Posted: 05/2001

Agency

The New Net Agent Channel
By Fred Dawson and Peter Lambert

This
might not seem like a good time to be thinking about expanding one’s agency
business in the direction of supporting delivery of hosted application software
to end users, but there’s more to what’s going on in the fast-evolving software
distribution arena than might be apparent at first glance.

While merely using the label "ASP" at this moment of dot-com
disarray invokes images of sinking stocks and over-hyped strategies gone awry,
the fact is that the strategic mishaps associated with this category of service
providers mask a confluence of activity across the software and networking
sectors that points toward a vastly different approach, not only to distributing
software, but to every facet of computing and network communications as well. In
the networked economy that’s emerging through the fog of confusion generated by
the collapse of first-generation business models, one can discern a blending of
telecommunications, computing applications and access to content of every
description that represents a vastly changed picture of what it will take to be
a successful service distribution channel, whether a channel’s starting point
was in traditional telecom, systems integration, value-added equipment resale or
supply of Internet access.

In fact, the evolution in this direction has progressed to where enabling the
new net agent channel has become a top priority among suppliers of the software
and networking machinery underlying the networked economy. If, as Microsoft
Corp. (www.microsoft.com), Sun
Microsystems Inc. (www.sun.com) and many other
giants of the computing world believe, software is to be accessed over networks
as routinely as it is accessed from CD-ROM drives in order to support the most
routine as well as the most sophisticated applications on every type of
computing device imaginable, then software must be an indispensable part of any
service provider’s package, and the software industry and its allies must make
certain that the channels are out there to make sure everything flows smoothly
to the end users.

"ASPs and other people in the hosting business need to engage with
channel partners in order to drive this distribution model to small and
medium-sized businesses [SMBs] and to make this a big market," says Mark
Chestnut, general manager for Microsoft’s Network Solutions Group. "This
market is very much for real."

As evidence, Chestnut cites Microsoft’s licensing of its Exchange
conferencing and collaboration software to ASPs for service to 200,000
"seats" (desktops) over the past few months. "We’re developing
customer success stories," he adds, noting that along with the popular
"horizontal" apps associated with products like Exchange, there are
now thousands of vertically focused line-of-business applications which
independent software vendors (ISVs) have built on Microsoft platforms that can
be moved to the network distribution model.

Microsoft in March rolled out a new Microsoft Gold Certified Partner Program
for Hosting and Applications Services and named ManagedOps.com Inc. (www.managedops.com),
Qwest Communications In-ternational Inc. (www.qwest.com)
and USinternetworking Inc. (www.usi.net)
qualified managed ASP partners under the program. To gain Gold status, each ASP
passed Microsoft scrutiny of technology, service quality, operational readiness
and operational best practices involving weeklong, onsite assessments and more
than 200 hours of Microsoft consulting. Approximately 20 more ASPs have entered
the certification pipeline worldwide, the company says.

Executives for ManagedOps.com, Qwest and USi say their "Microsoft
Gold" hosting and applications services certifications will accelerate new
app activations and build trust among ISV and integrator channel partners and
their customers. "The importance of trust is very high in the ASP market,
and we think this certification will accelerate growth and trust among existing
and prospective customers and channel partners," says Matt Howard, vice
president of business development for USi, which additionally has been certified
as an ASP delivering Microsoft Exchange and Commerce Server applications.

"We consider the application hosting certification the most difficult,
covering the whole ecosystem–not just technology certification, but our ability
to roll out and support new services, down to our systems for sharing
information with our channel solution providers and whether our own human
resources assure that we can scale," says Dan Taylor, founder and CEO of
ManagedOps.com, which also manages Exchange and Commerce Server apps, as well as
apps from Great Plains Software Inc. (www.greatplains.com),
soon to be acquired by Microsoft, and Siebel Systems Inc. (www.siebel.com).
"Ultimately, we can add new applications without having to have each app
certified."

According to Kevin Kosche, vice president of Microsoft, development within
Qwest’s Apptimum service for enabling traditional software developers to turn
existing applications into services available over the Internet, the
certification will underpin several "high profile" Qwest partnership
announcements with software developers and system integrator channels over the
next 60 to 90 days. Starting with its own additional Exchange hosting
certification, Qwest will expand its offering over time and recruit app
developers in four target vertical markets. "We will leverage the same
infrastructure underlying Exchange to support other applications the market
demands," Kosche says.

Microsoft intends to use its reliability, availability and security
certification initiatives to "help create the value chain, including top
application software developers and systems integrators and value-added
resellers [VARs], who can look to ManagedOps, Qwest and USi for quality
hosting," says Rosa Garcia, general manager of Microsoft’s partner program
group. "These companies are excellent partners for other partners who want
to join the ASP channel, but don’t want to get into hosting themselves."

Microsoft, of course, isn’t alone in setting up means by which partner
ecosystems can confidently grow around certified core applications
infrastructure providers to create the chain of distribution that extends all
the way to the channel interfaces with end users. A month ahead of Microsoft’s
new Gold program, similarly, Sun named Genuity Inc. (www.genuity.com)
and Qwest as the first to meet its SunTone initiative qualifications for hosting
applications on Sun platforms. And Cisco Systems Inc. (www.cisco.com)
has certified several applications infrastructure providers (AIPs) under its
Powered Network best practices and technology initiative.

Paralleling these efforts at the infrastructure level are a number of
initiatives aimed at facilitating the channel distribution model through
aggregation of multiple ASP programs, which gives channels the opportunity to
offer a wide portfolio of software apps without having to establish complicated
affiliations with each individual source of the apps. The ranks of such
middlemen include Agiliti Inc. (www.agiliti.com),
Jamcracker Inc. (www.jamcracker.com),
vJungle.com Inc. (www.vjungle.com) and
Bluetrain Inc. (www.bluetrain.com), all
of whom have evolved into the channel facilitation space as the ASP sector as a
whole came to recognize that the go-it-alone approach just wasn’t going to lead
to penetration of a broad market base of SMBs.

In February, for example, vJungle.com announced a "packaging tool"
designed to enable its channel partners, including Hewlett-Packard Co. (www.hp.com)
and Office Depot Inc. (www.officedepot.com),
to customize bundles of various software programs hosted on vJungle.com’s OpenEX
platform. Once a software vendor uses vJungle’s software development kit to
interface with OpenEX, the platform automatically tests and certifies each new
app, then notifies all channel partners of its availability.

"Bundling will impact pricing," says vJungle product planning
director Abhijeet Rane. "One-off pricing margins are thin, so the channel
partners need to raise margins through packaging."

At Jamcracker, co-founder and vice president of corporate development Mark
Terbeck refers to the new paradigm as "3-D partnering," where IT is
"evolving like the retail food industry." After ten years of IT
evolution in which "productivity became the mantra" that drove the new
economy, companies have become fixated on packaged programs from suppliers whose
brands they know, making it easier for them to assemble the programs to fit
specific in-house requirements and to integrate those programs with existing
systems. To stay competitive in this ever-more-streamlined, time-sensitive
marketplace, software suppliers have come to recognize that "it’s very hard
to build differentiation" at reasonable costs, which is why they’re turning
to the low-cost outsourcing model of hosted apps, Terbeck says.

And with the lower costs, the market base expands, Terbeck adds. "Saving
money is by far the No. 1 reason customers are moving to this model," he
notes. That includes the savings that come with avoiding the costs of
installation and implementation, and then change-out of programs as they become
outdated. "Businesses want plug-and-play integration, or at least a thread
of integration. They lack the resources to be their own systems
integrators."

As all of these considerations drive ISVs and end users alike to the
software-as-service model, the goal of companies like Jamcracker is to
"pull together this new ecosystem," Terbeck says. "We all have to
look at how to sell to end customers even if they are four or five steps removed
along the value chain."

Bluetrain began three years ago as a supplier of VPNs and went from there to
position itself as an ASP offering a set of collaborative communications tools
such as e-mail, shared calendaring and documents, work groups, discussion
forums, task management, directories and organizational charts to enable the
efficient conduct of business over those VPNs. Now the company is bringing in
other ASPs’ products to enhance its portfolio as it drums up channel
distribution support through affiliations with network service providers and
VARs.

"What we deliver creates groups on the fly," says Jack Weixel,
co-founder, president and CEO of Bluetrain. "The functionalities [the
collaboration tools] we’ve built into our core Passport product create an
integration and aggregation platform on behalf of the service provider. Our app
gateway becomes the permissive engine for everything else. The SP [service
provider] integrates to Bluetrain once and accesses all the other partners and
SPs we’re affiliated with."

The range of apps beyond the collaboration package embodied in Passport now
available through Bluetrain includes accounting and financial support systems
such as general ledger, accounts receivable, expenses, payroll and budgeting;
customer relationship management (CRM) tools such as marketing and sales, sales
forecasting, management of all customer interactions and teleservices;
e-business services such as hosted PBX, call management, speech recognition, web
conferencing, security and "partnerware" that helps to create a shared
extranet among team members; and e-commerce tools of every description. Also on
the list of ASP partners are suppliers of support systems for human resources,
information resources, and operations management and sales force automation.

Bluetrain now has a dozen ISPs and two global carriers on its list of SP
clients. "We went live in December with about half of them and are in
trials with the others," Weixel says.

The handful of ASPs who have been focused from the beginning on a
channels-only philosophy are seeing their strategies pay big dividends as the
channel community discovers that their customers want to exploit the cost
savings and other conveniences of the hosted apps model. For example,
ManagedOps.com, one of the firms certified in the new Microsoft Gold program,
recently announced it had expanded its channels-only strategy to include more
than 3,000 consulting and integrator professionals in more than 200 locations.
All are now marketing and implementing the company’s managed e-business apps
from Microsoft, Great Plains Software and Siebel Systems Inc.

The ManagedOps program allows VARs to realize revenue from the sale, lease or
subscription of software, along with an annuity for the sale of the Managed
Operations service. To train, support and further recruit these channels,
ManagedOps.com has established six regional and two national channel partner
managers.

Many in the VAR community say they now want hosted services as much as hosted
services want them. "ManagedOps’ ability to get a server online in days,
instead of months, is key to our closing a sale and winning customers,"
says Randy Forkner, vice president of Collins Computing (www.collinscomputing.com),
a Great Plains channel since 1994 and ManagedOps channel since early 2000.

Collins is currently implementing a 1,000-user, 493-site ManagedOps.com Great
Plains service for the southern territory of the Salvation Army. "We gain
an annuity from the ManagedOps customer acquisition to replace license revenue
that may not be there in the future," Forkner says.

According to another ManagedOps partner, Norcross, Ga.-based VAR/systems
integrator (SI) Interactive Business Information Systems Inc. (www.ibisinc.com),
a specialist in CRM and field service management applications, the first three
months of 2001 brought "a huge change" among customer prospects, 33
percent of whom were now asking about ASP services, says president and owner
Andy Vabulas. "When I signed up with ManagedOps, it was when I thought it
had become a ‘must’ component of our capabilities."

One of the important things to recognize as the new software distribution
ecosystem takes shape is that potential channel partners to the ASP community
come to the table with widely disparate skill sets. This opens an opportunity,
if not an absolute necessity, for partnering at the channel level, where, for
example, an agent with experience in telecom is bringing new hosted
communications apps to market such as unified communications and virtual
Centrex, but may need someone like a VAR or systems integrator with IT software
skills to add the more operations-centric apps to the service bundle.

Various carriers, AIPs and even big telecom vendors are looking at ways to
facilitate such collaboration among channel partners and the suppliers of apps.
Qwest, for example, has launched Q.Marketplace, an online collaboration and
lead-sharing tool that allows its affiliates to work together on specific
projects, such as teaming to fill in all the blanks to a request for proposal
(RFP). "This program allows ASPs, ISPs, agents, VARs and other partners to
find each other," notes Nik Nesbitt, vice president for business partner
programs at Qwest. "We’re about to distribute over 1,000 leads to our
channels."

Nesbitt strongly supports the notion that the ASP concept, if not the
original model, is alive and going strong, and that the channel distribution
model is the one that will make the difference for this sector. "The big
hurdle for small businesses has been that the customers don’t understand what’s
involved in moving to the hosted app model," Nesbitt says. "They need
expert help, which is where channels such as agents come into play."