What It Takes To Be An ASP
Becoming an ASP (application service provider) can increase your revenue and margins, but first you'll have to deal with the tough questions regarding infrastructure, sales, and pricing.
Do your customers feel like they're buying an imaging solution from the Greek restaurant lampooned in John Belushi's Saturday Night Live skits of the late 1970s? No matter what the customer's business problem, do you respond with the IT equivalent of a cheeseburger and a Pepsi? By offering a virtual smorgasbord of document solutions for customers in nearly every vertical market, Jay Barrow, president and CEO of Imaging Solutions and Services, Inc. (ISSI) (Memphis, TN), makes sure end users keep coming back to the table. ISSI offers paper document storage, micrographics, and digital imaging and mass storage solutions. Customers can choose to bring their solutions in-house, outsource them entirely to ISSI's service bureau or ASP (application service provider), or divide operations between their own facilities and ISSI's. Added in 1998, the ASP may be one of the most appealing items on ISSI's buffet, but it may also be one of the most difficult to prepare.
Spread Infrastructure Costs Across Divisions
In an industry where maintaining cash flow and thinning margins are major concerns, making the capital investment to become an ASP is daunting for VARs. ISSI's initial investment in hardware and software was about $250,000. The integrator amortized that investment over five years, but Barrow admits that it really should have been three. During the first two years, that investment was underutilized and ISSI used less than 10% of its processing capacity based on CPU (central processing unit) analysis. However, demand for ASP services took hold during the third year, and ISSI began to see a return.
Justifying the cost of the ASP venture wouldn't have been possible without the other services the company offers. "I'd like to say that we invested money in target market research and ROI thresholds, but that isn't the case," says Barrow. "We took note as we began hearing this as a need from our customers and saw it as a way to expand the services we offered. The first two clients came on board almost immediately but they were by no means large enough to justify deploying an ASP. We couldn't have done it if we didn't have the existing customer base and the presence of our on-site technical community." The infrastructure, for instance, was also used to host ISSI's own Web presence and to support an already-thriving service bureau operation. Since the ASP services are a hosted version of the in-house solutions they provide to customers, the existing technical support staff that was already fully trained and taking support calls could also oversee ASP operations.
Prepare Your Imaging Sales Team For Special Orders
"We never push ASP," comments Barrow. "We just offer it as an option. There are some clients who just aren't at a point to consider an ASP. If that's the case, no discussion of security and availability is going to win them over." Because ISSI offers so many options, its salespeople can't fall back on a packaged solution. Instead, they have to have the expertise to offer a spectrum of options and discuss the advantages and disadvantages of each. "To fully meet clients' varying needs, resellers must have alternatives to offer," says Barrow. "Rip-and-replace or totally outsource can't be the only options. We've been successful because we let the customer decide between options that all address their identified needs."
To illustrate, one of ISSI's customers saw the advantages of online storage and retrieval, but their indexing requirements were very complex. Because the customer already had an investment in imaging hardware and abundant trained labor and wished to continue their specialized data entry, it made more sense for that customer to scan and index its own documents and submit them to ISSI via FTP (file transfer protocol) for online posting. The salesperson not only had to understand that customer's need, but also be flexible enough to consider all aspects of the environment, not just promote a one-size-fits-all document strategy.
Selling an ASP based solely on lower end user costs may not be the best approach. Barrow finds users are more focused on the effect on internal operations. "Price is on the list, but it's much lower on the list than you'd think," asserts Barrow. He says the initial wave of ASP customers were already predisposed to using the Internet. The second wave outsourced to compensate for a lack of internal IT resources or physical space or because they had a distributed operation. The current wave of customers are scrutinizing the decision to migrate to an ASP against the traditional approach of deploying internally managed solutions. For example, even a customer with the physical and financial resources to initiate an on-site scanning department, may choose to outsource document management and focus resources on core business.
What Is Fair Market Price For ASP Services?
One of the biggest challenges in adopting an ASP model is determining how much to charge users. "We've had this service for four years and still don't have standard pricing," says Barrow. "Some customers have a lot of documents stored but access them infrequently, while others have a relatively small number of documents that are accessed very frequently." Some documents are more mission critical than others, and providing guaranteed access to them has greater value. In addition, the ASP market is still maturing and clients' specialized individual requirements do not lend themselves to establish standardized, one-size-fits-all pricing, says Barrow. A field salesperson collects the key client application data points, outlining how the documents will be delivered, how many users, and other factors. The salesperson then engages the technical, financial, and marketing disciplines at ISSI to develop the ASP's technical design, expected cost to ISSI (based on factors such as mass storage volume and frequency of retrieval), and market factors needed to establish customized pricing for the proposed solution.
"When you have crafted a unique pricing model like this, you have to be prepared for a nightmare at billing time," warns Barrow. Initially, ISSI provided all customers with a complex invoice detailing monthly service charges and a la carte charges for retrieval and viewing. "After presenting this billing approach to a very large organization, the pride we felt regarding our ability to fully reflect the client usage of the ASP was soon deflated as we were asked for a simplified, single price, monthly invoice," says Barrow. "The customer said he couldn't accommodate variable usage billing due to operational budget requirements." In spite of the difficulties related to individual invoicing requirements, Barrow is fully committed to delivering customized client pricing and invoice presentation to meet the client's needs. He says, "As the market matures, we may be able to better gauge pricing, but we are unlikely to be like a Wal-Mart that offers one price to every customer."
ASP Boosts Services Revenue
The time spent launching the ASP initiative has paid off in increased revenue, especially when it comes to higher-margin services. Barrow states that just two years ago, the ratio of product and services sales was 70/30. Today it hovers around 60/40, and by 2005, Barrow expects services to account for more than half of all revenue.
Happy ASP customers are likely to grow their online usage and come to ISSI for additional services. "We had a customer in Atlanta who purchased just a few seats in order to manage customer service records," says Barrow. "Over time, the number of users has steadily increased, and the number of online images has grown exponentially. The customer was so satisfied with that solution it asked what we could do for them in other areas such as print-on-demand and other tasks end users tend to include under the heading of document imaging." The ASP has also fueled growth at the service bureau as most customers opt to have ISSI manage the scanning and indexing of documents posted online.
ISSI's strategy is based on the belief that an organization with only ASP on the menu won't be successful from a competitive standpoint. "How does a customer develop a comfort level with a solutions provider who only delivers one thing?" asks Barrow. "Our plan is to endear ourselves to customers by offering a wide breadth of client-driven, results-focused solutions so we'll be the one they turn to when they want to try new solutions or services."