There is discontent in the land of content management, at least in the realm of file transfer services. Last week, WAM!NET cut 130 jobs and Printable bought out Collabria. Mergers and acquisitions within the sector have raised a few eyebrows and suspicions that management services may not be delivering what they had once touted. Whether its a question of inconsistent pricing structures or even mismanaged infrastructure, the graphics arts community is speaking out. This week, Scott Seebass sat down with PrintMedia InBox to set the record straight about ASPs, file transfer and the future of online business models.
Seebass is CEO and chief engineer of Xinet. He's been a frequent speaker at such noteworthy industry events as Seybold, MagazineTech and the Gutenberg Festival. Seebass also co-authored the "UNIX System Administration Book," now a standard university textbook in its third edition.
InBox: This week's industry news reported serious shifts in the ASP market with one major buy-out and another massive layoff. How do you account for these mergers and acquisitions within the market?
Seebass: The WAM!NET and Collabria situations are quite different. WAM!NET is the most well-funded and the most established of the ASPs, and they're pushing really hard to get to profitability, which means lowering their staff and increasing the costs of their services.
Collabria is a totally different story. They don't really have any market share, so when you're talking about Printable/Collabria, you're not talking about very many users or much market share, you're just talking about some venture-funded companies on their way out.
InBox: So six months from now, what will we see with Printable/Collabria?
Seebass: If WAM!NET, with $500 million in venture capital, can't make money in the ASP model, I don't see how these smaller, less well-funded companies are going to do it.
InBox: How does Xinet's service compare to the ASP model?
Seebass: We sell off-the-shelf, pre-packaged software that provides many of the services that most of these print ASPs provide, not all of the services, but many of them: file transfer, interacting with customers, customer management over the Internet.
InBox: What obstacles do you face (if any) in convincing ASP users that an alternative might work for them?
Seebass: We've found that the biggest barrier to selling the software is people's ability to establish a quick Internet connection and installing a firewall. But in order to use any of these ASPs successfully, you still have to do that. If you want to talk to an ASP, they're Internet-based. You have to have a firewall and you have to have a fast Internet connection. That's the vast majority of the expense of setting up this sort of thing yourself. Once you have that, the incremental costs to add your own services is very inexpensive. The ASPs will say to people who want to do these things themselves, "Oh, you're going out and inventing your own software, and don't get to leverage our knowledge from working with other customers." But the reality is you don't have to invent your software or hire someone to write it. There's packaged software out there. Many of ASPs use other people's software to provide their services, so all customers are really buying from them is marketing and a server to host it on, which most printers already have.
InBox: So are you saying that ASP users are lazy, or just afraid for the security of their own clients?
Seebass: If there isn't sufficient firewall and security, then they are not going to be able to access their ASP anyway. They're going to have to have security if they are going to get on the Internet and talk to an ASP. So, it's mainly a fact that they are afraid to take the leap in to providing the service themselves. The really big downside is not that you pay more for an ASP but that you aren't differentiating your service from anybody else using that ASP. And a really common complaint we found was, "Well, customer 'A' wants to use this ASP, and customer 'B' wants to use another ASP, and when I start adding it all up, I'm paying more for ASP services than I am making in income." That's not really a sustainable model. Either one ASP has to win and everyone has to use them, or everyone has to do it themselves.
InBox: Do you think there is a need for file transfer/asset management at all?
Seebass: There is an inherent need for Internet-based file transfer because in many markets, the U.S., Europe and some others, it is a cheaper way to transfer files. The ASP model failed for a variety of reasons: the biggest is that it simply not that expensive to do asset management and file transfer yourself with off-the-shelf software.
InBox: And given the demise—or at least the restructuring—of several ASPs, did their infrastructure simply not satisfy the needs of the graphic arts industry? Or were their pricing models off base?
Seebass: The ASP pricing model requires ASPs to charge tens of thousands of dollars to each customers every month, and when it's a service that only costs $10,000 or $15,000 to do yourself, most people are not going to continue paying those costs over time. So while ASPs have proven that the model is useful to Internet file transfer, people have moved off to provide their own services because they don't want to pay an ASP for something they can do cheaper themselves. The last few weeks have shown that, if anything, your assets are probably in a less stable place if they are stored at an ASP.
InBox: What did ASPs do wrong?
Seebass: They are trying to charge too much for a service that is not that hard to provide yourself. The other problem with ASPs is they are inherently linked to the U.S. and the U.S. networks. They don't provide service internationally. They don't provide service to places where the Web service is slow. Most printers print for their local customers because it doesn't make a lot of sense to send a job from Madrid to Ohio and back to Barcelona. It's not just a reasonable way to do things. So when you're talking mostly to local customers, you probably want your server to be local. And that's not the way the ASP model works. It assumes a huge, completely free-flowing Internet worldwide, which just isn't the reality yet.
InBox: Do you think that publishers want to manage their own work without outside intervention? If so, why? And how will tomorrow's market satisfy these ever-changing needs?
Seebass: Almost everyone in the industry wants to take a bigger and bigger piece of the whole picture. Printers are moving in to brand management. Advertising agencies are moving into prepress. Magazines are moving everything in-house. The reason is it's a slow-growth market, and by adding services and doing more parts of the finished piece, you can grow in slow-growth market. It's a continuing evolution, like printers taking prepress and bindery in-house. If you can make money on it, why not do it yourself rather than contract it out? You can capitalize it, do it yourself and offer a more complete service, which makes you more competitive, more flexible on price, and much more in control of the entire job. And doing your connectivity and your file transfer is the same thing: If you're completely in control of it, and you've already paid the fixed cost, you can price it appropriately to get new customers. One customer may pay nothing, another customer may pay a fee. But you're very flexible. If you're paying someone else for that service, you've lost that flexibility. You have a fixed cost for every transaction and you have to pass that on.
InBox: And how will Xinet evolve with the market?
Seebass: The way we've seen our products evolve is to also provide services across a wider range of markets. While we used to see our products mostly being used by commercial printers and service bureaus, now we see a lot more use in advertising agencies and publications. Publications want to bring their own work in-house without paying someone else. By doing the bulk of the work in-house and sending it straight to a printer without involving anyone else, they lower their costs and widen their editorial windows.
InBox: So Xinet could be accused of the same thing that everyone else is doing by trying to broaden its market and expand across industries. Which came first, the chicken or the egg, in terms of Xinet's expanding customer markets? Did you court them deliberately?
Seebass: The issue of our solution moving into other markets is happening by itself. The issue is larger than file transfer and asset management. It is the pressure of consolidation in a slow growth period of the industry. Look at the positioning of all the major players and you'll see they're trying to provide a more complete service: Quebecor is trying to provide international service. Vertis is trying to provide advertising and prepress services. This is happening on a far wider scale than asset management. It's the trend of the industry. Within a consolidating, maturing industry, the more pieces of a puzzle you can offer, the more likely you are to be able to get the big customers with money.
InBox: Can you give me an example of how your model has uniquely succeeded? How does this example signal market trends? Or does it?
Seebass: There are a lot of different models where our software has been successful. Which model you choose depends on the needs of the customers and what they're trying to do. The successful model could be a small, local printer in a small market who's now doing work both for their town and the local towns, and they've expanded their market and made quite a bit of money. It could be a company that's doing brand management for an international company and by using its server to provide brand delivery and ad delivery all over the world. Software is a tool, not a business model. The software is a tool to facilitate business. It doesn't create a business model where there wasn't one, it makes parts of the business model easier to do.
InBox: A lot of ASPs that are failing focused on file transfer and asset management. But now it seems the ones that are still hanging on are focusing on project collaboration and marrying the production side of the workflow with the accounting and business side. Is that something that you think will potentially work, and is that a direction Xinet may also go in the future?
Seebass: When you look at collaboration software, there's certainly a need for that and it's not a very well-served need. But the need will likely be met by boxed software rather than a service. If you look at the newest Acrobat, that's certainly a step towards providing better collaboration tools. As far as marrying accounting, costing and those sorts of things, you really have to be involved in a company's internal accounting and bookkeeping, and that's something companies do not want to put out on the Internet where others could potentially see and know what they're doing. And it's a very specialized to the company. Most companies already have an MIS system in place, and the tools to connect those systems with their production with their Internet service will provide an interesting place where efficiencies can be gained and money saved but the solution will be a boxed software model sold to companies as opposed to a service out on the Internet.
InBox: What changes do you predict within this rocky market? Long term and short term? And how do you think past changes affect what is happening today, such as how the dot-com fallout inspired hesitation among many consumers?
Seebass: Certainly we're going to see a lot of these dot-coms that were founded later than the earlier dot-coms run out of money and fail. That's inevitable. We're going to see continued consolidation cause really stiff competition in the market, especially in the printing and prepress market. There's a lot of very adept and very maneuverable companies with a lot of capital, and competing against them is going to require companies to be very on top of it. The number of people in this business will reduce because the same number of companies can be more efficient and do more work, and as those companies consolidate and generate larger, more efficient companies, they are going to be able to do even more work. Meanwhile, there will be a continuing string of failures of small, prepress shops and small printers, and a continuation of the growth of the average-sized printer until they reach a size more appropriate of the capitalization required.
InBox: What do you think the industry look like in five years?
Seebass: There will probably be half as many as print people doing 10 percent more work.
InBox: And will all the ASPs be gone?
Seebass: Probably not. There's always room among the small companies who can't afford to capitalize or who don't have continuing, ongoing relationships with customers. There's probably room for one or maybe a couple ASPs to play in the market, but not to be, by any means, a majority of the file transfer market or to be in charge of a majority of their files. Most of the business models rely on that, so there needs to be someone whose business model can work without having a huge percentage of the market. Or charging large amounts of money for transactions.