Resellers act to combat ASP threat

Last week's announcement that Microsoft is to press ahead with an application service provider (ASP) model to sell its software, should have taken no one by surprise.

It can only be a matter of time before the UK subsidiary follows suit, and Microsoft UK executives have suggested that September is the most likely time. A UK ASP group, headed by Peter Bell, is already in place at the company's Reading offices.

The ASP model is suitable for small businesses that either don't want, or can't afford, to invest in technology themselves and would prefer to rent it instead. Vendors, on the other hand, want a sure-fire way to effectively penetrate the small business market.

The last major piece of relevant UK government research, conducted in August last year, showed that only 25,000 of the country's 3.7 million businesses were medium-sized (having 50 to 249 employees), while less than 7000 were large (with 250 or more staff). A market of more than three million potential customers would obviously be a sweet nut to crack.

Small businesses buy from other small businesses, typically from resellers local to them. So the ASP model has been viewed by many as a potential threat to smaller resellers, and with good reason.

Larger resellers may have the infrastructure and deep pockets to invest in hosting services for their own customers, but smaller resellers without these resources could be left high and dry if the model takes off.

But the situation also offers potential opportunities, even though it does make certain assumptions about skillsets and reach - assumptions which not all would-be ASPs are going to be able to live up to.

Getting the model right
A recent paper from research group Gartner predicted that 60 per cent of ASPs will no longer be operational by the end of next year because they do not have the correct business model. The market is currently poorly defined and full of immature services and providers, which means that few ASPs can offer the full gamut of services required, it claimed.

So the researcher recommended that ASPs team up with others to ensure success. "The ASP market is a primordial mix, where important supplier-side relationships are being formed. Suppliers of application services must ensure they have the right partners and can guarantee required service levels," said Gartner.

Paul Tollet, Microsoft UK's director of small business, said: "Small businesses have a dilemma: they don't want to be IT experts, but they're overwhelmed by choice." And it is in guiding that choice that local resellers come into their own. Larger ones are unlikely to be interested in the small business market. Could you see Computacenter or SCC getting excited about the prospect of a customer with a 20 or 30-user local area network?

Many observers say that local resellers often lack the skills to effectively evaluate their customers' technology needs, and Tollet claims that churn is still fairly dramatic at this end of the market. Microsoft UK estimates that 30 per cent of its local resellers change every two years. But if the ASP model takes off, local resellers are well placed to provide users with advice and at the same time, try to ensure that their business does not become another number in this depressing statistic.

So the best advice is to polish up those consulting skills and ensure you provide your existing customers with the best possible service because local reputation is a powerful tool.