An ASP that Works

While other application service providers are dropping like flies, Surebridge has grown by 50% in a year. Chairman and founder Pradeep Khurana tells the Net Economy's Dawn Bushaus why.

While many application service providers are closing up shop or consolidating to survive, Surebridge has managed to make the software-as-service model work. Profitable just one year after it started in 1997, the company recently took on two rounds of financing totaling $56 million in order to expand. Surebridge now hosts applications for about 75 mid-sized business customers from its data center in Boston and from data centers owned by other hosting providers nationwide. The companys founder and chairman, Pradeep Khurana, recently explained to Services Editor Dawn Bushaus why he believes Surebridge has been able to succeed where so many others have failed.

Q: What size company does Surebridge target?

A: Our average customer is about a $200-million company.

Q: The market sweet spot for ASPs was supposed to be smaller businesses, but that hasnt panned out. Why?

A: Trying to serve the real low end – by that, I mean a company in the $1 million-to- $5 million range – is tough for our business model. Those types of businesses dont require a specific configuration of software. They can go out to CompUSA, buy QuickBooks and be OK. The model will catch on for those kinds of companies, but not until bandwidth is available to them.

Q: The ASP model was supposed to work because there was a shortage of qualified IT professionals. Thats changing, with so many people getting laid off. How does Surebridge convince customers they need the software-as-service model?

A: It is still somewhat difficult for companies to find the right IT professionals, but thats not the biggest reason the ASP model works. The real driver is the cost savings. We can offer guaranteed service for half of what a company would spend internally.

Q: Who are the ASPs youre competing with these days when you go into an account? Are you competing with companies like Corio, Qwest Cyber.Solutions and USinternetworking?

A: Theyre usually on a long list of five to 10 providers, but we havent competed with them at a finalist stage. Internal IT is still a major alternative for these accounts. And we are also butting heads with companies like ADP (Automatic Data Processing) in some instances. But overall, competition has really dropped off. A year and a half ago, there was a lot of competition. Now there just arent a lot of ASPs.

Q: Some software providers like Microsoft have gone as far as saying that the initial ASP business model has been a flop and that the future really lies with Web services. What do you think?

A: Well, obviously I believe the ASP model still holds a tremendous value proposition for mid-sized companies. There is still room for a pure-play ASP. Were proving that by continuing to sign customers up. And its great because the customers were signing are so traditional. They are not leading-edge.

Q: How important are Web services going forward?

A: Web services will be a big thing at some point. The key to success for Web services is being able to tie together the trigger events to make something like automatic updating of inventory happen. The key is having access to, and tightly integrating, data to trigger those events. ASPs are in the best position to pull that off because we control 80% of our customers data. We would never go and access the data without the customers permission, but the point is, we have access to it.

Q: If you believe the hype, enterprises are already demanding these kinds of computer-to-computer Web services. Are your customers demanding them?

A: No, no one is talking about this yet.

Q: Why do you think Surebridge has been successful where other ASPs have failed?

A: There are three main differentiators for us. Number one is the market. Weve always targeted mid-market companies – mid-sized manufacturing firms, for example. Theyre stable companies, so we havent suffered from the dot-com fallout. The second thing is we didnt use a "build-it-and-they-will-come" approach. We scaled up only as demand materialized. And thirdly, we really have focused on service. When we invest in technology internally, the end result is better service for our customers.

Q: How is Surebridge doing financially?

A: We will end the year growing about 50% over last year. Our margins are consistently improving, and we have a lot of cash on hand.

Q: Will you consider taking the company public?

A: If the public markets come back, its certainly something wed look at. But we can be patient because we dont need any additional funding right now.