Doug reports on his recent work on the impact of web services on web hosting.
He comments about the death of the ASP model. I remember when I first heard folks here in the Valley getting all excited about ASP’s (remember Corio?). I really had to question whether the typical Sand Hill Road venture investor had the patience to wait for the ASP business model to work. They’re MUCH more accustomed to the hockey stick of the product/technology company model — not the slow, steady, revenue ramp of a services business. Guess what — they weren’t patient. ASP’s went out of favor almost as quickly as they came into favor. Surprise! Duh.
Doug concludes that IBM is pretty well positioned. Others that come to my mind who can be similarly well positioned include EDS and, for financial services, First Data Corp. A common characteristic here is that these companies value a services business — and their P&L and Wall St. expectations about them are based upon that steady (but not explosive) revenue growth that services companies can deliver.
The best thing about the services business model is that you don’t start over from zero on day 1 of every quarter. They’re tremendous annuity businesses. The worst thing about them is that you’ll never be a momentum play!