I travel a fair amount. I live in central Virginia (not a major metropolitan area), so I'm lucky in that I have an airport nearby, even though only three airlines (ComAir, United, and USAir) serve this airport. Because I have so few available options, I've nervously watched United's proposed purchase of USAir. I like having competition for my business, and although United's stated position is that it wouldn't use the merger to hike airfares, I'm frankly skeptical. I'm also concerned that other airlines might merge to compete more effectively with the United/USAir company. I'd be just as happy to keep being irked at both United and USAir (flying being what it is, I'm going to be irked at someone) instead of being twice as irked at one of them. In an industry that's seen a decreasing number of choices over the years, I'm not eager to see more consolidation.
The application service provider (ASP) industry has precisely the opposite problem: too many choices. It's a lot cheaper for ASPs to set up shop than it is for an airline to do so. In addition, the industry is new enough that most people aren't wedded to any choices because most people are still using inhouse-hosted applications. Becoming an ASP isn't the get-rich-quick scheme that it once appeared to be, but burgeoning ASPs are still a dime a dozen. And it's still hard to find the applications you want.
I've expected 2000 to be the Year of Consolidation for the ASP industry, and what's going on now seems to support this view. Long term, successful ASPs will be able to provide access to services that customers may not consider "required," but short term—while the model is still getting off the ground—the successful ASPs will be the ones that offer products customers already know they want but haven't been able to get. It's a mistake to overlook the potential market for remotely hosted application suites—a number of ASPs offer Microsoft Office applications, and Corel just signed a licensing agreement with C MeRun that will let users access WordPerfect Office 2000 and other Corel applications via their Internet connection. However, consumers and businesses can host these applications themselves. Small businesses can't host demanding or expensive applications for one simple reason: money. For a company with big plans but a small IT budget, licensing large enterprise resource planning (ERP), scientific modeling, or telephony applications is expensive. To serve this customer base, ASPs are partnering with or licensing applications from well-known vendors.
Then there's availability: If the network goes down, the applications go down. To make themselves attractive to potential customers, ASPs are also partnering with trusted networks. "Trusted," in this case, often means "well known." It's not a good time for a new network service provider to come into the market unless it can make a convincing case that it is more reliable than its better-known competition.
In short, the easiest way for ASPs to be attractive propositions is to partner with known quantities, and that's just what they're doing. In most cases, the ASPs themselves are not well known, but they're hoping to become well known as suppliers of well-known applications, using well-known networks, or as associates of the few ASPs that do have name recognition. Expect lots more partnering in the ASP space because, in most cases, the ASPs that can't make deals with the well-known companies will have a harder time competing.