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Distributors face the chop

Distributors face the chop

Australia is taking a lead role in the ASP phenomenon, but unless the channel re-evaluates its role, certain players face being completely cut from the value chain.

Application service providers represent a serious threat to all segments of the channel, warned Traver Gruen-Kennedy, chairman of the ASP Industry Consortium and director of advanced business development for Citrix Systems, at last week's N+I and Comdex conference in Sydney.

By 2003, the ASP market will be worth an estimated $US22.4 billion, compared with $889 million in 1998, according to Gruen-Kennedy. In addition, it offers new opportunities for the channel to improve margins and gain access to long-term revenue streams from tailored IT services, he said.

However, while systems integrators and VARs can easily leverage customer relationships, Gruen-Kennedy said the future for distributors is unclear.

As the industry moves to adopt a stronger focus on integrated business-to-business and server-based e-commerce models, distributors in particular must decide if they will be a services or logistics company, he said.

"If distributors don't wise up and move forward, they risk being cut out. Using the example of software vendors that move to produce rental-based products under the ASP model, Gruen-Kennedy said they need partners to manage their relationships with ASPs, which supply the solutions directly to the customer.

"ASPs generally don't have distribution -- they need that systems integrator," he said.

He did offer hope for value-added distributors determined not to be a "warehouse and a bank".

"There is going to be a need for plenty of logistics organisations that embrace the Web because there are a lot of products that need to be shipped," he said.

According to a recent study by the ASP Industry Consortium, 65 per cent of ASPs are now targeting small and medium businesses, Gruen-Kennedy said.

"Those are the businesses that are taken care of by, and have a trusted relationship with, the integrator or VAR."

But while ASPs offer systems integrators and VARs the chance to tap into 20 per cent margin streams, they too must evaluate their role in what has become one of the channel's greatest threats.

"They need to ask themselves the same question that everybody asks: What is my core competency?

"If it's running data centres then yes that's OK, but if it's selling solutions and managing customer relationships, they must partner with ASPs to resell their service and provide the service under their brand.

"I think it is very important to engage with an ASP that has your long-term interests at heart, and isn't just interested in acquiring your customers and stealing them."

Meanwhile, Gruen-Kennedy said Australian ASPs are well placed to expand into the international IT economy.

"Outside North America, Australia has the fastest-growing ASP sector.

"There are more ASPs [in Australia] than in Europe, Japan, Singapore and Hong Kong," he said.

"Australia, to some degree, has taken a leadership position."

The ASP revolution has "the promise for software and IT [in Australia] to gain momentum on a global basis".

He said Brisbane-based Tequinox (formerly Mincom ITS) is an example of an Australian ASP with global potential.

Tequinox, which specialises in applications for the mining industry, is hosting applications from its Brisbane data centre for users in Chile and Europe.

Around 150 companies worldwide have adopted an ASP model based on running applications from a data centre, Gruen-Kennedy said. He estimates there is the potential for "tens of thousands" of ASPs in the marketplace in the future. Many companies have also adopted a similar hosting model which is based around browser and Web-application servers, he said.

In Australia, there are currently about 12 ASPs but many companies are moving into the space.

"It's safe to say there are many companies who fully understand the [ASP] business model, but a lot of others don't understand and don't want to be left behind," said Gruen-Kennedy.


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