Suppliers will tell you that taking the ASP route is cheaper, but
there may be hidden costs. Computer Weekly finds out how to assess
whether an ASP model is good for your wallet
A backlash against the application service provider (ASP) market is
in full swing. In spite of all the hype, adoption of the
one-to-many application rental model has been relatively slow.
Nevertheless, in the current harsh economic climate companies are
looking for ways to save money and ASPs believe that
subscription-based software rental is a way to do it. IT managers
have to evaluate suppliers' claims closely if they are to produce a
cost savings analysis that will convince the board that it is
worthwhile.
Bill Trail is director of sales in the ASPen Managed Services
division of Progress Software, a company selling back-end software
designed to help ASPs build their applications. He says it is easy
for potential customers to analyse return on investment for the ASP
model. Simply total the original cost of the licence, along with
data migration to the new application, and support costs, which
usually represent an additional 18-19% charge on top of the basic
software license, he advises. The total cost of ownership for each
PC that could be saved by switching to an ASP environment is about
$1,000 (£701), in his estimation. This figure is cut down from a
Gartner Group estimate of roughly $2,500 (£1,750), which includes
costs for things like hardware support, which would also exist
under an ASP model.
"The standard rule of practice is that for every application we
bring in-house, we have half an IT person to support it," says
Trail. "A fully trained IT person costs money." You can easily put
these costs together and come up with a figure to compare with an
ASP's charges, which are generally very simple and structured on a
per-seat, per-month basis, he says.
Not so, argues Mary Hope, senior analyst at Ovum. She says that
many IT experts don't have a clue about the total cost of ownership
for their in-house software. If you tell them how much they are
paying per seat, they are often so stunned that it's impossible to
speak to them intelligently about adopting the ASP approach
afterwards. If you are unsure about your total cost of ownership,
then putting together a realistic return on investment analysis for
the finance director will be difficult.
Nevertheless, some things can be said with a degree of certainty
about the investment necessary for an ASP contract, says Hope. For
example, the concept of minimal commitment is valuable when
considering your overall expenditure on such a service. With
off-the-shelf, purchased software, your initial outlay can be huge,
risking a significant loss if the software turns out not to be
satisfactory for your needs. On the other hand, many new-generation
application service providers, unlike their predecessors whose core
business was in shrink-wrapped software, are offering software
services currently, rather than treating the ASP market as simply
another revenue stream. They are willing to be more flexible with
payment mechanisms, and in many cases offer a free trial for a
limited number of end-users so that they can test the system out.
This minimises your initial investment - and therefore your risk,
and your overall project cost.
On the other hand, says Trail, ASPs can reasonably charge extra for
their services. "You can justify a 30% to 50% surcharge over what
the cost of ownership would be," he says, arguing that much like
leasing a car, the convenience of owning an application without any
installation problems, maintenance or upgrade issues represents an
added value that customers should pay for. "The predictability is
the biggest part of it," he says.
So, minimising your initial outlay by paying for applications on a
subscription basis could cost you more in the long run if your ASP
decides to impose a premium for the convenience of leasing rather
than buying the software. There could be other potential financial
disadvantages, too, depending on the financial advantages that the
application service provider uses.
Mary Hope says that some ASPs charge for a particular application
on a per-seat basis, on the understanding that only certain people
in a particular department will want to use it. But for some
organisations, it might be necessary to deploy an application
across all staff, while only expecting them to use it a very small
percentage of the time. Ovum, for example, has 300 employees, and
unlike other companies, wants all of them to have access to the
sales application that it uses. If an ASP is charging £50 per seat,
per month, based on the assumption that users will be accessing the
application heavily, then the ASP model suddenly becomes an
expensive option, even in the short term.
According to Euan Davis, senior analyst European services at IDC,
the world might be moving away from the existing notion of the ASP
as a one-to-many application service provider anyway, and moving
instead to the concept of an infrastructure provider (offering
datacentre services), with a separate private application hosting
offering on top. This would enable them to customise the
application more effectively, while retaining control over data
access and middleware infrastructure, for example.
While this seems like a more mature approach, it will inevitably
muddy the waters with regard to investment models. Customising
applications involves custom investment analyses, based on things
like consultancy time and the extent of the modifications being
made, not to mention the effect that they may have on other
applications in your IT stable. Consequently, while the ASP pricing
model has been simple thus far, a more mature industry will require
more sophisticated investment studies.
At the end of the day, any investment in an ASP service is likely
to simplify your budgetary spreadsheet no end, but you will pay for
the simplification by sacrificing some control over your
subscription payment model, and more importantly, some software
customisation options.
To work out how much you will save by moving to an ASP environment
you will need to evaluate how much investment in software licences
you can avoid, and to analyse your support costs, and capital
hardware expenditure.
One thing that is likely to remain the same, if not increase, is
your investment in network infrastructure, which must be robust
enough to handle the fast, reliable communications needed with an
ASP.
Look out for the IDC return on investment analysis report for the
ISP market, which will be appearing soon.
Further Information:
www.idc.com/imarket/roiasp/