such as Salesforce.com--also enjoy the advantage of faster and easier implementations, thanks to software technology tailored for Web delivery.
It sounds straightforward, but ASPs tend to approach the cost issue in an unstructured fashion. Typically, companies in the small and medium-sized business market don't look at the total cost of ownership of software systems.
For an ASP to focus on simple "it costs less" messages is not convincing. Customers are much more interested in small initial investment, the predictability of costs, and, of course, the convenience of an outsourced product. So making great claims for overall cost savings can be pointless--as customers have little data to compare--and possibly even alarmist. Indeed, realistic cost-of-ownership figures could make any new sale more difficult.
What's more, companies in the midtier are not necessarily looking at cost at the top of the list; the greater need is to get the application up and running smoothly, although they do expect costs to be no more expensive than in a conventional installation.
The "package" of successful marketing messages could also incorporate the promise of service-level agreements. Indeed, ASPs dangle these agreements as carrots in front of small and medium-sized businesses, whose own IT departments cannot offer or afford such functionality. To be sure, companies don't want to try out applications they are unsure about. What's more, they don't want to avail themselves of "flexible" upgrades in a contract as much as ASPs' marketing literature would suggest.
It might sound dull, but they just want fast and easy implementations, with predictable costs and service levels. ASPs shouldn't underestimate how much customers are also looking to move their IT people away from menial tasks, especially during the present downturn.
Of course, overcoming the IT folks' fear of losing control is another hurdle, but one that telcos in particular are well placed to surmount. We think that value-added services such as unified messaging and e-mail will soften the ASP market; IT managers see some applications as a threat, but e-mail and unified messaging are not seen as mission critical.
Raising the bar for their own marketing spend may be tough for many ASPs, but pooling resources, through industry associations and the media, will pay dividends.
Nadar Khair is an analyst with analyst and consulting company Ovum.
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