Service model for new millennium

With the application solution provider (ASP) market tipped to explode, ARN profiles ServiceNet, one of the first companies in the world to pioneer the concept.

George Shaheen and George Conrades have been personal friends for years. And as the heads of Andersen Consulting and Bolt Beranek and Newman (BBN) respectively, they talked often about how they might use the strengths of their respective organisations.

That is, they discussed how they might combine application knowledge from Andersen Consulting and networking expertise from BBN (later acquired by GTE to become GTE Internetworking), to provide what both men saw as an emerging computing utility for global businesses.

The answer they devised is what market researcher International Data Corp has since dubbed the application service provider (ASP) model; Shaheen and Conrades launched a new company, ServiceNet, in January 1997 as a joint venture of Andersen Consulting and BBN. ServiceNet offers "netsourced applications" - basically a service-bureau approach to providing business software. It's not a new idea, of course, but it leverages relatively new Internet-browser technology to access the applications, so no software has to be loaded and maintained on local PCs. Shaheen and Conrades handpicked a top executive from MCI Systemhouse, John Whiteside, to serve as ServiceNet's CEO. Explaining why he took the job, Whiteside says: "In the '60s and '70s, processing power, in terms of MIPS and DASD storage, was very expensive.

"Today those two components are relatively cheap. Now organisations are more focused on rapid response to a dynamic business environment and globalising economy." ServiceNet's customers want three things, he claims: 1) Quick implementation; 2) Global coverage; and 3) The ability to make rapid changes to organisational structure without worrying about IT infrastructure and the specific technologies required to meet business demands.

Needless to say, these three things are precisely what ServiceNet promises. The company now has data centres deployed in eight locations around the world: two in the US; London; Madrid; Frankfurt; Sydney; Tokyo; and Hong Kong. These data centres were built with the fees received from ServiceNet's first customer, Andersen Consulting. ServiceNet supports nearly 50,000 Lotus Notes users worldwide for Andersen Consulting and offers Notes support to new customers, using a series of precast templates. ServiceNet has extended this concept to include Oracle's RDBMS, Oracle Financials, or Lawson Software's accounting and human-resources applications, using several templates to fit the varying needs of organisations.

Prime targets for ServiceNet's offerings, says Whiteside, are information-driven businesses - primarily those in the financial and professional-services markets. As such, the company will soon offer document-workflow solutions from Staffware.

Other infrastructure and software-licensing negotiations are also underway. In all cases, ServiceNet is eschewing the traditional service of highly customised development.

ServiceNet's goal is to be the application utility for trading communities, which begin inside an organisation and extend outward to suppliers and customers; in other words, its goal is to provide the integration of supply chains and demand management.

Target business processes are primarily those involving "collaborative" efforts within and beyond the organisation. ServiceNet then employs various tools that support these efforts, namely groupware, workflow, and document-image/document-management software.

The key financial piece that attracts customers is that they no longer must endure the typically onerous capital-budgeting process. Another hook is that customers avoid the often protracted, political, and confusing vendor-selection process - ServiceNet makes the choice. If customers are able to determine and document their application requirements, ServiceNet will use their specifications. Otherwise, ServiceNet or a partner does the requirements analysis.

If by now you're thinking, "Hey, my company could do that," consider the potential capital costs. ServiceNet competitor USinternetworking, for example, raised $US28 million in venture capital in January 1998 to get started, built a data centre, and then wasn't able to complete a debt offering in the $300 million range in mid-1998. For its part, ServiceNet just signed a deal to buy more than $300 million in network services from Cable & Wireless over several years. Cable & Wireless will deliver a seamless worldwide IP service, along with a multinational voice VPN service, to enable ServiceNet's intranet and extranet solutions.

But it may be easier to simply partner with an established ASP. If you have specific vertical-market expertise, for instance, then ServiceNet wants to talk. "The integrator could be a $3-million or $30-million shop," says Thompson. "The key is business-process expertise and a position in some unique niche." ServiceNet uses four basic routes to market: 1) Direct sales, which are opportunities that can be penetrated quickly by ServiceNet; 2) Hardware providers, such as Sun Microsystems and other major microcomputer manufactures; 3) Application providers, such as Lotus/IBM, Lawson, and Oracle; and 4) Other integrators. ServiceNet typically negotiates application-service agreements on a three-year contract. The integrator that sells the deal may be paid out up-front, monthly, or by some other pricing structure. Deals are based on a pricing model that consists of per-user, per-month, and per-service levels - 27 permutations in all. Commissions are paid based on the role the integrator plays, ranging from lead generation, lead management, and proposal development to closing sales or conducting implementation tasks. Integrator partners may also use ServiceNet as a prime contractor or subcontractor, depending on the opportunity.

ServiceNet is clearly off to a good start, but as a pioneer, the company is likely to take its share of arrows in the back. Whiteside's main challenge is building his company's market reach and services. "We have two key objectives for 1999," he says. "First, we're going to get more new customers onboard in North America and Europe. Second, we'll continue to build out the service offerings by adding applications to the portfolio."