Evaluate the ASP phenomenon


By Steve Ulfelder

Everybody wants to rent you applications all of a sudden. Software vendors are tripping over each other to announce they're either becoming application service providers (ASP), partnering up with one or both. ASPs are hot. But you don't care what's hot. You care about what's right for you. Are ASPs a major development for information technology shops? Or are they just another mania created by and for vendors? Here's a cheat sheet to help you stay ahead of the curve in the hype-filled world of ASPs.

Benefits of ASPs

Focus. Outsourcing to an ASP lets you concentrate on strategic projects, making money and serving customers, rather than on IT. FutureNext Core Technology Group, a Los Gatos, Calif., company, was overdue for new finance software. "Cobbler's children syndrome," says Don Gootee, co-founder of the systems integrator. Core Technology Group Inc., which recently merged with FutureNext Consulting Inc., was set to implement Oracle Financials when Oracle Corp. announced an ASP program called Business Online. The big draw? "Didn't have to buy hardware, didn't need a full-time [database administrator], didn't need a full-time sysadmin," Gootee says. "We have plenty of people who can do that — but we want them out there billing hours, not stuck on the bench."

Speed. If a business decision demands a new application pronto, you can rent one pronto — no lengthy study, no turf wars, no wait for hardware.






Act now to become your organization's ASP leader: Set companywide policies and issue guidelines.
Decide which applications you're willing to rent and which need to stay in-house.
Pressure your major software vendors to create Web-centric applications.


Bodies. Pass hiring and head-count headaches on to your friendly ASP. "Companies don't have to put manpower in to maintain and implement these things," says Darwin P. Singson, a senior analyst at Aberdeen Group Inc. in Palo Alto, Calif.

Price. It's too early to tell whether using service providers is cheaper than doing it yourself. However, well-negotiated ASP pricing is predictable, which may make life easier.

The dominant pricing model for service providers is per user, per month. Analysts and vendors say that won't change in 2000, although other models, such as per server, are making headway.

Concerns About ASPs

Security. This is the No. 1 question on every IT manager's list. Vendors can quote you reassuring numbers all day long, but if you're not comfortable with your data living on somebody else's server, ASPs aren't for you.

Bandwidth. This is the No. 2 question. Users and analysts agree that if your systems are slow now, moving applications off-site won't help. But if your pipes are fat and your current access speeds are decent, service providers won't slow you down significantly.

Customization. Tom Kucharvy, an analyst at Summit Strategies Inc. in Boston, says, "There's a deep belief [in IT shops] that IT can develop apps better-suited to their organization, [while] the ASP model is based on limited customization."

Gootee says Oracle "wants to keep lots of people on the same release" but adds that "Oracle is robust enough so we don't need a lot of customization."

ASPs discourage customization because they want to keep their own costs down. Moreover, they're guaranteeing a certain agreed-upon quality of service, and that's easier for them to achieve when lots of customers are running the same applications.

Implementation and integration. "There's no magic dust associated with the outsourcing model," says Mike Ober, CEO of Brightstar Information Technology Group Inc., a consulting firm in Pleasanton, Calif. "When you use an ASP, there's still an implementation and there's still integration."

That's handy to remember, because some ASPs will try to sweet-talk you right past these unsightly details.

Craig Brown wrestled with the issue. "We wanted to do the install ourselves," says Brown, chief technology officer at Pointclick.com in American Fork, Utah, but "Oracle wouldn't let us. They're guaranteeing a [service-level agreement], so they insisted on installing it." The start-up, which pays Internet users in cash or in credits to surf the Web, rents Oracle Financials.

In the end, Brown was glad Oracle won the argument. "They did a stellar job," he says.

Outlook for 2000

The ASP phenomenon will make significant headway in large companies this year. Service providers will find traction first in departments and remote offices, as did PCs and handhelds. Their value will become sufficiently clear to overcome concerns about security and customizability. But the fragmented market will become more chaotic before it consolidates.

Today, you have "ASP classic," as Kucharvy calls operations that simply host other vendors' applications. You have software vendors renting out their own applications and also hosting other vendors' tools. You have user companies turning into quasi-vendors — generating revenue by letting ASPs host applications developed for internal use. You have consulting companies reshaping themselves as ASPs. Look for the latter trend to intensify; the major consulting companies want a bigger slice of the pie, and they have an awful lot of expertise to leverage.

Fortunately, you ask the same questions no matter what type of ASP you're evaluating (see right). Applications themselves will be rearchitected to be more Web-centric. Increasingly, vendors with the Internet in mind are rewriting their client/server applications in the Internet programming language HTML. The advantages of this approach include a simple browser-based interface and data compression techniques that ease network loads.

First Steps

Assuming you've decided ASPs are worth exploring, here are a couple of suggestions:

Take action before divisions or departments make a decision for you. IT should be the corporate leader in evaluating providers. If you act as the enabler rather than the defender of the status quo, you'll prevent future headaches. Without your guidance, remote offices and small divisions, for example, might sneak into rental agreements that don't meet your security or availability standards.

Decide what applications to farm out and what to keep in-house. The ASP movement is best known for its ability to bring meaty enterprise resource planning (ERP) suites to smaller companies. But if your corporation has a sizable investment in ERP, you'll probably want to retain ownership.

In general, ask what IT projects are part of your business's core competency. If it's strategic, a competitive differentiator or subject to ultrastrict confidentiality, as some health records are, you want control of it. Anything else is a candidate for outsourcing.

"Look for someone who's providing a specialized service that doesn't make sense for you to provide yourself," Kucharvy says. Infrastructure needs such as e-mail make a tempting target; several analysts and users expect e-mail rental to explode in 2000.

Selecting an ASP

Here are some factors to consider and questions to ask:

When you hire an ASP, you're hiring a consultant. Everybody interviewed for this story said a provider's knowledge of the applications it hosts is the most important factor by far.

That's one reason Brown went with Oracle. Brown had to marshal his IT forces carefully, keeping staff focused on a fast company launch. Oracle's expertise with its own Financials package was a major factor in his decision.

Depending on the level of customization you want, your ASP may need to know enough about your business strategies and processes to help translate them into software modifications. Make sure any prospective ASP views your relationship as ongoing. "Every time your business changes, you've got to evolve your applications," says Ober. You must be able to "go to your ASP and start with your business requirements and strategies. Features and functions fall out of that."

Ober suggests scheduling regular meetings with a provider to keep it current on your business needs. If a prospective provider balks at such meetings, you might wonder whether it just wants to sign up your business and make sure the server's plugged in.

On the other hand, if your application is straightforward and you don't anticipate extensive customization, a plug-and-play ASP may suit you.

Pin vendors down on the basics. How many data centers do they have, and who's staffing the centers? "An ASP really needs guys in the back room making sure everything's working," Singson says. Do they deliver over a virtual private network? A wide-area network? Who are they allied with on the security and telecommunications fronts? Insist your provider have enough horsepower, bandwidth and know-how to accommodate not just your present needs, but also your growth.

Make sure you're happy with all service-level agreements.

Firm up the fee. ASPs sometimes make like used-car dealers when you ask how much their services will cost. It's not unheard of to see price quotes that vary by a factor of 10 for the same application from the same vendor. Figure out how many users will share the application. Then insist on a quote that includes all implementation and customization fees. Also, find out whether the vendor offers a rent-to-own deal.

Copyright © 2000 IDG Communications, Inc.

Shop Tech Products at Amazon