We recently interviewed Michael Alter, senior of vice president of business development and marketing at SurePayroll, an application service provider (ASP) that provides payroll services.

Many companies have avoided using the ASP term. They were using it, they got rid of it, but you seem to be embracing it.
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I'm not opposed to it. I think first and foremost we're a payroll service rather than an ASP, certainly. But we use the Internet to deliver our service. I don't have a problem with that.

Do you sell it as an ASP service or don't customers really know what that is?

Customers probably don't really know what it is. To our direct customers we sell it as a payroll service. We also have an offering for accountants and for banks which allow them to, if you will, resell the product under their name. And that's what we sell as kind of an ASP.

How does this differ from something like Paychex?

Paychex and SurePayroll both compete after the same market. We're both in the small business payroll service market. But for the most part, Paychex is a paper-based service. The majority of their clients phone in the payroll, so you call an 800 number or worse yet you have somebody call you at a particular predetermined time every two weeks for payroll. And then on payday your checks, direct deposit vouchers and accounting reports all show up in physical paper form.

So you're not issuing paper checks?

Correct.

Is this all direct deposit?

We can deliver the equivalent from an end employee's perspective, but we use the ASP model to do that. With our service, somebody receives an e-mail in advance of running a payroll -- kind of as a reminder saying, "Hey, you've got to run the payroll," with a link to our Web site. It takes them to our Web site, they log in through some security (and) they then can run their payroll very quickly under their information. So they use the software right online to calculate the result, which means that it's right before they approve it. Compared to the Paychex model where you're phoning it in, you don't know whether it's right until the paychecks show up on Friday because they don't calculate it real time.

So this is set up so that probably a direct deposit is preferred, but if someone wanted a paper check they print it in the office.

Yep.

It looks like it's about $70 a month if you do two pay periods.

Two pay periods, 10 employees -- it'd be exactly $70 a month.

And then you also take care of taxes.

We file and pay all taxes.

Are you finding that the ASP term is helpful at all? Does it open doors?

It opens doors and we use it for connection when we talk to accountants and community banks about partnering with us and offering the service because it's a very easy way of clearly articulating to them what it is they're getting. But from an end-user standpoint, again, small business owners don't really care what we are as long as we calculate the liability correctly, we pay the taxes correctly and their employees get paid.

Do you get those questions from them that other ASPs get about -- questions about security, questions about the information not being on their site?

We get them occasionally, but they're not the biggest objections. Again, most people that are using a service like ours also use online banking, they also use online investing. So we have a very technically savvy customer base.

So what's the average number of employees?

If you think about the U.S. small business market, 80 percent of businesses have nine or fewer employees, 20 percent have more. Our customer mix actually mirrors the market. It's fascinating. Eighty percent of our customers have nine or fewer, and 20 percent have 10 or more.

So what would be an average?

An average is going to be somewhere between six and eight.

What percentage of your business comes from this ASP model? Working with the resellers?

We just actually started to kick off this piece, so it's relatively low, but it's growing. We anticipate it will be a significant portion of our business.

The majority?

I don't know that it will be a majority, but I would think it has the potential to grow and be a quarter of our business.

Right now it's a fraction?

Right. And we just really launched it in the last few months.

Are the margins better doing that? You're not doing all the marketing and stuff like that. When you subtract your basic marketing costs, do you come out better?

Hopefully, the model is that the answer to that question is yes, it's a very profitable business.

You could just stop using the term ASP and just explain to people what you're doing and it really wouldn't matter.

Right. But having said that, within the payroll industry, I think that the trends of more and more people going online to enter their payroll -- (we're) definitely seeing adoption rates dramatically increasing. And with the proliferation of people using the Internet, this is just one of those applications that makes sense.

There's got to be people that do their own payroll, right?

Seventy-five percent of small businesses in the U.S. do payroll themselves.

How long have you guys been around?

Since 1999.

If you can't give revenues, can you give some sense of growth?

Growth would be we started from zero and we have customers that number in the thousands.

When you say "customer," do you mean the person who's getting the payroll check or the business?

The business. So it's a factor of six to eight times that. We have thousands of customers. We have customers in all 50 states. The growth is from zero to -- it's a big number. And I would think that we're one of the fastest-growing payroll companies in the U.S.

So there's a lot of potential.

Huge potential. And what we're finding is that around 50 percent of our customers come from businesses that have never outsourced payroll before. So we're getting this three-quarters of the market that haven't outsourced.

So the whole self-service potential of the Internet is exactly what you're tapping.

Yes.

Thank you for your time.

Thank you.

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