Effective eLicensing

One of the business models created by the net that seems sure to stick around is the licensing model. Instead of selling software outright, the merchant acts as an ASP, charging a yearly or monthly fee to provide seamless, hassle-free services.

Properly run, an ASP model is a win for both the customer and the ASP. But the model is also fraught with pitfalls. Some unlucky ASPs have promised support they couldn't deliver, created unrealistic pricing schemes, picked the wrong partners. Naseem Tuffaha has been there, too - when the CEO of Fidesic Corporation (formerly CheckSpace) left Microsoft to form his own e-payment company, he faced stiff competition and long technological odds. Think your own services would work well in an elicensed ASP model? Tuffaha shares his advice.

Pricing for the Market

One of the first things the newly-minted ASP has to consider is pricing. Customers will be turned off by prices that are too high, too rigid, or even too low. Most of the fees Fidesic customers pay don't vary much from company to company. Fidesic charges an initial licensing fee for installation and deployment, and an annual maintenance fee for hosting the service plus a small transactional fee for each payment Fidesic handles.

"On the backend, Fidesic is an application service provider, so we have an ASP-based hosted model for delivering the service. What that means to the bank is that they don't need to devote internal resources or hire consultants to buy our software, install it on their servers, customize it, deploy it, test it, all those things. They can leverage the fact that we've already made that investment in our data center," he says.

Where Fidesic builds in custom pricing is in the customized layer of its service. Small businesses get a cookie-cutter payment page that looks much the same as any other Fidesic customer site. Larger corporations pay premiums for customization - the business itself gets to choose what level of service it will order and pay for.

"There are a whole series of bank customers, especially larger ones, that we're in discussions with that want to build their own front end to this solution. We work with them on customizing it in a way that can work for their customers and the experience that they want to present to their users," he says.

And they pay more. "The cardinal lesson in business: anytime you're doing something very custom for one customer, it's going to cost them a lot more."

Picking the Perfect Partner

Fidesic is also scrupulously careful about its partners. A customer can use Fidesic's payment platform right on the Fidesic site. But most customers use Fidesic services on partnered sites, and for that reason the company is picky about who runs its services.

"Especially in the early days of the Internet, partnerships were happening left and right. It was a way for early-stage companies to establish their credibility, get their names out there, and leverage the brand names of larger or even slightly larger companies. What was often done was press releases were immediately issued, but then at the end of the day, not a lot of value was created for each of the companies," he says.

When Fidesic is considering a partnership, it considers a few key things.

"One is, what is the synergy with our business? Are they going to contribute something where we can leverage our assets and extend them in unique ways? Beyond that, we evaluate the management team and corporate strategy of the partner we're doing business with. We want to see a commitment to the long term; we want to see a history of previously successful partnerships. We'll do things like calling other partners they have done deals with to see what that kind of experience that was and to try to assess whether value was created," says Tuffaha.

Fidesic also stresses a high level of communication.

"When you're pursuing a partner, you're displaying your commitment to that partnership with every single phone call you make. View any potential partner, especially a strategic partner, in the same way you would treat a potential investor. You need to be prepared to conduct the due diligence that an investor would expect. That includes things like detailing your business strategy, your management team, possibly your financials, doing what it takes to make them comfortable that your company is going to be around and you're going to be committed to the partnership," he says.

Gold-Plated Service

Tuffaha's final piece of advice is not to forget the middle letter in the term ASP. That S stands for service, and it's something customers demand.

"A lot of companies that are used to building products, maybe shrink- wrapped products, are not accustomed to the ongoing serviceability that's required for customers. It's critical to be a 24/7 operation and to have all the infrastructure and operational procedures that support being a 24/7 operation," he says. "A customer service facility must support customers at the times that they're using your service."

Tuffaha says a full third of his customers sign up to use services between 11:00 p.m. and 7:00 a.m.

"Small business owners tend to be very busy. They're up late at night; they're up early in the morning, and it surprised us that they're using our service at these hours. To offer richer customer support, we have part of our customer support operation outsourced to India to work with the varying time zones," says Tuffaha.

Pricing, partners and service: they're not the end-all and be-all of running a successful ASP, but those three pieces of the puzzle will get you a long way.