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J.D. Edwards concedes its reach exceeded its ASP

The stumbling software maker quietly gives up hosting its own software, in a move that comes not even a year after the company launched its own ASP division.

Stumbling software maker J.D. Edwards has gotten out of the game of hosting its own software, in a quiet move that came not even a year after the company launched its own ASP division.

The Denver-based company, which has been challenged by slower sales growth and a recent management shuffle, exited the hosting business without fanfare last October, handing off that part of its business to more than 15 ASP (application service provider) partners.

"We understand the marketplace has a need to outsource the hosting of complex enterprise applications," said Victor Chayet, a company spokesman. "Our core competency is in development and in upgrading (our) applications. We depend on our partners to do the hosting, managing and, in a sense, renting access to those applications."

As part of the move, the company has renamed JDe.sourcing, which was its ASP division, as J.D. Edwards ASP Solutions. Customers who were renting the company's software through the JDe.sourcing unit are still being supported by J.D. Edwards but will eventually be switched to partners including AristaSoft, Agilera, Deloitte & Touche.

"We're doing what we do best--developing the software," Chayet said.

The times have been tough for J.D. Edwards lately. Last week, it warned of slower-than-expected sales growth for its first quarter and also said it expects to report a first-quarter loss rather than a profit. At the same time, it named a new chief operating officer and chief marketing officer.

The company acknowledged that it did not execute well during the quarter and that it needs more consistent execution in the sales and services areas.

Like other enterprise software makers such as Oracle, SAP and PeopleSoft, J.D. Edwards joined in a mad dash to the ASP concept, aiming to gain an early foothold in what analysts have forecast to be a market with explosive growth.

"This is another example of J.D. Edwards' lack of vision and understanding of new trends in the market," said Joshua Greenbaum, an analyst who heads Enterprise Applications Consulting. The retrenchment shows, he said, "that they're unable to combine vision and action at a time when they need it more desperately than any other."

The big software makers who operate their own ASP divisions appear to be the ones most likely to succeed in the market, mainly because of their financial stability and expertise handling their own software, Greenbaum said.

"It's overall foolish for J.D. Edwards to hand off the hosting (business) to partners who are by and large struggling and who themselves are threatened by the uncertainties of the overall ASP market," he said.

Meta Group analyst Dean Davison offered a more favorable viewpoint. J.D. Edwards simply realized, he said, that the business of being a service provider is much different from that of being a software maker. Giving hosting back to its ASP partners is a slight shift in its strategy, he said.

J.D. Edwards, Davison said, "is recognizing that they don't have to host their own applications in order for (companies) to use their applications...What I see them backing away from now is not that the ASP type models are failing but really them saying, 'We don't have to be the hoster of our applications to make this (strategy) work.'"

On top of linking up with ASP partners, Oracle, SAP and PeopleSoft also have launched their own, separate divisions to directly host and maintain their software for customers.

The ASP model has become an attractive alternative for companies that want to use complex and expensive enterprise-level software without the pain and cost of maintaining and installing it themselves. ASPs provide remote access to the software, typically for the price of a monthly subscription.

While poised for huge success, the ASP market is in flux with most companies in the game, including early players Corio and USinternetworking, struggling to fine-tune their business models so they can reach near-term profits and increase their volume of customers. ASPs Red Gorilla, Pandesic and HotOffice.com, among others, have recently closed up shop, citing reasons including lack of funding and no timely road to profitability.

"The (ASP) start-ups are continuing to struggle--there's a lot of consolidation, a lot of failures--and we expect even more consolidation (in the market), but we'll also see this become a standard way of pricing application services," said Meta's Davison. "There are still more ASP vendors than there are clients of those vendors, but that's changing."

J.D. Edwards' ASP strategy now relies heavily on ongoing expansion of its partner channels, Chayet said. The company is seeking additional ASP partners within targeted markets, he added.

J.D. Edwards launched JDe.sourcing a year ago, but even before that, the company had been offering hosting services to its customers through partners including Electronic Data Systems Taiwan and IBM Global Services.