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Finding new partners

That’s one mantra for wireless application service providers fighting to survive. Another mantra: finding a new identity.

by sue marek
September/October 2001

You can call them software companies, systems integrators or enterprise solutions providers. Just make sure you don’t call them wireless application service providers.

Once considered the future of the wireless Internet, the acronym WASP is now a dirty word among many firms in this space. How and why did their grand trajectory falter?

These companies burst onto the scene in late 1999 and 2000, filled with promises of hosting and delivering applications to customers in exchange for a cut of the revenue. But as non-wireless application service providers began to disappear along with their dubious business plans, these former WASPs started working fervently to distance themselves from their wireline-focused counterparts and broaden their business plans to include products and services that will sustain them until their hosted applications and outsourcing services become more viable.

For many such companies, some of which use the WASP moniker and some that don’t, this survival strategy includes partnering with others–particularly infrastructure providers and handset makers–to develop an all-inclusive offering. “With the complexity of the market, we think there is no single player who understands the whole market,” says Carrie Pawsey, wireless analyst with Ovum Inc., a London-based analyst and consulting firm. “To have a complete solution … WASPs will have to have a lot of partners.”
For Owings Mills, Md.-based Aether Systems Inc., that partnership philosophy translates into acquisitions. Founded in 1996, Aether spent much of its early years building custom applications and services for companies such as Bear Stearns, Staples, Office Depot and others. But these solutions were highly specialized and costly. So in late 1999 the company decided to switch gears and take advantage of its early entry into the wireless application market by acquiring about a dozen companies. After cobbling together those company’s strengths, Aether emerged with a technology platform called Fusion.

According to company executives, Fusion has modular features that the company says will provide a more streamlined approach to wireless applications. In addition, the platform is nimble enough to integrate many different elements without having to spend a lot of time and money on customization.

Endurance Has Rewards

Many experts believe that in the long run Aether’s modular approach will succeed. “The trouble with the traditional WASP is that you had one application for one customer,” says Claudia Arango, senior manager with Deloitte Consulting’s wireless initiative in London. A much better solution, Arango says, is for a WASP to have one application that can be pushed to many customers. In other words, they should apply the “one to many” rule.

That’s the precise focus of Aether’s Fusion platform. “There are a lot of great companies out there, but they are point providers,” says Bill Davidson, vice president of wireless strategy at Aether. “There are solutions providers focused either on financial services, transportation or e-mail service. Or there are technology companies focused on Web-content transformation, middleware or hosting. Aether brings all those components together.”

It may be some time before Aether’s modular strategy pays off. Though Arango believes Aether is on the right path, she says the company has yet to generate much revenue from its software platform and products. Still, Davidson expects to see Aether’s technology grow in popularity, especially as faster networks become available. “From our perspective, customers are comfortable with the current speeds, they just want broader coverage,” he says. “We expect to see different network offerings priced differently.” But the market still has a lot of obstacles to overcome before Davidson expects to see a surge in wireless data users. “Enterprises are confused by this market because there are lots of point providers that say they can do anything,” Davidson says. “Our biggest challenge is that we have a complex story and we have to educate the enterprise market.”

Another Transformation

Aether isn’t the only company trying to distance itself from the WASP title and educate the enterprise market about its offering. San Mateo, Calif.-based AvantGo Inc.’s revenue mix includes hosting, but its mainstay is the software and infrastructure that the company developed to help corporate customers deliver their desktop applications to handheld devices. Besides its software and integration services, the company provides application hosting to its clients, a business model akin to the traditional WASP. AvantGo CEO Richard Owen says, however, his company has always been a software company, unlike the WASPs that are suddenly trying to reinvent themselves. “These born-again software companies should repent their evil ways,” Owen deadpans. “Moving from a service model to a software model is extremely hard. If a company was built as an ASP, it’s difficult to change to a software solution.”

Owen sees little future in hosting applications because most clients prefer to self-host AvantGo’s application behind their firewall. That makes hosting financially unrewarding. “As somebody who runs a medium-size business, the economics of hosting are unappealing,” the AvantGo CEO says. “The packages companies are selling are just not cost effective. Our biggest challenge is trying to help our customers get through the confusion. It’s a very confusing space right now with lots of dead air.”

This sentiment is echoed by Pawsey. “These companies are not going to make enough money to sustain their business by hosting an application alone,” she says. “Many smaller players have already gone bust.”

Consolidation, Anyone?

Essentially that’s why experts say consolidation among the hundreds of existing WASPs is likely in the next six months. Aether’s Davidson expects to see a lot of consolidation among WASPs in the year to come as the bigger players swallow some of the smaller, less viable WASPs, a trend which Aether started two years ago when it was on its own shopping spree, buying up companies so it could target a variety of vertical markets. “We’ve already gone through and assembled different point solutions,” Davidson says. “We have a good two-year jump on even some of the big names in this business.”

According to Arango, the European WASP market currently is in consolidation mode, and carriers may be at the forefront of this trend. “I know of one carrier in Europe that is looking to consolidate several ASPs,” Arango says. “Carriers are trying to come up with a killer app to pay for their licenses so they are exploring ways to expand farther along the value chain.”

Consulting firms such as Ovum are encouraging partnerships between carriers and WASPs. The firm advises carriers to use WASPs to beef up their portal offerings and get more applications aimed at a variety of different market segments.

The Yankee Group concurs with Ovum. In its May 2001 report on wireless ASPs in Europe, the company asserts that network operators, particularly those with both wireless and wireline operations, will ultimately dominate the WASP market. In the report, the Yankee Group says that carriers will have the financial resources to absorb losses while scaling up to achieve the economies of scale necessary for the WASP business model. The firm also says that survival is unlikely for most WASPs because, despite the size of the mobile market, enterprise users will always need compatibility with wireline networks–putting WASPs at a disadvantage relative to their wireline counterparts.

A Ripending Trend

It may be quite awhile before this carrier-WASP consolidation trend moves to the United States. “Europe is definitely farther ahead of the evolution curve than in the U.S., where carriers are just starting to explore different models,” Arango says.

Though the current sentiment toward WASPs’ traditional business model is unfavorable, there is hope. Arango says that faster networks will likely lead to more advanced applications which may provide a second coming for the space.

That ray of hope may be glimmering from far into the future, however, and may favor only a new breed of WASPs. Their ambitious trajectories of past years have crested, initiating a culling process that has yet to end. Shedding their names is only the first step.