If you are tasked with finding an application service provider (ASP) for your business, you should look for companies that have some experience in your company’s vertical market. The growth of the ASP industry is making this task easier than ever before.

According to analysts from IDC and Giga Information Group, ASPs are finding success by:

  • Establishing themselves in vertical markets with applications that can be applied to markets horizontally.
  • Finding a niche in vertical markets with industry-specific applications.
  • Delivering high-end applications that require lots of configuration and customization repeatedly in the same vertical market.

With the recent trend towards focusing on vertical markets, the odds are good that there is an ASP out there that is developing its expertise in your industry.

Starting vertically and growing horizontally
ASPs that don’t have software focused on a single vertical market need to have some sort of vertical concentration, according to IDC analyst Amy Mizoras. The reason is simple, she said. End users are looking for ASPs with some expertise in their industries.

“That’s one of the first questions [customers] have of ASPs: ‘Do you have experience in financial services?’ ‘Do you have other customers in government?’” Mizoras said. “They understand the model but they want to find out if it will really work in their industry and their business.”

Giga analyst Art Williams said he is seeing several recurring themes in the ASP market, and one of them is independent software vendors becoming ASPs.

“That’s understandable. Rather than selling your product, you find that your customers are tired of installing it and managing it, so you do it for them,” he said.

“For some of them, the actual activity that these guys have automated is not vertical, but is very general,” Williams said. “So if they cut their teeth in some niche, then boom, they can move to a dramatically larger market.”

One area where this seems to be happening is in the retail market, where brick-and-mortar companies want to become click-and-mortar, Mizoras said.

“If you talk to most of the horizontal ASPs, they are having the most success with their e-commerce applications right now,” she said. “USinternetworking, who has one of the largest ASP customer bases, said that about 60 percent of their customers are using their e-commerce applications.”

Finding a place in a vertical market
There are some vertical markets, like the health care industry, where the applications used are unique to that industry.

“Obviously, those ASPs are building their applications targeting those industries,” Mizoras said. “Generally, what they are doing is building content into that site, and in some cases, they’re building community into the site and sort of setting up what we call a supply chain exchange.”

ASPs that are targeting particular vertical markets are in a good position to add value to the relationship by combining application functionality while setting up an exchange or B2B marketplace, she said. Mizoras used a health care provider as an example.

“Maybe they will set up a procurement system where if they run out of something, they can automatically go to that ASP site and put a request in for that syringe,” she said. This would combine shopping, purchasing, and bookkeeping in one place.
In a recent article by Art Williams titled “Exemplary ASP Business Models,” he listed several innovative ASPs, including:

  • Applied Terravision: automates management of revenue-generating assets
  • CyberSettle: deals with dispute resolution solutions
  • Accela: manages urban building permits and legal-document workflow
  • nCommand: provides loan-fulfillment services

Source: IdeaByte, a Giga publication
Where it’s working
The second trend that Williams sees working in the ASP field is with companies offering applications that have so much customization capability that they become very complex.

Products like PeopleSoft and SAP are high-end and elaborate and sport customer-driven configuration, he said.

“That configuration, customization, can be broken into two legs. You customize it for an industry vertical, and then you customize it for an individual company within the vertical,” Williams said.

“Companies like Cybersolutions pay a lot of attention to [configuration] because this configurational data is so elaborate. Cybersolutions, in particular, treats that data very preciously and organizes it and indexes it. The next customer comes along, they can start very close, and just edit it.”

Everyone’s heard of “economies of scale,” and this is the new cliché, he said. “This is a good example of ‘economies of skill.’”

Mizoras said the service industries seem to be most interested in the ASP model. She listed financial services, health care, telecommunications, media, and professional services as markets with lots of ASP activity.

“The ASPs themselves are building their businesses right now, so it is likely you will approach an ASP and you may be the first customer in your industry,” Mizoras said. That won’t be the case if you are in financial services, medical, retail, professional services, and to a certain extent, in manufacturing.

“I haven’t seen much penetration in government, to give one industry for example, but we have seen some interest,” she said.

While government may be an area of somewhat uncharted waters, many other industries already have ASPs that are developing services to meet their needs. Among a few examples:

  • Applicast: targets discreet manufacturing
  • Evant: targets retail
  • Portera: targets professional services
  • Alibre: targets mechanical engineering
  • Dorado.com: targets financial services
  • Vifi.com: targets financial services
  • Pointshare.com: targets health care, tracking referrals, and patient eligibility

Are you looking to find an ASP to handle a part of your business? Does it matter to you if they have experience in your specific vertical market? Post a comment below or send us a note.