The Internet Business Services Initiative

A well-funded group contends that the ASP business model is obsolete as a new single-source solution appears on the horizon of the Internet service segment.

by Gerry Blackwell [January 16, 2001]

ISPs shopping for business partners who can give them immediate access to the burgeoning application hosting market need to understand that application-hosting companies may not all be created equal.

The Internet Business Services Initiative (IBSi), an 18-member trade group, was formed in December 1999. Its mission is to educate the market about what it sees as the fundamental differences between IBSPs and "first generation ASPs."

A recent survey of IBSi members seems to confirm that they are indeed onto something. One impressive statistic: the number of individual user customers at each service ranges from 2,000 to more than 96,000, averaging about 27,677 users per site. And the number of companies as registered customers at members' sites ranges from 30 to 8,000, with an average of 1,785 per service.

These numbers—assuming members were telling the truth—must put them among the elite ranks of the application hosting industry. And these are mostly small start-up companies.

IBSi no bunkum
One additional interesting finding about the group is that of its 18-members—two companies are considered sponsors—that have the combined access to almost a half a billion dollars in venture capital.

Internet Business Service Providers are by definition both developers and hosters. And their applications are typically built from the ground up to work well on the Internet.

Although they may outsource hosting functions to an infrastructure services provider, there is a single source of accountability, at least from the customer's perspective.

"There are tremendous customer benefits from having the same company as developer and hoster," says IBSi president Duncan Van Dusen, who is manager of partner programs at Austin-based Works.com, Inc.

The other defining characteristic of an IBSP, which follows from its ASP connection, is the group strictly adheres to the one-to-many distribution architecture model. Rather than a software developer licensing its product to many ASPs and aggregators, IBSPs keep tight control of the application code.

This simplifies the process of upgrading, enhancing, bug fixing and technical support. "There are great economic benefits from this—and speed to market power for the end customer," Van Dusen says.

"When you add the one-to-many architecture and the single party responsible for both hosting and development, there are dozens of customer benefits that flow from it."

ISP to IBSP?
But what role does this model leave for ISPs? One possibility is distribution—in terms of sales—selling IBSP services to your small- and medium-size business subscribers.

"There's definitely no reason an ISP couldn't be a reseller," says Van Dusen. "In fact, that's right in line with the kind of distribution channels our members are frequently building."

One of interesting discoveries that the survey revealed, is that almost half the IBSi members work with Value-added Resellers, system integrators and other third-party resellers. Industry experts expect this number to increase significantly over the next two years. VARs and SIs play a similar role to the one they've played in the traditional software distribution model, although they now concentrate more on the business consulting and training side of things.

"Because the systems work is no longer required, anyone who can bring in customers can be a reseller," Van Dusen points out. "This opens it up to a much larger range of channel types."

For example, Works.com, which offers business supplies purchasing services, sells through financial institutions, accountants and employers' organizations. ISPs could fit into the mix here, too.

One of the attractive things about IBSPs as partners is that they take things like customer rights and security very seriously.

According to the member survey, no member sells customer information—unlike many portal operators, to whom IBSPs are sometimes compared. All members allow customers who want to leave to extract their data.

And most have multiple security levels—"ranging from three to six layers or more."

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