Winstar, Allegiance Make ASP Moves
By Ken Branson
Posted: 02/2000
Royce Holland invokes the California gold rush of 1849 when he talks about the alliance his company, Allegiance Telecom Inc. (www.allegiancetelecom.com) has struck with Go2Net Inc. (www.go2net.com).
"We're Levi Strauss, providing picks and shovels to gold miners," the Allegiance CEO says. "The content guys are the gold miners. A few of them will get rich, but most of them you'll never hear of."
Strauss, of course, provided work clothes, not picks and shovels. However, an application is an application, and Allegiance is one of several CLECs moving toward becoming ASPs, or moving as close to them as possible. If Go2Net is a miner, small businesses are the mine it works in, and application hosting is the mother lode.
Allegiance and Go2Net have agreed to do three things: build a joint portal, which will be the first thing Allegiance customers see when they log on; develop a small-business center offering discounts on office supplies and information on business issues; and, finally, application hosting. The portal was nearly done at the end of December. The small-business center should be ready in the second quarter of this year. Application hosting--such tasks as inventory management, payroll and accounting--should come by the end of the year.
Allegiance and Go2Net are both owned in part by Paul Allen, a founder and board member of Microsoft Corp. (www.microsoft.com) and the second largest Microsoft shareholder, through his venture firm Vulcan Ventures Inc.
Winstar Communications Inc. (www.winstar.com) intends to become an ASP, thanks to its century-end deal with Microsoft.
As the leader in an investment syndicate that will invest $900 million altogether, the software behemoth has agreed to invest $200 million in Winstar. Microsoft has invested billions since 1997 in telecom and Internet companies to encourage the building of broadband networks, the use of its software platforms on those networks, and the use of its applications on those platforms.
Microsoft also has agreed to license its leading, branded applications, including Office 2000, to Winstar, which will provide those application services to its small-business customers. "A lot of ASPs have been nibbling around the edges, with esoteric, niche packages," says Roger Pilc, Winstar's vice president and general manager-Internet hosting services. "We're launching with what we perceive as the most important applications for small and medium businesses."
Pilc says Microsoft and Winstar will market each other's services together, appearing in each other's booths at trade shows, hosting joint lobby events at Winstar-targeted buildings, and other activities. The two companies will develop applications together, he says, and Winstar will benefit from Microsoft's advice on how to make the most of its role as a Microsoft ASP.
"Winstar is far ahead [in the ASP race]," says John Hodulik, senior telecom analyst at PaineWebber Inc. (www.painewebber.com). "They have downstream capacity, they've built data centers, they have a small-business portal that will be increasingly valuable. And they have data service expertise."
Winstar may be ahead, but it's not alone. Several CLECs have well-developed web hosting businesses. Intermedia Communications Inc. (www.intermedia.com) has a mature hosting business in its Internet subsidiary Digex Inc. (www.digex.com). Global Crossing Ltd. (www.globalcrossing.com), which bought the former Frontier Corp. last year, acquired Frontier's web-hosting business and its network of data centers. GST Telecommunications Inc. (www.gstcorp.com), which acquired a web-hosting business when it bought Whole Earth Networks in 1998, is exploring complex web-hosting services.
There are companies that have decided to put the physical bricks in place first. Teligent Inc. (www.teligent.com)--like Winstar, a recipient of a $200 million investment from Microsoft--is rolling out a fixed wireless network nationwide, and analysts expect the company to offer application hosting eventually. NEXTLINK Communications Inc. (www.nextlink.com) expects to be offering ASP-type services by the end of this year (for more on NEXTLINK, click here).
In the meantime, however, Pilc and his colleagues feel a paradigm shifting. "Not a lot of people have caught on to this," he says. "We and Microsoft strongly believe that the virtual circle between applications and processing power is being eclipsed by the new virtual circle between applications and bandwidth. We're excited about being the bandwidth partner in the new virtual circle."
