ASP, aka SaaS, Making a Comeback
Success of CRM vendor rekindles interest in one-time boom technology
A few years ago, the term ASP (application service provider) was all the rage in the document imaging industry. Our 2000 index of articles indicates no less than a dozen references to the then-burgeoning new business model. Of course, 2000 was also the height of the tech boom, and a few things have changed since then. Much like the term “dotcom,” “ASP” has almost become a dirty word.
Now-defunct companies like Cylex, PaperFly, and MyDocuments.com all grace the pages of our 2000 issues. Remember Ralph Koehrer at Anacomp? He was the CEO that decided to invest some $30 million in his company’s docHarbor ASP initiative—a move which eventually drove Anacomp into bankruptcy.
Anacomp has since restructured, and docHarbor now accounts for close to 15% of its $180 million in annual revenue. So, Anacomp’s ASP project has not been a total failure. This model seems to hold true throughout the industry: hosted document imaging services make a nice complement to existing document services. More evidence of the success of this approach appears in the story we ran last issue on SourceCorp and its FASTRIEVE repository. We’ve also done pieces on the success of ASP initiatives at service providers like Lason and Iron Mountain. The ASP model just hasn’t proven it can sustain a business all by itself—or has it?
The Salesforce.com phenomena
Have you ever heard of Salesforce.com? Saleforce.com is the brainchild of former Oracle executive Marc Benioff. The CRM vendor has grown from a start-up in 2000 to a public company with annual revenue now approaching $300 million. Its entire business is based on an ASP model—or should I say software as a service (SaaS). SaaS is currently the en vogue term for describing hosted applications.
Needless to say, Software.com’s success has attracted attention, and the hosted software model has quickly returned to the technology picture. DIR recently caught up with Russ Hertzberg, a former Mitek marketing executive who is now working as the CEO of SaaS specialist Grapevine Software. Hertzberg sees a lot of similarities between the ECM market and the CRM space. He feels this makes ECM ripe for the success of SaaS.
“When a business purchases an ECM system, it often gets into an extended, multi-year implementation cycle. While the customer is running up huge services bills, the pre-purchased software seats are sitting idle. One company I worked for [not Mitek], wrote off more than $20 million on a failed ERP implementation. The same thing is happening with ECM installations.
“The days of big software purchases and related services are coming to a close. We are transitioning to a world where CEOs and CFOs are increasingly reluctant to lay out big money for projects they are not going to see a return on for more than a year. I’ve seen ECM products priced as high as $10,000 per seat. The current ECM leaders are addicted to these big ticket sales, and that makes them very vulnerable to competition from SaaS players.”
From cell phones to software
Grapevine has only recently launched its ECM line. We also spoke with H.K. Bain of Digitech Systems, a pioneer in delivering document imaging through an ASP model. Bain is the maverick former McCaw Cellular executive who joined Digitech in 2000. “The potential of software for rent is what attracted me to Digitech in the first place,” Bain told DIR. “An ASP model offers a recurring revenue stream, similar to what you have in the cell phone industry. The software business is the cell phone industry all over again. It’s just going to take some time to make the transition.”
Like other imaging ASPs that have managed to stay in business, Digitech has a more traditional line of business to supplement its income. In fact, Bain acknowledges that traditional software sales still account for more than 85% of Digitech’s current annual revenue of just over $7 million. The majority of the Digitech’s software sales involve its PaperFlow document capture line, which has found a successful niche among service bureaus. (Digitech’s roots go back to a service bureau business.)
The company also offers a full suite of document management products, including a repository and COLD and workflow modules. E-mail and records management modules are in the works. This traditional software suite is based on the same technology as Digitech’s ImageSilo hosted offering. “We are not the first to market with any of this technology,” said Bain. “So, we have to compete in areas like cost, ease-of-integration, and ease-of-use.”
According to Bain, these are precisely the areas important to an SMB market that is only now embracing the concept of imaging and ECM. “In North America, ECM has not penetrated very much below the Fortune 1000,” he told DIR. “Even though ECM is gaining visibility, it’s never going to take off like wildfire until it is offered at a price businesses in the SMB space can afford and served up in a way they can manage.
“Eventually, I see ECM becoming as widespread as the use of the Internet. I mean, what business can’t benefit from better management of digital documents? It saves both time and money. Why do you think giants like Oracle and Microsoft are moving further into this space? They see its potential. While we can’t compete toe-to-toe with the big guns, we sure can benefit from their advertising and marketing dollars.”
Bain added that current boutique ECM vendors have one advantage that Oracle and Microsoft will have a tough time competing with. “At the end of the day, customer service is very important to successful ECM implementations,” he said. “That’s where smaller companies like Digitech typically win.”
SaaS priced for the SMB
Bain could not give us specific pricing for ImageSilo, as the company sells exclusively through a reseller channel—which controls end-user rates. “We basically charge resellers a per gigabyte price, with significant discounts for higher volumes,” he said. “They are free to charge on a per document, or per click, basis if they wish. We currently have about 60 terabytes of data under management and 300 value-added reseller partners.
“Our partners are also free to market ImageSilo under their own brand names. We think of ourselves as following the ‘Intel Inside’ model.”
Hertzberg estimated that Grapevine could provide a 20-user application for approximately $8,000 per year. “We plan to offer a 30-day trial that is either free or very inexpensive,” he told DIR. “This will enable the customer to set up an extranet that they control access to, for both internal and external users. I will then engage them in a Web conference, explaining some of the features and options of our product. This hopefully will trigger a decision to activate and expand the system.”
Capture still a sticking point
Both Bain and Hertzberg agree that image capture needs to be as unobtrusive as possible for a hosted ASP model to be successful. In light of this, they concurred that EMC’s recently announced intent to acquire Captiva is the wave of the future. “Because of issues like bandwidth and security, we haven’t offered capture as part of our ASP model yet,” said Bain. “Currently, we accept images primarily from Kofax Ascent, as most of our resellers carry it.”
“However, it’s my opinion that capture has been the Achilles heel of our industry. It should not be a standalone item. To use a phone industry analogy, I see capture as similar to long distance service. Eventually, people are going to start bundling it for free.”
Hertzberg views integration with portal and capture technology as key elements to rounding out Grapevine’s ECM delivery. The company has begun working with the DotNetNuke open source portal to handle half of that proposition and is now looking for a capture partner. Because Grapevine is focused on collaborative applications, its capture needs are probably similar to those of EMC/Documentum’s eRoom application, which were recently addressed through a partnership involving scanner vendor Visioneer and integration firm Daybreak ICS [see DIR 11/4/05].
VARs, Web services, keys to ASPs future
Of course, integration with not just capture, but all a customer’s legacy applications, will prove key to the success of imaging ASPs in the future. “Simplicity is the key to integration,” said Bain. “For any Windows-based application, we can perform a screen-scraping type of connection. We’ve also opened up all our APIs. It’s important for users to be able to work with ECM through the same software interface they work with every day.”
We agree wholeheartedly with Bain’s views on integration being key for ECM’s growth into the mainstream. And it appears that, as the software market evolves, Web services may be the method of choice for achieving this integration. For now, however, Digitech’s API-based methods are probably good enough, especially as Digitech’s products move through a channel that will take a couple years to catch up with the cutting edge Web services trends.
After all, according to Bain, resellers are just now starting to understand how to sell the ASP model itself. “One of the reasons our ASP business has been slower to take-off than anticipated is that we decided early on to let resellers handle the sales,” said Bain. “There’s a certain amount of education that had to take place. However, it’s VARs that address the mid-market, which we are primarily targeting, and they are now in the process of educating end users in that market. When end users realize that ECM processes they formerly would have outsourced are now as easy to implement as falling off a log, you are going to really see this market take off.”
For more info: http://www.grapevinesoftware.com; http://www.digitechsystems.com
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