Application Service Providers

Application service providers offer an outsourcing mechanism whereby they develop, supply and manage application software and hardware for their customers, thus freeing up customers' internal IT resources.

Organizations use computers to run applications that carry out specific business functions. Typically, organizations spend a serious amount of money to buy software. (Technically, of course, they don't actually buy programs but rather licenses to use them.) Whether it's a PC application that an information technology department has to supply to thousands of users, or a mainframe or server-based program of which it only needs a few copies, the overall cost is still very high - sometimes cripplingly high.

And that's just the beginning. Applications are typically upgraded every 12 to 24 months, and upgrades cost money, regardless of whether software is purchased anew or provided under an annual subscription or maintenance fee.

In the face of high software costs and as an offshoot of the development of two-tier client/ server computing, a new industry has emerged with startling speed: application service providers (ASP).

What Are They?

ASPs deliver a contractual service in which they deploy, host, manage and provide access to an application in a facility located somewhere other than the customer's site, says Amy Mizoras, an ASP and application group analyst at International Data Corp. (IDC) in Framingham, Mass.

In essence, the ASP buys and maintains the software (or develops it for the client on a custom basis). It also buys the server hardware and the network and then rents it to the client, typically for a fixed period of time at a specified price. This arrangement, somewhat akin to leasing a car, means the client doesn't have to bear the up-front capital costs of the hardware and software but instead can pay for their use more gradually.

The ASP transmits the application to the user through a dedicated T1, Internet or intranet connection. Ideally, says Mizoras, a service provider would like to serve applications over the Internet, but that isn't always possible for some customers.

Service providers host applications on back-end application/data servers. The back-end servers are usually Unix or Windows NT servers that house various programs.

Such providers often use a thin client to provide access to applications that can run mostly on a server, or they use a server-centric approach to provide access to applications that will reside mostly on a user's desktop.

Service providers also use a front end, which provides security, e-mail, Internet access, directions and other services but mostly acts as a connection to the back-end server.

There are three categories of applications that ASPs provide to users, according to research conducted by IDC.

Enterprise applications include those for customer relationship management, enterprise resource planning (ERP), e-commerce, data warehousing and programs to support vertical industries.

Collaborative applications include programs that enable internal operations such as e-mail, groupware, document creation and management messaging.

Finally, ASPs can provide applications for personal use, including games, entertainment software, home-office applications and any other software that can be purchased in a computer store.

The simplest ASP applications are automated, so a user can access information from one Internet portal that will enable him to complete a task such as building a simple e-commerce site.

"A simple application would have very little, if any, customization and require configuration. There are few integration points, and they are well-defined integration points," says Lew Hollerbach, a senior analyst at Aberdeen Group Inc. in Boston.

A more sophisticated ASP can allow a person to tailor information specific to the end user. The person oversees the management of the application and also adds important information about its use.

The most advanced outsourced application is one where providers act as aggregators of multiple services by combining services to meet an individual's needs while implementing the applications and ensuring integration with the existing system.

Hollerbach says that the two more advanced programs would have a number of integration points and would require a lot of user customization.

How Well Received?

ASPs aren't as popular as many analysts thought they would be, says Hollerbach. But they can give many advantages to IT managers and departments.

ASPs provide corporations with noncritical software applications, such as a travel-and-entertainment planning and organizing program, in a fraction of the time it would take if an IT department installed the program internally, he says.

Using an ASP also allows an IT department to focus more of its attention on more critical software and system problems that are important for the company to function.

In addition, it reduces the burden of recruiting hard-to-find technology employees.

One of the reasons ASPs aren't popular, Hollerbach says, is that companies have already invested a lot of money and time into their existing computer systems.

"Large enterprises [that] invest a lot of money into an ERP are not going to throw it out just because ASPs come along and say, 'We can do this too,' " he says. "A lot of companies are trying it out with small applications."

Hollerbach also says that the approach that ASPs take to marketing is flawed.

Instead of trying to target a specific industry such as health care, he says, service providers are approaching companies and offering specific applications - and that's not what companies need.

Copyright © 2000 IDG Communications, Inc.

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