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JULY 21, 2000 VOL. 26 NO. 28 | SEARCH ASIAWEEK

Borrow This Program
Asian tech companies are betting that, in a net-centric age, nobody will buy software any more. They'll rent it
By BELINDA RABANO

Psst. Hey you. Yeah, you — chief financial officer at a small business. How'd you like to get your hands on a complete computing package — software, hardware, and technical staff — for about $2,500 up front plus a small monthly rental fee? You get rid of all your tech-related headaches. Try it out free for 30 days, no strings.

That's the sales pitch of Malaysia-based Entellium, one of a rapidly expanding breed of companies calling themselves Application Service Providers (ASPs). First introduced in the U.S. several years ago, ASPs are spreading to Asia — and in recent months the acronym has become one of the region's most-repeated buzzwords. Internet companies trying to scratch out revenues in business-to-business e-commerce, from B2B portals to established software vendors to giant telcos, have been rushing to roll out their own ASP services. "Every ISP (Internet service provider) seems to be saying it's an ASP," says Phil Osborne, Singapore-based business development manager for Citrix Systems, a global supplier of application-sharing software. "They all know they need to provide that service sometime in the future."

The concept behind ASP is as old as the mainframe computer. Essentially, an application service provider rents software programs over the Internet to companies that would otherwise have to buy it, store it and run it in-house. Large businesses have long used central mainframe computers to host applications for employees to use on an as-needed basis via internal networks. ASP computing simply takes advantage of the Internet to extend that function to all comers, with the service provider doing the hosting. For a monthly fee, ASPs set up, run and maintain software from a central facility. Through the Net, customers can access and use in real-time individual programs such as Microsoft Office or Lotus Notes. They can even run specialized software for accounting, customer tracking or website operation.

The service allows businesses that have been slow to automate to get up to speed quickly, without high initial capital costs — not to mention ongoing expenses such as software upgrades and system maintenance. Renting software can save 30% to 60% compared with a do-it-yourself arrangement. "Companies don't realize how much it costs them to run [in-house] applications," says Phil Wainewright, managing editor of ASP News Review.

Some see the ASP trend as part of a larger shift in the workplace away from stand-alone desktop computers to network-centric computing. Even the king of shrink-wrapped software, Microsoft, is signaling the waning importance of software programs that come in a box and are installed on individual machines. Last month Microsoft said it was writing applications that would be stored centrally and accessed over the Internet by PCs and information appliances such as palm computers and mobile phones.

"It's only a matter of time before the ASP and IT industries become the same," says Jonathan Lee, founder of Corio, a U.S.-based ASP with clients including Excite@home and Clarent. Some say that in a few years, businesses will buy computer software in the same way they buy water and electricity — by the month. "You won't think about software any more than you think about dial tone, electricity or tap water," said Scott McNealy, chief executive officer of Sun Microsystems, in a recent speech. "You'll just use it, and let your service provider worry about how it gets to you."

Asia's technology and Internet companies are turning to ASP as a way to generate revenues in crowded fields. For example, Entellium formerly specialized in workflow management automation but now is selling itself as an application service provider. "We'd always found it very difficult to sell high-value software solutions," says Entellium chief executive Paul Johnston. "It became obvious there must be a more cost-effective way of doing this. Sharing the cost of computing among multiple parties is just . . . common sense at work."

IDC forecasts the global ASP market to grow from $300 million in 1999 to an estimated $7.8 billion in 2004. In Asia, IDC reckons the market could reach $100 million, but that's just for large corporations. Total ASP activity in the region is expected to be greater after tallying up potential business from small and medium-sized companies.

Certainly there appears to be no shortage on the supply side. Already, about 40 Asia-based ASPs are listed on industry website ASPstreet.com. More are in the offing. Representatives from some 200 companies recently attended an ASP conference in Singapore, and most were eyeing the rental business. Cable & Wireless HKT, Australia's Telstra and Singapore's StarHub are moving into the scene, along with established U.S. players such as Corio.

A few are targeting as customers fast-growing dotcoms that need to get Web operations up and running fast. But the bulk of Asia-based ASPs are homing in on small and medium-sized companies, businesses that are under competitive pressure to become more efficient but which usually lack the resources to avail themselves of big-ticket computer-based solutions. According to Asia Online, about half of all Hong Kong companies have yet to buy their first desktop machine, but many are seeking ways to improve efficiency. Asia Online, which started life as a Hong Kong Internet portal but is morphing into an ASP, expects to be able to tap a fast-growing market by renting Microsoft Office — the most-common business application — for a monthly fee of $50 per user (the shrink-wrapped version costs at least $400). Similarly, Hong Kong-based etako.com, a former computer systems integrator, recently remade itself as an ASP serving electronics manufacturers in Southeast Asia. Etako.com chose to focus on the sector because contract manufacturers in the region are being prodded by their U.S. customers to get online so supply chains can be automated, says etako.com chief executive Karen Fukumura.

At this stage, however, "there is a lot of hype without much substance" surrounding the underdeveloped ASP market, says Linus Lai, a Malaysia-based IDC analyst. A recent IDC survey found that out of 400 U.S. companies, only one-third would consider using an ASP. Another IDC poll of 200 Malaysian businesses revealed that 68% of the respondents didn't know what ASP was.

Even if they did, converting them into customers could be a difficult task. Although more and more people are becoming familiar with borrowing software through the Internet (Hotmail is, after all, an e-mail program accessed on remote server computers), close-knit Asian companies are likely to be reluctant to keep customer or financial data on a server run by an unknown third party. Concerns about reliability and security will hold back growth, analysts say. In many Asian countries, antiquated communications systems make running a business over the Internet too risky. "Customers are still playing the wait-and-see game," says Lai.

"I think that the demand is there, but I don't think the commercial opportunities and the cost of the technology will be in place" to create markets outside of modern urban centers, says Osborne of Citrix. Even in the network-centric era, some software will continue to come in a box.

Write to Asiaweek at mail@web.asiaweek.com

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