BT Ready to Ignite Its ASP Business

Application Service Providers have promised to deliver applications over the Internet. When they succeed, they will be a boon for the ISP business as they will increase demand for bandwidth. Here's how the UK ILEC hopes to dominate the ASP business.

by Paul Rubens of www.aspnews.com [January 6, 2003]

When it comes to deciphering how telcos fit into the Application Service Provider (ASP) equation, the answers are simple: Telcos either know nothing about the ASP business and are bound to fail in it, or they will inevitably come to dominate the ASP business. Those, in a nutshell, are the two competing theories about the prospects for telcos in the ASP space.

So it's interesting to watch BT, the U.K. ILEC, to see how it is positioning itself to address the ASP market and what sort of success it encounters. Its strengths are its perceived financial stability, its huge customer base and sales force, and its ownership of a vast network. However, like almost all telcos, it is seen to be less nimble and in possession of less specialist knowledge—especially in particular industry verticals— then dedicated ASPs.

It turns out that a great deal has changed over the last 18 months or so as BT, like most ASPs, has been feeling its way and reorganizing as it learns more about the ASP business and the types of customers it should be going after. Its Application Services business unit was disbanded and came under the wing of the e-business sales team, while application hosting was a separate business unit. These two activities have now been reorganized and brought together to form the Applications Management and Hosting group in BT's BT Ignite division.

More importantly, the list of applications offered has been torn up and rewritten from scratch. Application offerings from CommerceOne and BroadVision have been abandoned due to lack of demand, (although existing customers are still supported).

Steve Holt, head of applications, BT Ignite, told ASP news. "We have refocused the initiatives and applications that we offer because it was hard to get people to buy the ones we had. We are trying to sweat our existing assets at the moment, and we have pared away the ones we didn't think would make it," he says. CommerceOne software, for example, has now been replaced by Oracle's E-Business Suite Online

Holt says that rather than trying to sell application services to new customers by itself, the company has found more success by forming partnering agreements with software vendors such as Microsoft and Lotus as well as Oracle. That's because BT has something very valuable that these vendors want, according to Holt. "Most big American corporations have a very small direct sales force in the U.K. BT has a sales force of more 4,000 and existing relationships for telephony products with most businesses, so these American corporations like to take advantage of our big customer base." Joint sales initiatives are proving to be more successful than BT trying to go in alone, Holt has found.

Delivering messaging
So is BT really an ASP or just a big sales organization? "I don't think you can separate the skills we have from the pervasive relationships we have," says Holt. "We are certainly seen as a stable and technologically advanced when it comes to managing networks and applications."

Technologically advanced or not, a quarter of BT's ASP business comes from the provision of messaging services, a relatively straightforward type of application to manage. Messaging is also the fastest growing ASP area at BT, with business increasing by 40 percent over the last year. But messaging is usually a low-margin business, and the Application Hosting and Messaging business is not making money on flat sales of about £150 million ($239 million). Most of the messaging is based around Lotus products, although Microsoft's Exchange is beginning to take off, according to Holt. Interestingly, BT does not currently offer Exchange or other messaging products to other ASPs on private-label basis, but Holt says this might be considered in the future.

So will telcos like BT become the dominant force in the ASP business? "We are about sweating the network and best-of-breed applications hosting," says Holt, and this gives a clue to the answer. All the large telcos appear to be banking on a familiar scenario: that in the long term the computing environment will come to be dominated by a limited number of enterprise applications offered down the wire, developed by the likes of SAP, Oracle and PeopleSoft.

In this scenario, these vendors would not be able to deliver their applications globally themselves, and it could well be the telcos like BT, with huge customer bases and good brand recognition, that host and deliver these applications to the majority of large and mid-sized corporations.

Enter Web services
But there is another scenario which, though by no means certain, looks increasingly plausible: There's a whole new breed of Web-native applications suppliers— like Salesnet.com and Upshot—who own their own applications and act as ASPs to supply them. If Web services as they are envisioned become a reality and customers are able to pick and choose their own best of breed solutions and bolt them together, will there be a need for telcos offering a limited selection of applications—that they don't own—on an ASP basis?

In this scenario, telcos could be left supplying low-margin commodity apps like messaging to their enormous customer bases, while the more specialized high-margin apps are offered by these more nimble, best-of-breed, Web native ASPs. This must be the scenario that BT and other telcos hope doesn't happen if there is to be an industry-dominating future for their ASP businesses.

—End