When Oracle's former Australian chief, Phil Kiely, and his general manager of e-business, Stuart McLean, left their posts in September 2001 to capitalise on the budding application service provider market, little did they know it would take two years to realise their goal.

Like other budding ASPs of the time, the pair sought to market traditional enterprise software, in this case Oracle's, as an on-demand service attracting a monthly fee, which they marketed under the O2 business name. As was the case with many rival ASPs, the O2 effort failed, Mr Kiely said, largely because of the origins of the product.

"The complexity and pricing made it too difficult to bring down to the mid-market. It was built for the enterprise," he said.

The pair soon ditched the Oracle software and the O2 name and in April 2003 formed Net Return after securing the exclusive Australian and New Zealand distribution rights and first refusal rights in Asia to two new products, NetSuite and NetCRM.

Mr Kiely and Mr McLean did not dispose of their Oracle connections altogether, though. NetSuite was started and backed by Oracle founder Larry Ellison and its products were built specifically with online delivery to small- and medium-sized businesses in mind.

The timing of its Australian launch may be spot-on if the number of other prominent entrepreneurs now piling into the local ASP market is any indication.

One that has also been launched in the past year is salesforce.com, a US company led by a one-time senior Oracle executive, Marc Benioff.

Then there is Net Harbour, which was founded and is co-funded by managing director Brad Lancken, who founded Mytek alongside Alex Hartman. One of its founding directors is Tim Howard, the Prime Minister's eldest son.

And last month Techontap, an IP-based telecommunications service aimed at SMEs, which will be delivered via a franchise model, opened its doors. Its services include rental software such as the Microsoft Project 2002 personal productivity software.

"Serious players are emerging as people begin to understand where this business model fits," said Gartner analyst Rolf Jester.

Since it was launched last October, Net Return has attracted 21 customers in the region. These include Thai translation services firm QTranslation, software and consulting firm Mainpac, IP communications company Channelworx, IT services company Teknode and advertising agency TimeZone One.

Net Return believes it is ready to attract a cashed-up strategic partner to help take its product to the masses. It has already received $125,000 from Australian Distributed Incubator. ADI's parent, BSI, is helping it raise more funds.

Net Return is not the only ASP now on the capital-raising trail. Salesforce.com has filed its intention to list on the New York Stock Exchange, according to its local spokesman, Doug Farber.

The ASP trend is not going unnoticed by US financial analysts. Merrill Lynch plans to introduce a new technology index to track the growing on-demand software sector. Called the Merrill Lynch On Demand Index, it will use financial metrics it considers more appropriate for the business model.

Australia will not be left out of the market if Mr Farber's observations are any guide. He said Australia was now salesforce.com's fastest-growing market and had clocked up about 100 customers and 3000 users since launching mid-last year.

When it came to acceptance of the rental model, "eyebrows aren't being raised here so much any more", he said.

Net Harbour was launched last month to resell NetSuite's products with a focus on online delivery of customer relationship management software.

Net Harbour is also funded by Mr McLean and Mr Kiely, who is its chairman.

But the task of these high-profile start-ups goes beyond just convincing small businesses of the merits of rental software paid for monthly and hosted off site.

They must also compete with the likes of SAP and Microsoft, which are pitching new wares at the SME market, some hosted, some not.

CRM vendor Siebel recently launched an ASP version of its software, CRM OnDemand. Mincom has introduced ASP to its product offerings and Techontap's high-profile backers include Cisco, Sony, Nokia, Sun Microsystems and WebCentral.

And then there are many unknowns flying under the radar that hope to sell hosted products to SMEs.

One example is the development of ibox, a hosted web content management product designed to offer affordable yet sophisticated solutions in the SME market, according to its developer, Jason Coghlan.

This is a common sales pitch when it comes to rental software, alongside instant access to upgrades, little upfront effort and expense and the fact that software becomes a fixed, predictable cost.

However, according to Mr Jester, ASPs will not replace the existing packaged software product but will be just one of the software delivery options for small businesses.

That is because of the disadvantages of the model, which include the perceived risk of putting sensitive data online and the increased reliance on network availability.

Mr Jester said that increasingly the ASP market would divide into horizontal applications that provided niche applications - such as CRM or employee expense tracking - across broad markets and into those that provided applications to very narrowly defined vertical markets.

"We don't have a proper numerical forecast but ASP will grow alongside people's understanding of these markets," he said. "It is happening now on a small scale but it will grow quite strongly to where it is one way for people to access applications - but only one.

"It won't take over the world."

Author: Mandy Bryan
Date: 13/04/2004
Source: AFRBreaking
Publication: Financial Review
Section: IT