Internet ASP Business Plan

jSpan Corporation is an Application Service Provider (ASP) of Internet based remote access services to independent professionals and businesses. Access is managed through a customized Webtop that aggregates applications and content from home computers, office networks, and other Internet locations. The primary means of generating revenue is a per-user monthly subscription fee. Over time, the company expects to generate additional revenue from transaction fees on value added services. jSpan provides remote access by co-hosting jSpan application servers at strategic partner locations. Targeted strategic partners include Internet Service Providers (ISP), xDSL wholesalers, cable network providers, and vertically integrated telecommunications operators. Partnerships will be structured as revenue sharing and co-marketing agreements.

2.1 Competitive Edge

The jSpan Corporation competitive advantage is based on:

• Establishing strong business relationships with network service providers that allow jSpan to control an application service provider distribution network.
• Rapidly building market share through aggressive customer acquisition programs.
• Developing and deploying premium subscriptions and value added services.

Business relationships with network service and infrastructure providers, particularly those that offer high bandwidth connectivity to the business market, serve to give jSpan a strategic advantage by facilitating a network connection to potential jSpan customers. By co-hosting an application server in the network provider central office or the ISP data center, jSpan has preferred access to remote systems and can offer superior performance on applications that require remote connectivity. Once established, the jSpan network will serve as an aggregator and distribution channel for other ASPs. jSpan Corporation will seek to establish exclusive relationships that serve as a barrier to entry.

Rapid customer acquisition is accomplished by syndicating the jSpan service through Internet content providers that target a similar customer base. In addition, revenue sharing and joint advertising programs will add incentives for network service providers to offer the service to their customer base. Once customers adopt and configure the service, they are less likely to switch providers, resulting in reduced customer churn. Once deployed, the switching cost for both the service provider and the customer will serve as a barrier to entry and a competitive advantage.

Premium subscriptions and value added services extend the functionality of the jSpan remote access solution. jSpan will aggregate key applications into a series of Webtops designed to meet the needs of vertical market segments. Applications will be provided through strategic relationships with application providers, licensing agreements with product manufacturers and business agreements with third party services.

2.2 Strategic Alliances

jSpan Corporation is establishing strategic partnerships with network service and infrastructure providers that can provide high performance access to network facilities. The focus of jSpan’s strategic partnerships is on companies deploying xDSL, cable, T1 and other high-speed connectivity. There are approximately 7,000 ISPs in the United States and 14,000 worldwide, many of which are deploying broadband solutions. Incumbent Local Exchange Carriers (ILEC) and Competitive Local Exchange Carriers (CLEC) sell xDSL access to ISPs. Similarly, cable operators are deploying broadband over cable networks and selling the access back to ISPs. The expansion of low cost broadband solutions is accelerating the market for jSpan services and will encourage broadband providers to build strong partnerships with application service providers.

Large ISPs like EarthLink Inc., MindSpring Inc. and America Online Inc. provide dial-up Internet service to a substantial customer base. The top 5 ISPs have approximately 23.6 million subscribers. Similarly, network service providers like PSInet, Concentric Networks and Exodus Inc. provide high bandwidth connections to a broad range of business entities. These service providers are actively expanding their businesses to include broadband and value added services that can be bundled into an overall business package. These companies may initially outsource their broadband requirements to wholesalers. However, their ability to draw on large capital resources increases the probability that they will vertically integrate into the broadband market. Integration is likely to occur through the acquisition of regional xDSL and cable providers as well as through the direct deployment of broadband solutions. Due to their ability to influence a large customer base and invest substantial capital, these service providers represent attractive strategic partners.

To provide additional services to their customers, ILECs and CLECs are building strategic relationships with ASPs like jSpan. The higher percentage of business customers using CLECs represents an immediate market opportunity for jSpan. The three largest nationally based CLECs that offer xDSL services are Covad Communications Group Inc., Northpoint Communications Inc., and Rhythms NetConnections Inc. Collectively these solutions providers have approximately 25,500 subscribers and are able to offer xDSL service to approximately 40 million customers.

At Home Corporation, RoadRunner Corporation, High Speed Access Corporation, and Softnet Communications Inc. dominate the market for broadband services over cable. As of the end of June 1999, these companies have approximately 948,000 subscribers and can potentially provide service to 28.0 million homes. The focus of cable suppliers on home, rather than business accounts, makes them an attractive secondary market to xDSL providers.

Strategic partnerships with application providers, product manufacturers and third party services will serve to expand jSpan’s value proposition beyond remote connectivity. Online applications that meet the needs of a specific vertical market segment can be integrated into the Webtop work environment. Software manufacturers seeking to provide per-use licensing for legacy products can host their product on a jSpan server. Service providers that provide related services – e.g. printing services through Kinko’s, Inc. – can expand their customer base through a strategic partnership with jSpan Corporation.

⁵ The List, Boardwatch Magazine, June 1999 (http://www.boardwatch.com) and Intel Corporation as reported by Ziff-Davis Publishing, “Sun a winner in Intel ISP program”, June 1999 (http://www.zdnet.co.uk//news/1999/25/ns-8670.html ).
⁶ Competitive Local Exchange Carriers are often referred to as either CLECs or DLECs (Data Local Exchange Carriers). DLECs focus only on data services as opposed to a combination of data and telecom services.
⁷ “Small Players Deluge Market with Free Disks,” The Wall Street Journal, Tuesday, August 3, 1999 p. B-1 Information reprinted from research conducted by Jupiter Communications.
⁸ Deployment Update provided by xDSL.com based on a TeleChoice survey. xDSL deployment figures represent US lines in service as of Q2’99  (http://www.xDSL.com).
⁹ Northpoint Communications Group, Inc. Company analysis. Pacific Crest Securities Institutional Equity Research. July 28, 1999.
¹⁰ ibid.

2.3 Sales and Distribution Model

jSpan Corporation is initially targeting professionals and businesses that do not have the resources or technical skills to deploy an internal remote access solution. Sales to this market segment will be conducted through strategic partnerships with network service providers. The company will develop a secondary market segment comprised of enterprise customers and premium services following the success of the initial product launch.

End user pricing is value-based and determined by the comparable per-user cost of deploying and managing a remote access solution using existing technologies. An end-user price of $25 per month ($300 annually) will facilitate market entry and development. Over time, the competitive nature of the market will serve to lower the price for basic service but will increase the opportunity to offer premium subscriptions and value added services. Strategic partners will participate in revenue sharing agreements. Revenue sharing agreements will range from 3% to 15% of subscription revenue. To insure a conservative forecast, financial projections assume strategic partners retain 15% of all end user subscription revenue.

The jSpan service is distributed through a jSpan application server co-hosted at a network service provider location. Remote access to customer systems can then be sold directly to the service provider customer base or bundled as part of a complete service package. Co-hosting allows jSpan to provide secure network links directly to target systems without the need to route traffic through numerous sites, resulting in superior network performance and added security. The proximity of the jSpan application server to the physical network connection also facilitates the addition of value added services.
jSpan Corporation’s target customers can be classified into three broad categories:

1. Independent Professionals: Identify the need for the jSpan service, establish the account, and are the primary user. Typically made up of telecommuters, mobile professionals, and Small Office – Home Office (SOHO) workers. Individual customers are independent decision-makers and are likely to demand access to a single office location or home computer.
2. Business Customers: Primarily need remote access to an office computer or a small office network. Business customers identify the need but usually work as part of a larger decision making group. The account is billed to a business entity and may include multiple users on a single bill.
3. Enterprise Customers: Large corporations that have a widespread employee base and require a remote access solution for some or all of their employees. Enterprise customers have the resources of an IT department but are pursuing an outsourcing strategy to manage the cost of remote access. Enterprise customers may have multiple office locations with multiple Internet access points.

⁴ Research sponsored by Cisco Systems Inc, San Jose, CA, estimates an average annual cost of $975 per user for a typical remote access solution and $700 annual cost for an outsourced, VPN based, remote access solution. Reprinted in “The Future of Remote Access”, Gary Kim, Virgo Publishing Inc. Jan., 1999.