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GM's new vehicle for the future: The ASP

Executives at General Motors say they want to transform the automaker into an application service provider, which charges corporate clients for hosting expensive and complicated applications.

    DETROIT--It's a shocking combination of acronyms: GM as ASP.

    But executives at General Motors say they honestly want to transform the world's largest manufacturing company--in many ways a symbol of the Rustbelt and Old Economy bureaucracy--into an application service provider.

    ASPs, which charge corporate clients for hosting expensive and complicated technology applications, have constituted one of the New Economy's trendiest business segments. In recent months, though, the sector has weathered closings and consolidation, and analysts say it has yet to reach a mature form.

    Ralph Szygenda, GM's chief information officer, outlined Monday a sweeping business strategy that enables the automaker--one of the largest employers in North America--to sell many of its internal applications for e-commerce exchanges, customer financing, and even human resources to outside companies.

    "We looked at what we had and said, 'Wow. There's really a business opportunity here,'" Szygenda said during an interview with CNET News.com at the North American International Auto Show. "This is a tremendous opportunity to redesign GM and put the company into an area of higher growth and higher margins."

    Szygenda estimated that the information technology portion of GM would be the equivalent of a $50 billion company. GM's New Economy applications include software that facilitates online financing for homes and automobiles, virtual exchanges for after-market automobile parts and services, a popular on-board cellular concierge service called OnStar, and the technology supporting DirecTV. (DirecTV's parent company is Hughes Electronics, in which GM has a 60 percent stake.)

    GM also has one of the world's largest internal human resource portals for more than 200,000 North American workers, a project it conducted with America Online code-named Emerald. The automaker also powers one of the auto industry's largest aftermarket parts exchanges, a project in conjunction with Bell & Howell code-named Marmaduke.

    To be sure, GM has no plans to stop manufacturing automobiles and instead concentrate on outsourcing software and processes. It has not begun pitching projects modeled after Emerald or Marmaduke to prospective corporate clients.

    But becoming an ASP could represent an important new revenue trend for GM, whose automobile market share has dwindled since the '60s as Americans flocked to Japanese and European vehicles.

    Although GM reaped record profits in the mid-'90s--based largely on Americans' infatuation with GM's pickup trucks and faddish sport-utility vehicles--it is facing lean times as Japanese rivals encroach on the domestic automakers' former stranglehold on trucks and SUVs. Executives gathered in Detroit this week for one of the industry's largest trade shows are also palpably worried that Americans will purchase fewer vehicles in 2001 as the economy cools--a slowdown that has the manufacturers scrambling for new sources of income.

    The Net: A new frontier
    The move toward becoming an ASP also speaks to a broader e-commerce conquest among industrial manufacturers.

    Starting in the mid-'90s, corporations forked over billions of dollars to relatively obscure companies in technology hubs such as the Silicon Valley and Boston. The start-ups got fat by building the giants' internal Intranets, corporate portals and online marketplaces.

    Now many of the behemoths are learning how to power their own information technology projects--and, in GM's case, maybe even snag extra revenue by tackling similar projects for other companies.

    "We got a little tired that the dot-coms were taking on our business," Szygenda said. "We are a dot-corporation...and can do better than a dot-com."

    While some consolidation has taken place lately in the ASP market, research group AMR Research predicts the ASP market will reach $4.7 billion by 2004, with a compound annual growth rate of 153 percent. Gartner predicts the worldwide ASP market will surpass $25.3 billion by 2004.

    The industry has caught the attention of leading technology giants such as IBM and Dell Computer; software giant Oracle has inked partnerships with several ASPs, including Center 7 and Agilera. Wall Street embraced the ASP buzzword in the spring of 2000, when technology icon Marc Andreessen embarked on a major marketing blitz for his newly formed ASP, Loudcloud.

    It's unclear whether GM hopes to compete directly against Loudcloud, Oracle or any other ASP. Despite the automaker's lofty ambitions, experts question whether GM can successfully enter the swift-moving ASP sector.

    "GM has a habit of looking at


    Gartner analyst Thilo Koslowski says the application service provider model enables GM to capitalize on the IT technology and expertise it has spent much time and money to develop.

    see commentary

    things in a very grandiose manner," said Dennis Virag, president of the Ann Arbor, Mich.-based Automotive Consulting Group. "The idea that GM is an Old Economy company with...Internet-based process management is definitely something GM needs in the investor community. It's obvious they really want to recreate the company in a New Economy vein. But can they make it work? It would be an incredibly tough challenge."

    Besides, GM has a history of embarrassing stumbles when trying to execute sweeping technological campaigns.

    Of 'bots and blunders
    Roger Smith, CEO of GM from 1981 to 1990, earmarked $40 billion for automation in new plants--to disastrous results. Smith spent billions on robots to paint cars and install windshields, hoping to reduce GM?s unionized work force and slash costs. The robots accidentally painted themselves and dropped windshields onto the front seats, and many of the robots still stand unused. Instead of reducing the company's work force, Smith's project resulted in the need for even more workers to babysit 'bots and fix them when they broke.

    But Szygenda is undaunted.

    Formerly chief information officer for Bell Atlantic, Szygenda came to GM in 1996 to "transform GM into a digital company." Since his debut in Detroit, he has hired more than 200 senior managers in the largest executive recruitment effort in the company's history. He has also approved roughly $1.6 billion in Internet-based applications, shaving costs by $1 billion.

    Many of the efficiencies came from a dramatic reduction in the number of discrete information systems used at GM. An information system is a set of protocols used by a department or division to accomplish a certain task, such as quality control in manufacturing or payroll processing in accounting.

    When Szygenda started, the company had more than 7,000 different systems; it's now down to 4,000. Szygenda (pronounced "zhe-gen-da") has won accolades from Wall Street and the media; in what was meant as a compliment, e-commerce magazine eCompany Now dubbed him a "loud outsider with no patience for bureaucracy."

    "We've really cleaned house," Szygenda said of his five years at GM.

    It remains to be seen whether GM can help clean other corporate houses as well.