The new-revenue opportunities afforded to cable operators by Internet-protocol platforms and always-on broadband access are cutting a path into the application-service-provider business for operators with Internet presences and business models.
Services such as e-mail hosting, data storage, Web housing, electronic customer care, electronic-commerce hosting and desktop productivity are potential revenue generators for ASPs.
And cable operators are up for a lead role in the ASP space, according to a recent ASP business and technical model built by Lucent Technologies, which focused on the revenue opportunities and technical applicability of ASPs in cable networks.
"Cable operators are in the best position to become ASPs because of their big pipe, and any MSO could be considered an ASP. They're in the best seat of all of the players," said Ted Henderson, research director for Janco Partners, a Denver-based media-research and analyst firm.
Assembling the necessary components to comprise a fully functional ASP platform requires more than a few upgrades. But a growing number of industry experts are looking at ASPs as a valuable added service offering for cable operators as they enter the multiservice-provider business.
"Now, with cable, there's always-on access, so users may be compelled to work from home, telecommute or use a home office with a modem. Operators can provide Internet access, Web-site hosting and e-commerce, and an ASP platform allows an Internet presence. That's the ASP model," said Pablo Martinez, solutions manager for Lucent's cable-communications group.
Lucent recently designed a business and technical model for a functional ASP platform, with the target market being small-office/home-office and midsized business customers.
The ASP concept, Lucent's model revealed, is structured into a "layered" framework. The lowest layer provides data-center facilities, physical connectivity and data-networking equipment, including routers and firewalls. This layer maintains the expected levels of performance, reliability and security.
The second layer provides the ASP platform and includes the application-specific infrastructure; computing resources, such as servers and operating systems; data storage; and application management.
Next comes the applications layer, where applications services reside, and a fourth "professional-services" layer, for planning, consulting and integration services. A fifth layer, operations-support system, provides fault and configuration management, accounting, network monitoring and security functions.
The OSS layer performs the critical billing functions, as well, and a customer-care gateway, or customer-network-management system, allows end-users to manage their services online.
With CNM, the model suggested, an end-user can monitor network and server availability and performance, enter and monitor the status of trouble tickets and perform other functions.
While ASPs are essentially deployable by any cable operator providing Internet access, the model suggested that partnerships can be valuable when a variety of services, such as e-mail hosting and Web hosting, are launched.
For example, a network-service-provider partner provides the networking infrastructure, an independent software vendor provides applications and application-related customer care, and an ASP provides tier-one customer care and overall service management. A professional-services partner would then provide consulting, planning and integration services.
The ASP model, Martinez noted, is flexible enough for a wide range of system sizes. "Bigger operators are in a better position, but the ASP model is so flexible that smaller operators could offer the services in conjunction with a partner like a cable Internet-service provider."
Virtual private networks that provide end-user access to network-hosted applications are also value-added components that complement ASP delivery offerings.
The business scenario for Lucent's model for ASPs is built around cable operators that provide Internet access to residential end-users via cable modems and that want to become ASPs.
The model includes a data center that supports 50,000 end-users-20,000 ASP end-user subscribers and 30,000 Internet-access customers. The business case assumes that the cable operator begins by offering simple ASP applications such as human-resources functions, financial management, sales automation and e-mail, and that it uses a flat monthly fee that generates monthly recurring revenue.
After five years, the business case suggests a decline in gross revenues due to the capacity of a single data center being reached and with no plans for additional growth.
Several expenses are factored into the case, as well, with the costs of data-center facilities and improved IP infrastructure being the largest. Storage costs and customized application software are also crucial expenses for ASPs.
Other costs such as application delivery, service trials, best-practice implementation, integrating new applications into existing service bundles and information-technology staff costs are part of the business model.
The key benefits, Martinez said, include added value through always-on Internet access, simplified end-user systems, convergent service bundles, improved security and the enabling of VPNs.
With an initial investment of about $2 million, and with a relatively simple portfolio of application offerings and limited growth planned, the business case predicts more than $41 million in 10 years, with the breakeven point reached in less than three years.
Yet with the ASP's benefits come challenges, as well, Martinez admitted. "The ASP service model may require partnering with other service providers for certain components, so measures should be taken to guarantee the combined security and quality of service in critical areas such as data-center operations, network operations, client-server operations and others."
Data centers must also be highly secure and disaster-resistant, the report said. Physical security, equipment redundancy, fire-suppression systems, water sensors and a host of other security measures must be taken to ensure the safety of the data center.
Despite those challenges, Lucent's ASP business case speaks to cable operators looking at other access-network types-such as xDSL (digital subscriber line), fiber and broadband wireless-to expand their access-network portfolio and footprint. This gives cable operators the proper conduit to reach end-users as an ASP.
What is still required, though, is for operators to extend the IP infrastructure to include data centers, the model recommended.
A key feature of the ASP service model is its fit with cable operators offering bundled services. Adopting ASP could complement current cable-telephony and digital-video initiatives, the study suggested.
End-users connect to IP networks and the Internet for three reasons: communications, content and commerce. The always-on broadband-access experience, the report said, may provide new application and service opportunities not possible from other service providers.
"Cable operators are in a good position to provide services along those three dimensions. The ASP service concept may be the catalyst that can allow them to offer these as compelling, value-added service bundles," Martinez said.
The business-analysis numbers seem compelling, too.
The Yankee Group, a Boston-based media-research and analyst firm, predicted that the ASP market will grow from $3.1 billion in annual revenue now to $14.2 billion in 2003, with Web hosting and e-commerce being the key generators.
The home-office market is a key segment in the growth of ASPs. By year-end 2002, a study by research firm International Data Corp. expects 30 million U.S. home-office households with someone running a business. About 8.2 million U.S. households will be equipped with cable modems, with 6.2 million expected to be home offices. That represents more than 75 percent of the cable-modem customer base.
The ASP model concluded that business applications not requiring extensive integration or software-code customizations are the most suitable to offer via the "one-to-many" ASP service model. It cites examples such as desktop-productivity suites, e-mail hosting, Web hosting, calendaring, data warehousing and storage, virus control and unified messaging.
But it also points out that applications requiring higher levels of customization-such as e-commerce hosting, electronic customer care, sales-force automation and back-office applications (human resources, payroll, supply-chain management, electronic payment)-are what end users demand most from ASPs.
Lucent, Martinez concluded, is taking its ASP model to other markets beyond cable, with telephone companies and ISPs in the mix. The commercial markets will be the most lucrative for those customers, he said, adding, "The market segments include small to midsized businesses, income-generating home offices and residential home networks, but later comes the enterprise business."
For a growing number of cable operators, later may be right now.
Concluded Henderson: "You can name it what you want, but the big players are lurking in ASP already. In reality, anyone who can provide a service is an ASP. But of all of the players, cable can offer all three services-voice, data and video-and that's a tough card to trump."
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