The computer industry is characterised by mixed messages. On one hand, you're told that your IT strategy is the key to your competitive edge. Later, the same people tell you that IT isn't your core business, and that developing your own applications makes no more sense than building a fleet of cars. There's no shortage of firms that will run your e-business for you but how much competitive edge do you lose by putting a third party in control?
Outsourcing has never been more popular among suppliers. Only these days it's not called outsourcing, but managed service provision or business service provision or application service provision (ASP). Every supplier these days, from Microsoft to your local reseller, wants to run your systems for you. This probably has a lot more to do with the disappearing profit margins on hardware and software than any desire to see you gain the fabled competitive advantage. You can see the motivation for the new generation of service providers; service is where all the money is these days.
There are a lot of variables to consider before outsourcing your e-business, not least the extent to which you decide to do it. Some companies, such as Virgin's e-commerce arm Biz.net, will build and host an entire e-commerce system for a small- or medium-sized business. At the other extreme there are companies that prefer to own the entire process, even down to the purchase of bandwidth and hosting the application.
If you believe that your IT is the crucial differentiator between you and the competition, then you should be involved with the development of your e-business at every stage, advises David Caruso, vice president of enterprise application strategy for AMR Research. "The economies of outsourcing, for a supplier, are to build something that can be sold again and again, without too much extra work. For that model to work, you can't afford to do too much differentiation," says Caruso.
If time is the greatest constraint, however, the new service providers are well positioned to help. E-business, says Ovum analyst Katy Ring, is the one application that the new generation of ASPS can do justice to. "They'll get the system built in a fraction of the time it takes to develop from scratch," says Ring.
For a bricks-and-mortar company that is adding a Web presence to its existing business, the business case for using an ASP isn't so strong, however. Even more time-consuming than differentiating a Web site is integrating it with the existing back-end systems.
"Integration is the really tricky part," says Caruso, "so that's the part that's most likely to eat into the ASP's profits. But it's also the most crucial part to the customer." When there's a mismatch in objectives like this, he says, you are better off being in on the project yourself.
Outsourcing a site-build is for the strictly short-termists, agrees Ring. Even the argument about staff shortages doesn't seem to stand up, since the experience of companies in the US is that by using ASPs you can end up paying an even higher premium for skills.
"The ASPs in the US have had to change their message, because the argument that an ASP is cheaper isn't backed up by statistics," says Caruso, "you can end up paying a premium of 20%-30% for skills."
When it comes to hosting the hardware and software that will run an e-business, the quality of service you might get varies dramatically.
One ISP sold Internet services on the strength of its high speed connection to the Internet backbone. New small business customers who signed up for the service did so on the understanding that they were getting a 2Mbyte pipe into the Internet backbone. In fact, what they were getting was a share of that connection. The problem only came to light when a customer asked a service monitoring company, Kenson Network Engineering, to monitor the level of service it was getting. It turned out, says Kenson's managing director Dave Cuthbertson, that 37 other companies were sharing that link.
This highlights two of the actions you must take if you are to risk getting a company to host your e-business. First of all, try to make your contract as short-term as possible, certainly no more than a year. If possible, insist on a trial period to satisfy yourself, and your board of directors, that the ISP is providing the level of service you require.
Which brings us to the next grey area: levels of service. First of all you need to work out your service requirements. Since Internet service provision is a relatively new business need, many companies have no idea what to ask for. As happens in any sector of business, there are service providers who won't offer you anything you don't ask for. As director of the Network Outsourcing Association, Cuthbertson provides some guidelines to what you should ask for (see box, below right).
The next step is to determine whether this is the service you are beingoffered. Beware the ISP that offers you its ownperformancelevel reports, says Phil Tee, founder of ISP testing expert Riversoft.
"I keep coming across these companies that have service level agreements with ISPs that offer 99.999% reliability. They say they know they get this level of serviceeverymonth because they get a report. But guess who compiles the report - the supplier," Tee says.
On average, according to Riversoft studies, ISPs in the UK offer 98.7% availability, which represents minutes of downtime every day. Having said that, not alle-businesses need the premium levels of performance.
Broadly speaking, there are four levels of ISP, from the PlanetOnlinesand UUnets at Tier 1, tothesmall resellers of bandwidth at the lowest level, Tier 4. It could well be that a Level 4 supplier is sufficient for your needs, particularly if your e-business presence doesn't involve too much in the way of graphics and transaction processing. In which case, the price of a Tier 4 supplier will be a lot more attractive too.
Any business that needs a half decent response time and expects to draw customers from a diverse base would do well to make sure they sign up to an ISP that is a member of Linx (the London Internet Exchange). The 100 ISPs that belong to this group all have good peering arrangements (fast links between their servers) which means that a customer/end user whose account is with ISP A will not spend ages trying to get information from an e-business which is served by ISP B, a fellow Linx member.
Zona Research has estimated the attention span of an e-commerce customer in the US is eight seconds, so it pays to take any steps possible to ensure fast access.
The cheaper option and a sort of halfway house between hosting and in-house management is co-location. Typically, an e-business would site its Web server and comms equipment in the premises of an ISP, which gives them greater proximity to the fast pipes the ISP has running into the Internet backbone.
The question to ask here is how much support the service provider's staff are prepared to offer. Some will only allow their staff to re-boot your server if there is a problem. Others have technicians on hand, ready to earn a premium for nursing your system back into action.
It was the lack of control that persuaded City of London legal firm Withers to run its own Internet service. The purchase of bandwidth isn't rocket science, says spokesmanRiccardo Abbate, and you should consult Web designers on system requirements. Abbate says www.withers.co.uk is a mere physical extension of the IT infrastructure the 50 partner law firm uses already.
The only things you might need to farm out to third parties are secure payment systems (to someone like Baltimore or ActiveCard) and someone to deal with credit card transactions.
No expert advice, then? No need to find a third party to test the performance of the system? Withers has got by without them, says the solicitor. "You only need to log into your system to see how it's performing," he says. The main consideration, says the solicitorturnedInternet access expert, is making sure you don't have big graphics files.
It all comes down to trust, says Abbate. Even if you are one of those people who need an ISP to host your service, the ISP can provide you with charts to see show how well it is performing, he says.
It's difficult, without knowing the circumstances of companies entering e-business, to advise whether they should host themselves, co-locate or trust an ISP entirely, or indeed which type of ISP to go for. Computer Weekly would like to have judged how well self hosting was working for Withers but, sadly, at the time of going to press, the site wasn't available.
The four levels of Internet service provider
Tier 1. Characteristics: These are spin-offs of telcos, and so enjoy global reach. Eg Uunet, (owned by MCI) Planet Online (Energis)
Tier 2. Characteristics: Companies that own networks but operate locally (PSINet, GX Networks, Demon)
Tier 3. Characteristics: The smaller ISPs that buy another company's bandwidth and resell it. Eg Atlas, Astra.
Tier 4. Characteristics: A new category of 'virtual ISP'. These companies resell the bandwidth of companies like Uunet at discounts, and make their profits from the services they add. Eg Mitech.
Another option to consider is co-location.
What your contract with an ISP should cover
This was first published in May 2000