ASP upsurge as economy sours? - Industry Trend or Event

Communications News, April, 2001 by Sean Kelly

A weakened economy could result in a boost for ASPs, such as Interliant, US internetworking, Corio and Qwest Cyber.Solutions. Herb Hribar, Interliant CEO, says sales have picked up in January and February, following a slowdown in the last two months of 2000. There is more interest among larger enterprises in the Purchase, NY-based ASP due to the slowing economy, he adds, as clients' focus has changed more toward saving money.

"Last year, we saw companies looking for more intangible and softer benefits: speed, focus and use of IT resources," he says. "What appears to be happening in each of our sales engagements now is that companies are asking very early, `What are the savings going to be? How much leverage can we expect from this?'"

Another indicator of enterprise interest in ASPs is a marked increase in prospective clients who are likely to sign up--those Hribar terms are "in the pipeline," as opposed to those "backlogged," or already signed for 12 months. "In the fourth quarter, there was just a modest increase in the backlog (at Interliant). We saw, however, a 40-50% increase in the pipeline," he points out. "By and far, that increase in the pipeline was driven by more interest in ASPs." Hribar adds that the larger companies are looking for collaborative software, such as Lotus notes, as well as customer relationship management and security products.

Interliant's experience supports a projection by Cutter Consortium of Arlington, MA, that anticipates an upswing in outsourcing should the economy slow down. "Companies will look to cutting costs any way they can," says Michael Mah, Cutter Consortium senior consultant. "If projects can be completed by outsourcing vendors more quickly and less expensively, that's the route they'll take."

Mah says companies considering outsourcing should formulate a baseline of the company's productivity--considering project size, schedule, effort and defects--to compare against numbers an outsourcing vendor is proposing for an upcoming project.

"You want a supplier whose reach, resources and technical skills allow them to perform at a higher level than your in-house staff," he says. "You can't ascertain that from the marketing literature or a round of golf."