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Go Ahead, ASP Me
A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

Something Ventured:
May 26th, 2000


By Brent Holliday

Go Ahead, ASP Me

“An’ I’ve made up my mind,

I ain’t wastin’ no more time

But here I go again” – Whitesnake, Here I Go Again

Acronyms in technology are getting very confusing.  Let’s take ASP for instance.  When you Ask Jeeves you get one of the following three answers:

a)       Active Server Pages – a web database interface system designed by and for Microsoft. (If you tie Active Serve Pages to Object Linked Embedding, does that make you an ASPOLE?)

b)       Application Service Provider – which we’ll get to in a minute

c)       Asp – A term for venomous snake from antiquity, probably describing a cobra in Egyptian times.  Cleopatra reportedly offed herself with an asp.

This column is not about a) or c), even though I will try to slide a humorous reference to venomous snakes in here somewhere, I’m sure.  There is much confusion and excitement around the term ASP, meaning Application Service Provider.  At the highest definition level, it means that an application resides on someone’s server outside your firewall and you are running that application on your connected device (PC or otherwise).  But in practice, the term is now so common it is referring to vastly different business opportunities.  I’m not splitting hairs here.  The exercise is meant to expose you to a really exciting and ground shifting change in the way we use applications.  This is change the world stuff.

I had a fascinating conversation with an expert in the ASP field recently and I will paraphrase how he described the history of software applications leading up to the ASP model.  Once upon a time, there emerged software applications that common folk like you and me could use.  This happened largely because a device appeared that was affordable and fit on your desk.  The PC started the era of productivity software applications.  For about 10 years, these applications only worked with the computer itself and output devices like printers.  Then networking enabled software applications to enter the client-server age.  Now software became more interesting because people could share common databases and run more powerful applications that relied on the server horsepower.  From 1989 to about 1995, we were in the golden age of software as local networks increased in speed, applications became connected throughout large enterprises, systems integrators were getting filthy rich with the complexity of these systems and software engineers would boast about thousands, even millions of lines of code.  Excess code aside, the applications were truly getting powerful and interfaces, our window (pun intended) to these applications, were getting very rich and very familiar.  Then progress came to a crashing halt.

The damn browser changed everything.  {Time for a tangent: Recent market meltdowns and B2C flameouts have given us all time to pause and reflect on what the Internet really does for us.  First and foremost, it is a standard network platform for all of us to communicate efficiently using software applications.  Read that again.  Take a deep breath.  The word “commerce” did not appear in that sentence.  Got it? It’s a standard.  It allows us to be anywhere, on any device, and use applications.  It’s a level playing field for developing software.  Back to our regularly scheduled column…} The browser “dumbed down” the applications and the interface.  Since 1996, corporations and consumers have been screaming for applications delivered via the browser, over the Net.  First it was Intranets, then Extranets, now instant VPNs (virtual private networks).  Since HTML and CGI with a little Perl script was all that we had for Internet application building in the beginning, the applications were pretty basic.  And the interface stunk.  No more drag and drop.  Just forms, forms and more forms.  Arrgh.

Software companies that had been riding the client-server cow became steak in the late 90’s.  SAP, Baan, Peoplesoft, even Oracle all stumbled.  Lotus disappeared into IBM and then Notes became less and less relevant.  Productivity apps outside of Microsoft went the way of the dodo bird.  Sure Java tried to be the new platform of the Net.  But it was too slow.  Everything was (is) too slow on the client side because our connections were (are) too slow.  But things are changing.  The old applications refused to die.  They fought back using ASPs.

The first type of ASP company to appear (US Internetworking, Corio and others) in mid to late 1998 focused on hosting the real client-server world application on a big powerful server connected to the Net.  I prefer to call these companies AHPs, because they host existing applications.  These companies took big enterprise software apps like Peoplesoft and made browser based front-ends to them.  With some custom code and the advent of more sophisticated HTML standards like Dynamic HTML, XML and Javascript, today’s AHP can make a web page look almost like a Peoplesoft interface.  The benefits of an AHP are enormous to a large enterprise.  In the old-client-server world, a software administrator would have to install and maintain software on everyone’s desktop computer as well as configure and implement the Peoplesoft server-based application.  With an AHP, the company can toss the software administrator out, along with the headaches of managing client software and gain a much faster ROI (return on investment) through lower upfront and ongoing costs.  As long as everyone has a browser and a connection to the Net and doesn’t mind the slight difference in appearance of the application in a browser, life is beautiful.  Also, with the reduced cost of access to these powerful applications, small businesses that couldn’t use them in the past, now can.  Bigger market.  Nice.

Many more AHPs are around today, enabling legacy applications and client-server products to work for companies.  A new breed of AHP is emerging for small business and consumers.  It is enabling the familiar applications that we use, like Microsoft Office, and games that we play to be delivered over the net, within the browser.  But this is different.  Instead of making the web based front end to these apps, they are using some clever techniques in Java and “thin client” computing to deliver the real, actual interface to you.  Drag and drop and everything.  Check out Personable, Yummy (Vancouver spawned) and Appstream, cool new AHPs for you and me.  Oh, sorry Paul, I should have said “Kewl” not cool.

If AHP sounds a lot like the hype of 1997, “network computing”, well, you’re right.  Network computing focused on Intranet or within the company as well as focusing on the thin computer that would provide you access.  The hardware part of the story was wrong.  We still like our thick PCs.  AHPs are located out on the Net and they host the application and, in most cases, your data.  In that respect, they are vastly different than the vision Larry Ellison espoused three years ago.

So what’s an ASP?  It’s the new breed of web application providers and hosts.  Web based applications are built from the ground up on the web.  The first of these to be a success was HotMail.  Think about it.  It has most of the functionality of your PC based email application.  It resides in the web.  It is built completely on web standards and would not work on anything but a web server.  Other web apps that you have heard of or may use include calendaring, file management, web based chat and Yahoo games.  Companies like Visto and Octopus are stretching the bounds of web apps.  Now, web apps are getting very sophisticated and robust. And today’s ASP is a company that can deliver the web applications to the target audience and get them to pay for it.

Many old client-server companies are making the painful, but necessary transition to the ASP model.  Pivotal is a great local example.  In the old days, when your software came in a package, you had to set up distribution channels.  Now, a company like Pivotal, that is implementing its entire CRM package in a set of web applications, has a choice to make.  Does it host the applications itself?  Or does it have other companies host its apps as broad and as far as possible?  Sounds like the latter until you consider that the ASP business will take a piece of the revenue pie.  If you do it on your own (outsourcing the hosting to a single large provider), you own the customer.  If a bunch of other ASPs host your software, they tend to own the customer.

Web applications are better than the AHP model because they are easy to upgrade, much more scalable and easier to add features to.  They are born of the web, not grafted onto the web.  Eventually, all AHPs will become ASPs as nearly all software becomes web-based.  Increased user bandwidth is leading the change. The explosion of web-based applications is just starting.  The VC engines are revving up to fund this area in a big way.  Customer acceptance of having the software, and especially the data, outside of your office is increasing.  It’s a tough concept to get used to, really.  All of you most sensitive files and data residing in some giant server farm in Colorado can be unsettling.  But the wave is unstoppable.  It will happen.

What’s even more exciting is that the browser may disappear shortly as well.  Operating systems and application platforms are being built by really smart people right now that will conform to the standards of the web, but will allow the old desirable interface features to come back.  The “dumbing down” of applications will end and a new era of software will begin.

Damn, no snake jokes.

Random Thoughts –

-          BC ESTI (Early Stage Technology Index) – 6 out of 10.  Despite continuing market turbulence, the early stage index improved over last month.  We are less than a year from a change of government provincially.  There are 3 or 4 significant financings coming locally in the next six to eight weeks.  Optimism remains fairly high.  But we’re not quite firing on all cylinders, yet.

-          Don’t believe the Brain Drain stuff in the media – you know and I know that judging a person’s contribution to the future of Canada by what university degree they have earned is ludicrous.  Statscan said we are gaining brains from the rest of the world and losing to the US, so it’s a wash.  Ummmm, no.  What no survey can measure is the experience and connections that Canadians are getting south of the border and their reluctance to return here and share that experience and their network with others.  The biggest hurt that we have is not how many Masters students have left, its how many potential or actual captains of industry won’t come back.

Letters From Last Week –

Brent,

I don't subscribe to the need for a startup company to need a full-time CFO. A competent CEO with a contributing board and outside council can very successfully raise capital and manage funds. I know a 30 person company where 28 of the people are full-time active engineers, a President and an admin person. This company is financially strong, has raised strategic capital and has secured large contracts with major players. This has all been done without a CFO or controller for that matter. Now a good question is whether the President should continue to spend his evenings cooking the books;-)

On another note, we don't all start companies with the intent or plan of taking them public, as you stated in your article. I do not believe HotHaus would have been valued at $280M(US) last year in the public market. I am very aware of some other small companies who were purchased for significantly more than $280M by large corps who could not have achieved this return on capital had they gone public. Positioning your company to be acquired can be more lucrative for all without the headache of going public.

BTW, you articles are amusing and informative....I simply wanted to offer a contrarian view point. I am not saying it is a correct one but none the less a different point of view.

Name Withheld

Thank you for the contrarian position.  At the earliest stages, I can’t say that I subscribe to the need for a CFO, either.  Certainly founders can raise angel money.  But once you are getting money from insitututions, VC or strategic partners, the CFO is invaluable.  You can raise money without them, but if they are good, you will get the best money possible. 

The vision of going public versus being acquired is moot.  I’m sure Ross Mitchell intended to build a large company and going public was his intention.  Specifically, a company needs to run towards a vision of growth and market domination, if they want to be big.  Along the path, if they are successful and heading towards that vision, acquisition offers may come.  Going public may also come in handy.  It is a headache to go public, but so is an acquisition.  A good CFO may be able to help navigate both eventualities.

That’s my view.

Brent, re: the CFO Challenge

They are as rare as UFOs these days. It's easier to find and hire programmers and DBAs than it is to find a good CFO. One of the only things holding us back from going public has been the lack of a CFO. We have been looking for over 10 months. The competition to land a good one is cut-throat. We had one on the hook and his existing employer sweetened the pot to hold on to him. Can you imagine how much that must have been to counter the potential upside we had to offer?

Name Withheld {From a very hot Silicon Valley company}

This letter shows the issues facing companies finding good people in the hottest market on earth.  Can you imagine filing for a NASDAQ IPO with a big US underwriter in January of this year and not be able to get out before the market meltdown?  Probably would have crashed back down with the rest of ‘em, but finding people can be a real big problem.

 
What Do You Think? Talk Back To Brent Holliday



Something Ventured
is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks).

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