Service bureaus have been unattractive to generations of investors, but the Internet may change that.
In my recent series of columns, I have discussed in some detail the "In Company" model, which I believe to be a winning business model for the Internet Age. As I have pointed out, to be a successful software or services vendor to the enterprise market, software and services will have to be provided in tandem (save for the exceptions I highlighted in my previous columns). Additionally, I have gone into some detail in describing a portion of the services component of the In Company business model by describing Strategic Internet Services (SIS) companies. SIS firms provide a mix of Internet-centric professional services, blending creative and design skills with systems integration expertise as well as management-consulting capabilities. SIS firms strictly provide Internet professional services, and phase in projects rather than doing them on a one-off basis.
In some ways, Strategic Internet Services companies are fairly easy to identify, because the services they provide are specific and different enough to singularly characterize. What is more difficult to pin down is the other part of the services equation in the In Company business model: Web services.
While Netscape generated $92 million in online or Web services in 1997, it is very difficult to predict what revenue the company will be able to generate in 1998. Will it generate more? Less? Significantly more? Such estimates are difficult to forecast in that there are so few data points on which to build.
One factor that makes these revenue streams difficult to categorize is the novelty of the services provided, which are the result of overall Web usage.
A good example of a Web services provider on the Internet is VeriSign. In fact, VeriSign's business model and strategy make it clearly a services company--a trusted online presence that provides a specific suite of services. VeriSign provides both certification and authentication software to enable secure commerce and communication over the Internet, while also providing a critical infrastructure services component. With its Certificate Authorization Center in Silicon Valley, VeriSign provides 24-hour-a-day, 7-day-a-week processing service to its customers.
Thus, while large financial institutions may want to be their own Certificate Authority, they may want to outsource a significant portion of management and processing details to VeriSign. So is VeriSign providing a software solution--a traditional services solution? Yes, it is, but VeriSign also is providing Web services by acting as a service bureau and processing certificates for some customers.
The opportunity for Web services such as VeriSign's will grow as the Web grows. The more users a company can count, the more possibility there is for it to act as a Web service bureau. As a result, service bureaus, at least those on the Web, will become more and more attractive investment options.
Daniel Rimer writes regularly about the Internet in Marketwise.