The Time's Not Right for ASPs

Computerworld - Should your IT organization hook up with an application service provider? It's an oft-asked question today. A recent article in a leading business magazine reported on "the death of the modern corporation." The story revolved around what was the central theme of the recent World Economic Forum (WEF) in Davos, Switzerland. There, the world's leading economic and business scholars declared that the Internet would force today's corporate enterprises to re-evaluate what businesses they're in and jettison the rest of their entities to aligned partners and outsourced Web providers. Hence, ASPs are at the heart of the changing business climate.

So, as if the CIO didn't already have enough to worry about, he may be looking to ASPs to outsource nonrevenue-producing IT assets within his organization.

In most of today's modern corporations, IT doesn't directly produce revenue. Despite all the business initiatives of the past decade to align IT with the customer and business units, IT can still be wholly outsourced. And if that outsourcing is successful, the old IT department won't be missed.

John Chambers, Cisco's CEO, concurs with the basic premise of the WEF's leaders in that 70% of Cisco's products go directly from outsourced partners to customers.

So to today's CIO, I pose this question: To ASP or not to ASP? Given the history of ASP life cycles, the answer is a resounding "no"—at least for now. However, as the old saw goes, the king can go to the sea and command the tide not to come in, but he's going to get his feet wet. ASPs are the reality of today's CIO's future. So the question isn't "Should I," but "When and how?"

There are hundreds, if not thousands, of published opinions about ASPs and what to do about them. Yet Web-based outsourcing is the future, and it's here to stay. The early years of any industry is marred by quick-buck artists, poorly funded and orchestrated companies, consolidation and death.

Today's ASP market is squarely mired in the poorly-funded-and-orchestrated stage of development. The vast majority are privately held, and accurate financial reporting is very rare. In dealing with these companies, telltale signs of severe resource constraints, such as continuing failure to meet basic service thresholds, are evident to any seasoned CIO. This is most often indicative of insufficient capital investment for infrastructure development.

When is an ASP in trouble? When it suffers from constant turnover of key personnel and a lack of prompt, satisfactory user support. And refusal to provide a list of happy customers is always a red flag for any CIO.