ASPs in Europe
Elephants slowly lumber through the jungle. But one elephant, a pink one at that, is charging ahead in the ASP business in Europe.
PinkElephant is a Dutch ASP headquartered at Zoetermeer. The ASP is a PinkRoccade nv company, one of the most successful traditional† IT outsourcing vendors in Holland. And that’s exactly how the ASP market is developing in Europe. The quick starting, independent American startup is the slow moving elephant in Europe, according to Leon Fock, business unit director.
PinkRoccade nv was formed in 1950 as the Mechanical Administration, which was part of the central government of the Netherlands. Every 20 years the IT outsourcing vendor has reinvented itself. In the 1970s the department morphed into the Government Computer Center. In 1990 the department became a public limited liability company as part of a privatization move.
In 1999 the company changed its name to PinkRoccade. Today it is the No. 1 player in the Dutch IT outsourcing world, specializing in application management. PinkRoccade produces the paychecks for half the salaried workers in the Netherlands.
In “legacy times” PinkRoccade built its own applications and then ran them for vertical segments like the government sector. Its specialty is payroll and financial applications. As technology evolved, Fock says “it was natural to grow into an ASP.” Fock says the vendor has been charging buyers according to the ASP model for years. For example, the vendor has charged government agencies on a cost-per-use basis for years.
The new ASP, christened PinkElephant, specializes in infrastructure management services and systems integration. Currently the ASP operates worldwide, with offices in the Australia, Canada, the U.K, and the U.S. The majority of its business, however, is concentrated in the Netherlands and the U.K.
Lower cost is a major customer magnet. A PinkElephant study of enterprise resource planning (ERP) applications found in Holland it cost a customer twice as much per user per month if the customer managed the application in-house. “We did the math. An ASP offering is half price,” Fock says.
This cost savings is resonant with PinkElephant’s ASP buyers. “Our customers have limited resources,” he says. “They want a high quality IT solution for a good price. That’s what the market wants.”
And he points out that outsourcing is often the only way they can afford to adopt a new business model. “Companies need to invest money in their core businesses only,” he says.
Even though PinkElephant’s ASP business is growing, Fock says it still only contributes 5 percent of the vendor’s revenue. The European take on ASPs is quite different from the American ASP marketplace, which has been the global hotbed for the new type of outsourcing vendor.
ASPs rely on economies of scale to become financially viable. Achieving a critical mass is tougher in Europe. America is a populous country with one language and one set of regulations. Europe is a union of sovereign states. If an ASP chooses to operate at home, say in Holland only, the economies of scale become limited based on population numbers. If the ASP wants to appeal to all Europeans, it will have to operate in six different languages, learn the regulations of six different countries and be sensitive to the cultures of each. “You’d need a dozen attorneys to get the deal done,” he says with a laugh.
Security is an elephantine obstacle. Fock says European buyers are just not as trusting as their American counterparts. Europeans are worried about receiving their applications through the Internet. They fear a hacker will keep them from getting to their applications or worse, break into their systems and gain access to proprietary data. “Security is a big issue,” says Fock.
Moreover, European buyers are not completely sold on outsourcing the IT segment of business processes they deem crucial. The belief is prevalent: “Why shouldn’t I do that myself?” Fock reports.
Combine this attitude with the fact that the European outsourcing market is “more organized” than its counterpart across the Atlantic. Traditional IT outsourcing vendors are working hard “to defend† their current market share and revenue,” observes Fock. Their argument is, “Why should you move to an ASP when your traditional outsourcer is working fine?” he says. Many satisfied customers are seeing the logic in that argument and are only turning to ASPs “when necessary.”
Fock says there are very few newcomers in the European ASP market. Fast growing startups like Corio have yet to emerge. “New startups are not here at all,” he reports. Instead, the ASPs are like PinkElephant, an outgrowth of the traditional, well established suppliers who have been servicing buyers for decades.
The traditional vendors, however, see the ASP model as a method of outsourcing “showing great promise.” One of the attractions is its “stickiness.” Fock points out it is much more difficult for a customer to leave an ASP than a traditional vendor. “We get them locked in. We have their data in our data center using our security,” he says. Customers stay because “they get a superb product at lower cost.”
Traditional vendors also like the ASP model because it presents an elegant solution to difficulties inherent in the traditional software delivery process. These suppliers have dozens of customers who need a software update every few months. “Updating is an expensive process and has no added value for us,” he explains. It’s much easier to update an application from one central location.
Despite the more traditional outsourcing attitudes, Fock is an ASP convert. “This is a market with a big future in Europe,” he concludes.
Lessons from the Outsourcing Primer:
- ASPs in Europe are divisions of the traditional IT outsourcing vendors who have been serving clients for years.
- ASP offerings are half the price of an ERP application done in house. This model is appealing to companies with more limited resources.
- European buyers are worried about security over the Internet.
- Traditional vendors are determined to protect their market share from ASP providers.