ASPs fail to hook clients
Despite expectations of strong demand, application service providers (ASP) are having a difficult time trying to drum up business in Poland. As a result, several ASPs launched in the past year have already suspended operations.
In the first quarter of this year, Gravity (http://www.gravity.pl), one of the countrys first ASPs when it was founded in 2000, called a halt to its business and laid off all employees. Application services havent caught on in Poland yet, said Włodzimierz Łuksza, president of the Warsaw-based IT company Hector, which owns an 80% stake in Gravity. We looked for an investor but we didnt find one last year. And we didnt find customers either.
Application service providers (ASPs) rent software, such as financial reporting systems and customer relationship management (CRM) systems, to small and medium-sized enterprises (SMEs). Applications are available through the Internet for a subscription fee that ASPs claim will save companies money in the long run by doing away with reconfigurations and upgrades. But where the ASPs sales scheme may be most flawed is in assuming that Polands SMEs will pay for software in the first place.
Market insiders said many of Polands SMEs prefer to use pirated software. Datamonitor, a U.K.-based market research firm, estimates that around 54% of all software installed in Poland in 2000, worth $54 million, was illegal. In addition, some companies said they are uncomfortable about storing sensitive data on third-party servers.
Łuksza said Gravity approached more than 100 potential customers last year but failed to garner interest. He cites yet another reason why clients have so far failed to warm to ASPs. The high cost of Internet access is one of the greatest barriers to the expansion of application services in Poland, Łuksza said. Our prices do go down as telecom companies agree to cut prices for Web access, but they are still too high four to five times higher than in the U.S.
Gravity was not the only ASP that anticipated a brighter future. Wrocław-based ASP ifirma.pl (http://www.ifirma.pl), which was launched in January, has 2,000 small-business customers. We planned to have as many as 6,000-8,000 clients by the end of this year, but it cant be met; we already know that, said Andrzej Parszuto, the companys CEO. Ifirma.pl provides management and accounting software for which it charges a zł. 39 monthly subscription fee. I still think there is demand for application services in Poland and one can make real money on them because unlike Internet portals, which offer free service in exchange for advertising, (ASPs) are a take-and-pay kind of service, Parszuto said.
But until the demand for application services grows, ventures like Gravity and ifirma.pl need financial injections to survive. Parszuto said the company has already reached a break-even point but to develop it will need an investor. We need $1 million; its more than we had for our launch, but now we need funds for promotion and development of the application that we rent, Parszuto said. Obviously, it wont be easy to find an investor because too much money was burned last year on pointless projects. But I do believe that after the fever is over the Internet will develop, although at a slower pace than we expected.
According to Jim Van Bergh, managing partner at eKatalyst, a venture capital provider for Internet and IT-related companies, all ASPs will have a difficult time finding investors. They are typically aimed at SME companies, but its not clear whether SMEs in Poland are ready to buy such services, Van Bergh said.
Another challenge ASPs face is the difficulty of developing Web-based applications that are as easy to use and have the same functionality as Windows-based applications.
Even globally the whole ASP model is not completely proven, Van Berg said. In the U.S., where bandwidth is much cheaper and companies are more open to the ASP model, there is only one proven success model - Web site hosting.
Meanwhile, Casper (http://www.casper.pl)(ComArch Application Service Provider), an application provider started at the beginning of 2001 by Kraków-based ComArch Internet Ventures, is among the few companies that can afford to wait for greater demand.
We are part of the ComArch group (listed on Warsaw Stock Exchange) so we are not going to limit our operations, said Dominik Skwirtniański, sales director at Casper. We help them (SME) to cut their operating costs and with the recession most companies try to avoid additional costs.
Casper targets small and medium-sized companies. It has 170 customers to whom it rents its own product, CDN eOptima, an application for running a small company. Casper also plans to sell software for the management of clinics. Skwirtniański said cost barriers that have prohibited the expansion of ASP business could soon disappear.
As the number of Internet access providers grows, prices go down, he said. They are much lower now compared to the beginning of this year when most ASP planned their launch.
Skwirtniański also said that the future for Casper looks good. There are some 30,000 accounting offices and some 25,000 clinics in Poland that are potential clients for application services, he said. So, ASP already makes sense, one can only speculate on the dynamics of its growth.
