Biblio Tech Online Services Marketing Report

Confidential Page 1 21/03/2001

BiblioTech
Online Services Marketing Report

BY

BiblioTech Confidential

Prepared By
Jonathan Lishawa
Director of Business Development
BiblioTech Ltd.
Unit 3, The Piper Centre, 50 Carnwath Rd
London SW6 3EG

21 th Febuary 2001


TABLE OF CONTENTS

BIBLIO TECH ASP PROFIT ZONES .......................................................................................3
N EW HORIZONS .......................................................................................................................6
ASP MARKET ...........................................................................................................................7
MARKET INDICATORS.............................................................................................................8
BUSINESS DESIGN ARCHETYPES ...........................................................................................9
FIGURE 1 ASP B USINESS DESIGNS ....................................................................................9
FIGURE 2 B USINESS DESIGN ARCHETYPES ..................................................................... 10
S TRATEGIC CONTROL......................................................................................................... 11
FIGURE 3 S TRATEGIC CONTROL....................................................................................... 11
MARKET DIRECTION........................................................................................................... 13
MARKET IMPLICATIONS ..................................................................................................... 14
BIBLIO TECH DIRECTION.................................................................................................... 16
BIBLIO TECH CHALLENGE.................................................................................................. 17


ACKNOWLEDGEMENTS

Contributing to this article was Jonathan Lishawa.


OVERVIEW

This document provides market research on the Application Service Provider
model BiblioTech aims to migrate to. It’s intended to be used by BiblioTech’s
business development team and senior management.


BIBLIOTECH ASP PROFIT ZONES

The ASP marketplace is in the midst of explosive growth. But many companies
have entered the arena with little thought to strategy and business design,
putting them already at a disadvantage. Research has uncovered at least nine
business design archetypes for ASPs, each with a unique and promising
approach to creating sustained value. The purpose of this document is to present
BiblioTech with appropriate approaches to entering the ASP market place.


NEW HORIZONS

In the wake of the business-to-consumer dot-com boom, executives and
investors in communications, software, and computing are fixing their gaze on
the distributed IT services: Application Service Providers (ASPs). 1 Analysts
predict explosive growth, with the most aggressive forecasters envisioning the
global market rising from $2.7 billion in 1999 to $22.7 billion by 2003.

However, there has been little attention paid to strategy and business design in
this new market place. As currently applied, the ASP term is to imprecise,
bringing together an assortment of very diverse businesses, ranging from
powerful incumbents too small start-ups. The organisations competing for a
share of the emerging market are traditional telecommunications operators,
competitive local-exchange carriers, Web-hosting businesses offering
applications infrastructure, start-ups featuring purpose-built remotely hosted
software, traditional software houses redesigning their offerings for remote
hosting, and systems integrators or application management companies
extending their services to the remote, networked environment.
Within this varied group of providers there is an equally diverse array of
business designs, each based on a different view of market opportunities. These
business designs so far speak more to an incumbent’s technological roots than to
any intrinsic understanding of customer priorities, a dangerous mistake. When
this misconception is realised that the highest share of value will migrate to those
firms that understand that it is the customer value proposition, not the
underlying technology, which determines success or failure.

A set of fundamental but largely unexamined business questions will define ASP
success:

1. Who and where are the customers?
2. What are the emerging customer priorities, and which value proposition best
addresses those needs?
3. Which business designs have the greatest potential for strategic control and,
therefore, sustained profitability?
4. What are the implications for the current array of players in the ASP space?

Research suggests that a set of sharply differentiated business designs with the
potential to achieve sustained profit growth already exist.

1
IDC Report: Top Application Management Companies: Sleeping Giants of the ASP Market?


ASP MARKET

Behind the ASP marketplace is a broad movement of software applications from
individual desktop PCs or company mainframes to large servers connected to the
Internet, an Intranet, or an Extranet. In this new, network-centric model,
employees, customers, suppliers, and business partners will access various
applications across a wide range of computing platforms, including PCs, cellular
phones, and wireless PDAs.
Network-centric computing is here to stay, and is changing the economics and
operating assumptions of the software, communications, and computing
industries. The key question is how to sustain profits in this new environment.
Start-ups and incumbents alike view application service provision as fertile, but
dangerous, territory. Many telecom operators, for example, view ASP offerings
as an efficient way to promote valuable services while decreasing their
dependence on commodity connectivity.
System integrators also see a natural extension of their applications
implementation, maintenance, and outsourcing businesses in the ASP space.
Raising questions about how they will enter and what this means for the ASP
market. The likes of Accenture, CSC and IBM have tremendous resources, years
of experience, and strong brand recognition and assets that many t lecom e
operators and ASP start-ups lack. These system integrators are serious
competitors but along with the telecom operators might not prove flexible
enough to adapt to the unique needs of the ASP model and ultimately customer
expectations, while being expensive.
Software developers, see a way to regain control of customer relationships and
to substitute stable yearly revenues for volatile transactions and entrepreneurs
and venture capitalists see a vast opportunity for economic insurgency, using the
Web to redefine how software is bought and used.


MARKET INDICATORS

Innovative start-up firms such as Corio and Exodus have been able to grab the
attention of customers, investors, and incumbent players.
But certain incumbent firms, notably system integrators and traditional
technology outsourcers, find themselves well positioned to move into the ASP
space. Given their knowledge of applications and their traditional role of shaping
how technology is deployed in the corporate and office environment, system
integrators can hold the key to customers selection of applications, solutions, and
infrastructure. This gatekeeper position is forcing telecom operators to
increasingly consider system integrators as the customer, relinquishing control of
the end-buyer through strategic partnerships. Moreover, remote hosting and
management of hosted applications have increased network complexity, making
it hard to separate the application-selection process from the overall system
design. This strengthens the role of system integrators when it comes to choosing
software applications that support core business processes.
In contrast, telecom operators and software makers appear very vulnerable to
being relegated to a commodity-provider role. Responding to this threat will
require a radical rethinking of their traditional business model. Communications
infrastructure should be seen in the context of supporting higher value services,
in particular applications provisioning. Similarly, software developers appear
vulnerable. The dominance of Microsoft, SAP, Siebel, and a handful of other
giants masks the presence of hundreds of smaller vendors who exert little control
over the end-customer relationship. These vendors will be under increased
margin pressure as their historical channels of distribution consolidate or are
substituted by much larger organizations commanding much higher strategic
control of the customer relationship.
In response, firms that want to compete are complementing existing skills with
acquisitions or alliances to integrate new capabilities traditionally considered
the domain of other businesses—witness Deutsche Telekom’s acquisition of
Debis Systemhaus, NextLink’s play for Concentric, NTT’s acquisition of Verio,
Cap Gemini’s acquisition of E&Y and Qwest’s partnerships with KPMG and
IBM Global Services. These moves help position the incumbents to compete, but
they are only a start.


BUSINESS DESIGN ARCHETYPES

The shift to a network-centric computing model further blurs the distinction
between software and services. There are at least nine distinct business design
archetypes within the ASP marketplace. Each represents a unique, highly
selective mix of the activities that, taken together, make up this new marketplace
(see Figure 1).
While traditional strategy approaches focus narrowly on one or two product-
centric strategy elements, the discipline of business design thinking stresses the
importance of making decisions across five broad and interrelated dimensions:

1. customer selection and value proposition
2. value capture (or profit model)
3. scope of activities,
4. strategic control
5. the organizational structure that delivers utility to customers and creates
shareholder value.

Understanding each of these business-design archetypes, identifying how their
component parts fit together to drive profitability, sustainability and shareholder
value is critical to unlocking the value-creation potential of the ASP
marketplace.

FIGURE 1 ASP B USINESS DESIGNS

Image source: Mercer Management Consulting

It is useful to map business designs along two dimensions, one being the scope
of activity and the other being the complexity of the solutions offered. The
business design archetypes include:

1. Traditional, infrastructure-owning applications resellers such as US
Internetworking and Interliant
2. Non-infrastructure resellers such as Corio and Applicast
3. Web-based independent software providers such as Sales.com and Portera
4. Integrated-suite providers such as Oracle Business Online
5. Portals such as FT and FreeServe
6. E-process outsourcers such as EmployEase and CyberSource


7. Application-management providers such as IBM Global Services and Cap
Gemini
8. Web hosting companies such as Exodus and RedBus
9. Application-infrastructure providers such as COLT and Energis.

Assessment of customer selection, scope of activities and value capture further
illustrates their distinctive characteristics (see Figure 2).

FIGURE 2 B USINESS DESIGN ARCHETYPES


While the early analysis in the ASP industry has focused on the shift in pricing
from a one-time license to a rental model. More important ASP benefits include:

1. New application functionality: This is the most important driver of value
creation. A network-centric model enables functionality, such as intra- and
inter-comp any collaboration, that is impossible within traditional IT
frameworks. The announced launches of more than a thousand business-to-
business exchanges, for example, would not be possible without Internet
software from companies such as Xelus, i2, Ariba, BEA , and Commerce
One.
2. More effective utilization of IT resources: In the United States, an estimated
2.4 million IT jobs will open up by 2002, and according to European
Commission data, demand for IT jobs in Europe is expected to rise from
about 10 million jobs today to 13 million in 2003. However the rise in
demand is not being matched by supply, with the shortfall of IT jobs
expected to rise to 1.7 million by 2003 in Europe alone.


3. Aggregating and remotely managing applications for dozens of companies:
Enables service levels to improve and significant economies of scale to be
achieved.
4. Broader access: The need to have more people access more information
from disparate platforms is also driving the new model. New Internet and
wireless standards such as XML and WAP will enable companies to provide
such access.
5. Faster implementation and lower cost: With speed-to-market pressures
intensifying, the 18-to-24-month implementation cycles for enterprise
applications have become obsolete. Implementation times can be greatly
reduced through standardization.
6. Predictable costs: A flat monthly fee model, which makes costs more
predictable, is a more compelling value proposition than the “rental versus
buy” argument.
7. Scalability and reliability: E-business-architected applications have proven
to be much more scalable than traditional models. Moreover, applications
designed for a server (generally using UNIX or NT) are much more reliable
than desktop systems.

STRATEGIC CONTROL

More than 800 ASPs are in operation worldwide, and it is expected that several
thousand more will develop over the next few years. Clearly, not all of these
companies will win or even attain viability. Inevitably, as with the dot.com
industry, much enthusiasm, capital, and effort will be wasted on poor business
designs.

What will separate winners and losers in the ASP space is strategic control. The
ability to protect profit streams from being eroded by competitors and large
multi-national customers is a sound measure of the magnitude and sustainability
of an ASP’s business design.

While the business design archetypes discussed here demonstrate varying
degrees of strategic control potential (see Figure 3), any company competing in
this space must be able to exert significant leverage over at least one strategic
control point in order to achieve long-term success and superior profitability.

FIGURE 3 S TRATEGIC CONTROL



Indeed, two of the most potent strategic control points within the ASP market are
fast becoming standards: owning a software asset or creating a strong customer
relationship with significant switching costs. These strategic control points are
only attainable within one or two of the design archetypes
.
By contrast, there is little promise in the reseller model currently embraced by
the perceived industry leaders including USinternetworking and Interliant. The
degree of strategic control exercised by these businesses is only moderately
better than that of traditional systems integrators. While the global systems -
integration market is huge, the switching costs are extremely low, as evidenced
by the more than 100,000 companies in technology services worldwide, none
with a market share exceeding 6 percent. Far more promising are archetypes that
contain software asset ownership or develop customer stickiness through
vertical portals or business-process outsourcing.


MARKET DIRECTION

While no one can predict the Internet and network-centric computing, a few
developments seem likely.

First, is significant consolidation, mirroring the growth and eventual
consolidation of the Internet service provider (ISP) market, which began with
thousands of small players serving local markets and rapidly consolidated into
fewer, larger players offering a deeper mix of services. This concentration of
ASP businesses could evolve in several directions:

1. Emergence of vertical portal ASPs. So far, the classic ASP businesses have
not tried to exploit the collaboration and community-building power of the
Internet. Many industries including financial services, professional services,
media and entertainment, and health care may provide the opportunity for
ASP firms to combine industry specific content and applications to create
compelling vertical portal ASPs. This trend may accelerate as the business
plans for most of the industry-specific B2B exchanges and community
portals look to incorporate ASP-like functionality in their Web sites.
2. Rise of horizontal category killers. An alternate path may be the emergence
of companies that dominate particular solution areas, such as billing, e-mail,
human resources administration, or sales force automation. Firms that
aggressively assemble the best capabilities and functionality may be able to
develop category-killer scale and brand, enabling them to cornerstone into
a wide range of industries.
3. Aggregation and packaging. Recently, firms such as Applicast and
Jamcracker have been aggregating and packaging ASP offerings in order to
offer best-in-breed suites of services to customers and reduce the number of
operational and technologic provider interfaces that customers need to
manage.

The second major development is a “break” in business design between
applications management and infrastructure management. The stakes are rising
in the Web-hosting/applications infrastructure provider (AIP) space. At this
point, a world-class provider must have, or plan to build data centres globally
with fully redundant communications and utility systems and leading-edge
security solutions. These rising barriers to entry will force virtually all ASP
archetypes to abandon the capital intensive, data-centre business; instead, many
will choose to partner with AIPs/telcos allowing them to focus on core
application-management activities.

Additionally, the complexity of managing applications is too high a hurdle for
Web hosters/AIPs to overcome.

As Ellen Hancock, CEO of Exodus, was recently quoted as saying:

“We are not going to know applications. We’re not in that business. We just
support the ASP . . . We have no notion of competing with Oracle on e -
commerce. We do not intend to ever understand HR apps. That’s a whole
different skill base, and we don’t have it.”

This will likely breed another form of competition: the rise of intelligent
network management services from AIPs and Web hosters. As basic Web
hosting becomes commoditized, AIPs will look to add consulting and
intelligence services into their infrastructure, allowing them to earn a premium
on their services


Finally, while the light for ASP solutions currently consists of applications
accessed from the desktop PC, as broadband wireless technologies evolve, there
will be a rise in the mobile ASP service. The ASP market is poised to explode
with the rise of PDAs, pagers, and cell phones, providing wireless, broadband
access to the Internet and the applications that ride on it. This development, in
turn, will require a new surge in infrastructure development, from devices and
operating systems to transmission networks.

MARKET IMPLICATIONS

The convergence of the software, hardware, and communications industries is
driving the proliferation of ASPs. Incumbents in each of these arenas have at
least some of the capabilities required to capture value in this rapidly growing
market.

Software companies choosing to become an ASP require a fundamentally
different business model along with major investments in new software-code
development. Software incumbents must think through the implications of
building or renting new infrastructure, taking on the layers of application
customisation that are currently performed by customers, value-added resellers,
and system integrators, and delivering the service-level agreements required for
outsourcing deals.
They must also think through the economics of rental pricing and the loss of
maintenance and upgrade revenue streams, as well as the potential impact of
sharing value with a hosting or AIP partner. If a software firm decides to license
products to a vertical or horizontal ASP specialist, its challenge will be to
maintain some level of customer relationship, lest the firm become a OEM.

Communications companies will leap at the chance to become a host or an AIP,
in the belief that they cannot afford to let this opportunity pass by. The
competitive environment is growing more and more complex, the result of the
merger of the office environment (LAN) with the wider area network (WAN)
and public networks, enabled by the Internet and the proliferation of remote-
access devices and the emergence of remote hosting. Telecommunications
operators are being forced to build network and systems -integration capabilities
that overlap those of traditional systems integrators.

Systems integrators have critical application, integration and management
skills and in many cases the customer relationships to address these new
challenges, but their project-based business designs translate poorly to an
outsourcing-like ASP model. They have been able to avoid taking over
responsibility for managing infrastructure. In both of these areas, however, the
competitive dynamics with the emergence of ASPs may force their hands.
Systems integrators are on a collision course with software and communications
firms for control of the customer relationship. On the one hand, customers are
asking technology service firms to take responsibility for selecting remote
applications infrastructure, allowing the systems integrators to potentially
commoditize software and infrastructure providers. On the other hand, the
growing dominance of open standards will undermine the gatekeeper power of
systems integrators. In addition, remotely hosted environments, systems
solutions have more to do with networking architecture and middleware than
they would in a desktop PC or captive mainframe environment. Systems
integrators generally do not possess the required capabilities.
Leading telecommunications operators either already have or are busily
assembling the relevant capabilities on the back of their ASP and remote-hosting


services. Systems integrators have to decide how to stay ahead and remain first
in line for advising the customer.

The value creation potential of the ASP revolution is real, but so are the risks. As
incumbent players adapt to compete with the new insurgents, a new set of
business designs have emerged. Companies already in or contemplating entering
this market must develop a clear and internally consistent point of view
regarding the customers they want to target (community); identify a sustainable
source of strategic control to leverage ( pplications); and learn to quickly
a
refocus their business designs and retool their capabilities (dynamic).

Companies that rush to become ASPs at any cost, focusing on technology and
internal capabilities rather than addressing their customer’s critical priorities will
go bust.


BIBLIOTECH DIRECTION

The research shows that substantial revenues are to be made by Application
Service Providers that identify a strategy and business design that distinguishes
them from the competition and therefore the overall goal must be for BiblioTech
to create sustained market value from the strategy and business design it adopts.

There are varied business models that exist in the ASP marketplace. BiblioTech
has already developed two, schoolmaster.net and Postmaster.

schoolmaster.net is a service portal with associated applications targeted to a
vertical audience, the education community. schoolmaster.net offers students,
teacher and parents communication tools and content within a secure web-based
educational environment.

This business design positions BiblioTech as a Vertical ASP. However most
Vertical ASP do not own any applications or infrastructure and primarily serve
as a system integrator, bringing together all the elements to deliver an end-to-end
solution to customers.

The fact that BiblioTech has developed the enterprise environment ( Service
Portal) and communication applications contained therein, builds market value
by lowering service cost for customers. Market value is also increased as
schoolmaster.net proves that the applications developed and Service Portal
strategy executed for this particular vertical market was valid.

Postmaster is a free multilingual web-based email system, which was judged
‘simply the best’ in a November 1999 survey of nearly 300 such services by
internet.com.

This business design positions BiblioTech as an ISV, providing web-based
service directly to the public. With over 175,000 registered users to date and no
visible marketing campaign Postmaster has a clear and demonstrable market
value.

BiblioTech can therefore expect with confidence any ASP solutions based
around the Postmaster service to be competitive.


BIBLIOTECH CHALLENGE

The challenge lies in how BiblioTech develops subsequent Service Portals in
other vertical markets or in the manner it provides outside organisations with
proprietary technology and services to create their own.

BiblioTech can expect to market the services and applications it develops in
confidence. However the competition with other larger ISV’s, and ASP’s might
reduce profit margins as like is pitted with like. BiblioTech needs to distinguish
it’s self from the competition through technology not cost.

There exists a space in the ASP marketplace for BiblioTech to market
technology that provides the mechanism through which applications and
underlying infrastructure communicate. This mechanism or layer would provide
fundamental core functionality to all applications. New and legacy applications
would require an interface module allowing them to address core functionality.
This design eliminates the need to re-engineer the entire product offering each
time new applications are required while also providing a flexible integration
path for legacy systems.

Core functionality is, Language, Administration/CRM, Security/PKI,
Customisation/Content Management and Billing/Statistics.

1. Language is fundamental to application and customers allowing for dynamic
site translation. (partner – BiblioTech)
2. Administration is fundamental to application use and customers
management. (partner – BiblioTech)
3. Security is fundamental to applications use ensuring secure identity, data
confidentiality and data integrity between the customer and
application/environment. (partner – BALTIMORE)
4. Customisation is fundamental to applications for re-branding and site
continuity. (partner – BiblioTech)
5. Billing/Statistics is fundamental to application use providing BiblioTech and
it’s customers with payment mechanism. (partner – Teleknowledge)

The interface module should be built in a high level profiling language allowing
for rapid application and legacy system integration. As well as allowing for rapid
application integration this application layer will provide BiblioTech and other
3rd party solution providers, Telco’s and AM’s the ability to integrate their
existing infrastructure; Billing, CRM etc…

BiblioTech should look to partner with existing Service Portals (FT) and
Network Service Providers/Telco’s (COLT, Energis & BT) to gain access to
customers. BiblioTech will look to generate revenue by developing and
delivering advanced services to both the Service Portal and Network
Service/Telco Providers. This will allow BiblioTech to maximise its customer
base while limiting the support, CRM and marketing overheads direct selling
would incur.

BiblioTech can market directly through the Service Portals it creates, solutions
to SME and small business customers. These Service Portals will take the form
of generic application offerings, allowing customers access to a set of core web
based communication tools while offering value added service.

BiblioTech will offer different service level agreements for the Service Portals it
markets directly, such as Real Time priority for latency issues, Mission Critical


priority for security, encryption and ERP services and Best Effort priority for
data backup / email.

IDC expects the entire AO market to reach $26.7 billion by 2004, of which $7.8
billion is attributable to ASPs.

To capture some of this market BiblioTech must be aware of the following
elements:

1. Application-centricity. The core value of the BiblioTech service is the
provision of access to and management of an application that is
commercially available.
2. External management. The application service is managed from a central
location (or from distributed locations owned by or under contract with
BiblioTech) rather than at each customer’s site.
3. One-to-many service. BiblioTech partner’s with application manufacturers
and other IT vendors to package standardized offerings (enabling minimal
or zero customization) to which companies will subscribe over a specific
contract period.
4. Contract delivery. In the customer’s eyes, BiblioTech is responsible for
delivering on the contract — in short, seeing that the application service is
rd
provided as promised by BiblioTech, its resellers, partners or 3 party
application provider.
5. Software or license ownership. BiblioTech either owns the software or has
contractual agreements with software vendors to license access to the
software.
6. Centrally managed. Application services are managed from central
locations rather than at each customer’s site. Customers access applications
remotely.
7. Standardized deployment of applications. BiblioTech is able to deploy
application environments quickly because they provide minimal
customization around the application.
8. Multiyear contracts. BiblioTech will require customers to sign multiyear
contracts for services.

BiblioTech’s profitability also hinges on scalability and standardization of its
business design. From the applications being deployed to the pricing to the
SLAs, customers will always want it “their way” as much as possible.
BiblioTech must find a balance between meeting customer’s needs and
standardizing the processes and offerings for its Service Portals. Experience will
enable BiblioTech to develop templates and methodologies — some of which
AM’s and Telco’s can leverage from existing business, some of which are
adaptable from the one-to-one practice, and still others that must be developed
from scratch.

Biblio Tech Online Services Marketing Report

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (19)

En vedette

En vedette (9)

Similaire à Biblio Tech Online Services Marketing Report

Similaire à Biblio Tech Online Services Marketing Report (20)

Biblio Tech Online Services Marketing Report