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Thursday, October 30, 2008

Hosted mobile services in the recession - Caveat Emptor

I used to work as an equity analyst at an investment bank back in 2000-2001. I remember an unending stream of first generation Application Service Providers (ASPs) coming to talk to me, positioning their notions of hosted email, remote backup and other similar services as the way of the future.

I was pretty negative at the time, based largely on the limitations of broadband back then, plus the difficulty for businesses to integrate hosted applications with their existing legacy infrastructure.

And indeed, these did turn out to be problems. But not as much a problem as economic downturn. The service limitations meant that real-world uptake was slower than anticipated. Under normal circumstances, this would be painful. But in conditions of poor availability of capital, for many it turned out to be fatal.

Now, we are just at the start of a new wave of SaaS (software as a service) or CaaS (communications...), HaaS (hardware....) rollout. And indeed, things have changed - broadband is ubiquitous and cheap, integration is simplified through web services interfaces.

But something else has changed - caution and fear. Aided and abetted by a new focus on compliance and corporate responsibility, SarbOx rules, and similar concerns, enterprise customers are going to be closely scrutinising SaaS providers' prospects for surviving the downturn.

The last thing you want is to outsource your telephony, or your email, or your sales database to an SaaS provider - and then find that the lights go out when they run out of cash and can't raise any more.

I've spoken today to two players in the hosted mobile PBX/Unified Comms space - Telepo and GoHello. Both seemed very confident that they were financially secure - but my feeling is that many others may not be so fortunate. Ribbit's sell-out to BT earlier this year is looking pretty smart against this backdrop.

I suspect we're going to see a bit of a bonfire of 2nd-generation hosted application companies over the next 18 months. And I'd certainly counsel very close scrutiny of supplier financials by any prospective users of innovative hosted mobile services.

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