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TECH TALK: The Coming Age of ASPs: Like Search in 1999

May 9th, 2005 · No Comments

In 1999, Search as a business was all but given up as a dead business by the incumbent players. And then along came Google and the rest, as they say, is history. Today, there is perhaps no technology business as hot as Search. Everyone is clamouring for a piece of the action. What dot-com was once, Search is now but with a difference. There is a clear revenue model built primarily around advertising.

Along with many ideas, another business category died in the 2000 era. That was the business of providing software applications on a hosted basis. Application Service Providers (ASPs) were once touted as companies who would change the face of software delivery and make most of the incumbents obsolete. What happened? Little changed. Even though we have a few companies like Salesforce.com which comprise the next-generation of ASPs and have built successful businesses, for the most part, ASPs still remain few and far between.

Just because a technology or idea did not do well once, it does not mean that it needs to be written off entirely. For example, Apples Newton was way too early while the Palm Pilot had both timing and the right feature set to succeed when it came out. Timing is, in fact, very critical for the success of innovations. If one is too early, then one will languish till the critical mass is built. In the process, any number of things can go wrong.

Going back to the Search case study, companies like Yahoo, Lycos, Altavista and Excite led the charge. But they could not monetise the traffic that was there. As a result, investments into search technologies shrunk. Users were disillusioned with the results dished out. Attention shifted from search to all-encompassing portals. Advertising was limited to banner ads and suffered from diminishing returns.

Into this market strode Google with a clean user interface and a technology that dramatically improved the quality of results. Users once again flocked to search engines. Google (and Overture) came up with the idea of linking ads to search results. As Joe Kraus (an Excite co-founder) put it, Google figured out how to monetise the long tail of searches: We couldnt figure out how to make money from 97% of our traffic. We couldnt figure out how to make money from the long tail from those queries asked only once a dayOverture figured it out, Google perfected it and we all know what happened from there. Those guys figured out something revolutionary — the long tail of search was a advertising marketplace.

I believe that the ASP business is where Search was in 1999 ripe for new entrants to come in and make a mark from the long tail (of enterprises). But first, let us take a walk down memory lane to understand the promise of ASPs and then analyse what went wrong in the first wave.

Tomorrow: Rationale

Tags: Tech Talk

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