VARs combat ASP threat

Last week's announcement that Microsoft US is to press ahead with an application service provider (ASP) model, should have taken no-one by surprise. It can only be months before the UK subsidiary makes a similar announcement. UK Microsoft executives have suggested that September is the most likely time. A UK ASP group, headed by Peter Bell, is already working at the company's Reading offices.

The ASP model suits small businesses that either don't want, or can't afford, the investment to own such technology, but who want to rent it instead. And vendors want a sure-fire way to penetrate the small business market effectively.

The last major piece of relevant government research in August 1999 showed that of the UK business population of 3.7 million enterprises, only 25,000 were medium-sized (50 to 249 employees) and less than 7,000 were large (250 or more employees). A market of over three million potential customers would be a very sweet nut to crack.

Potential threat to the small reseller
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 the smaller reseller, and with good reason.

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

But the model has also created a potential opportunity. It makes many assumptions about skill sets and reach, assumptions which not all would-be ASPs are going to be successful in attaining.

A recent paper from research group Gartner predicted that 60 per cent of ASPs won't be in business by the end of next year, due to poor business models. The market is poorly defined and full of immature services and providers. Few ASPs can provide all the required components of their offerings, says Gartner. It recommended that ASPs should partner with others to ensure success.

"The ASP market is a primordial mix, where important supplier-side relationships are being formed. Suppliers of applications services must ensure they have the right partners and can guarantee required service levels," the report said.

Paul Tollet, director of small business at Microsoft UK, 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 where local resellers come into their own. Larger resellers are unlikely to ever be interested in the small business market. Can you see Computacenter or SCC getting excited about a prospect that wants to run a 20 or 30 user LAN?

Sound local service key to success
Many observers comment that local resellers often lack the skills to evaluate effectively what their customers should have. Tollet says there is still fairly dramatic churn at this end of the channel. Microsoft estimates that it is running 30 per cent every two years.

So there is a straightforward solution for the small reseller to ensure that their business is not part of this depressing statistic and that it is well-placed if the ASP model takes off. Polish up those consulting skills and ensure your existing customers get the best possible service; local reputation is a powerful tool.