SOFTWARE BY SUBSCRIPTION: TEN ASP PIONEERS.

Once again, the software world seems to be on the verge of reinventing itself. After two decades of selling software as a packaged product, hundreds of developers and publishers--including most of the industry's largest players--are exploring a new strategy: Throwing away the box and selling

The so-called "application services provider" (ASP) model is simple, at least in concept. Instead of buying or downloading software, customers pay a monthly subscription fee to run an application on a remote server. Software companies get a more-or-less perpetual revenue stream; users don't pay up front for products that may not work as promised. (True, the new ASP model does look suspiciously like a throwback to the old Neanderthal service bureau business. So what?)

Of course, implementing the new ASP model is far from simple. Like any revolution, the shift to subscription services raises some knotty questions--and the answers to these questions will help decide who wins and who loses when the competition gets tough:

* How long before subscription pricing enters the mainstream? The big market research firms have been cranking out billion-dollar projections of the size of the ASP market. What the numbers don't predict is customer psychology. To be really successful, the ASP model has to feel "normal" to consumers, corporate purchasing agents, and other influencers (many of whom are classic late adopters).

* What will the sales process look like? Despite the proliferation of would-be ASP resellers, there's no guarantee that customers will buy services through the same indirect channels they use to buy products. One clue: Traditional service vendors almost always rely on their own direct sales forces to build long-term customer relationships.

* What's the ideal pricing model? Right now, subscription pricing is all over the map. Several ASPs offer services that are largely free, some price by the user, others by the company, and still others tie pricing back to traditional license fees.

* What exactly is the customer buying? It's becoming clear that ASP customers expect more than just an application running remotely. Typically, it seems that the ASP model implies comprehensive outsourcing, including data center services, tech support, training, ongoing product upgrades, and more. And if customers feel short-changed on these services (even when a service is provided free), they'll pull the plug.

* What happens to the revenue model? Hybrid product-and-subscription companies drive Wall Street analysts crazy, and with good reason: A dollar from a one-time product sale is very different from a dollar from an ongoing subscription sale. Costs, cash flow, and performance metrics all change dramatically when a software company begins to offer ASP-style services.

To find answers to questions like these, we've been talking with a good many ASP pioneers lately. It turns out that some of the most insightful answers come from software companies that target traditional shrink- wrapped software markets. Oracle, SAP, PeopleSoft and other enterprise companies may attract most of the ASP press coverage, but it's the smaller developers and startups that have managed to sign up hundreds (and occasionally thousands) of real subscribers. Here's what ten of the most interesting ASP companies have learned: