ASP: Still fearful of being bitten?

Smaller businesses wanting to utilise the power of enterprise applications can now do so through ASPs. Although the take-up has...

Smaller businesses wanting to utilise the power of enterprise applications can now do so through ASPs. Although the take-up has initially been slow, Paul Grant believes that the time will soon be right to move over

Many businesses are still unconvinced by ASPs. Despite potential cost savings, few are of the opinion that giving up some of their key systems to third parties is a good idea. However, Microsoft has just dished out the first of its accreditations as part of its ASP certification programme, launched in July last year. The two companies involved, NetStore and Equant, have been certified to run Microsoft's Exchange package, a communication and collaboration tool that provides messaging and conferencing platforms, as an outsourced service.

The announcement comes just after the launch of Exchange 2000, which shipped earlier this month. All three companies believe that the combination of accreditation and the move towards the latest version of Exchange could see a massive increase in interest for ASPs.

Kevin Brigg, Group Product Manager for Exchange at Microsoft said: "We see a great future for ASPs and want to provide support for them alongside our traditional licensing model. Our rigorous certification program will help both the ASP and the confidence of potential customers. Exchange 2000 has many new features that lend themselves well to the ASP model, such as active clustering and load balancing."

Add to this Microsoft's .Net vision (of which Chief Executive Steve Balmer said: "We see software as a service. There is no plan B") and the company seems well positioned to ride the ASP wave. Microsoft will certainly hope that it has predicted the current climate better than it did in the early days of the Internet explosion, when Bill Gates dismissed the Internet's importance on the future of technology, and Microsoft somewhat missed the boat, if only temporarily.

The recently accredited NetStore believes the time is now right for established ASPs to make the most of the opportunities presented by Microsoft and Exchange.

Sean O'Reilly, VP marketing for NetStore said: "Upgrading to Exchange 2000 from 5.5 (the previous version of Exchange) or rival systems like Lotus Notes takes a great deal of time, effort, and money if done internally. Because of this a lot of companies are reluctant to make the change. Using an ASP means the upgrade is quick, painless and is paid for by a simple fixed monthly fee per user."

Upgrade provision is not the only opportunity at which NetStore is looking. With a heavy small-to-medium focus, the company wants to be able to provide customers with services that price and complexity would have previously prevented.

Jeff Maynard, chief technical officer at NetStore, said: "We're able to offer big boys toys to smaller businesses. Microsoft may say that Exchange is applicable to businesses of all sizes but the costs and difficulty of setting up and running an Exchange server prevents smaller companies from getting their hands on a product which could be of great benefit to them. NetStore can provide all the functionality of Exchange to companies as small as three people and let it grow organically with them."

It may be in this type of role that ASPs are much more likely to find a suitable position. ASPs rolling out services such as the MS Office suite, which are readily available and not the toughest to administer, could be struggling to find a market segment large enough to reap any reasonable profit. Companies that already have the Office suite installed throughout the business will find little reason to move over to an ASP model. Packages that are cumbersome, expensive and a nightmare to administer on limited IT resources however are prime candidates to be outsourced to a third party service provider.

Unfortunately there are problems for those who want to get involved in this type of ASP model - namely, the huge costs of setting it up in the first place.

"We would like to see a few more competitors in our market segment as it would give the ASP market in general more credibility," explains O'Reilly, "but the barriers to entry are incredibly high. In order to guarantee service level agreements (SLAs) with customers we have to control the whole process. If we take any part of the set-up from a third party and that goes down, we break our SLAs and that spells trouble. Taking that into account, it's going to cost any new company about £10 million to get off the ground. This is without mentioning the vast amount of expertise that is needed to manage the systems."

That said, the number of companies looking at this market is increasing. Obviously Equant, which was also accredited by Microsoft as a certified ASP partner, will also be tackling the Exchange area quite significantly. Mi8, another dedicated ASP, has also recently announced its intentions to provide Outlook and Exchange to its customers.

The market may not yet be flooded with true ASPs but the number of 'virtual ASPs' is increasing rapidly, and these are coming almost entirely from the reseller community. ASP has been seen by many resellers as a potential saviour, a way to turn around those increasingly shrinking margins derived from hardware sales and to receive a regular income for the service provided. Unfortunately there aren't many that can afford to set up on their own but opportunities exist by partnering with the likes of NetStore, who currently employ many resellers to act as 'virtual ASPs' responsible for sales, front line support, and creating and managing customer accounts.

"Once we've convinced the reseller that they don't have to throw out their old business model completely and they get used to the change in cashflow, they soon realise that a 23 per cent recurring margin is very healthy compared to most of their other sales," said Maynard. "In time they can even start to build customised applications of their own on top of what Netstore provides."

Yet all is not rosy in the garden of ASP. There are still a few issues that need to be dealt with before the market can skyrocket. One problem is convincing potential customers to drop the traditional upgrade and sign up with an ASP is the issue of downtime. A traditional upgrade of this scale in a reasonably sized company can take up to several months but can be done in parts, meaning that the application never truly goes down. Switching to an ASP can take less than a day, but during this time the application is offline, which may be unacceptable to many possible purchasers.

Connection speed also seems to be an issue, with small companies likely to be hampered by slow 56K lines until broadband becomes prevalent. NetStore did not see this as a major issue with O'Reilly commenting: "Until we start providing multimedia and streaming the only issue will be costs. With broadband you have a fixed cost for communication, which you don't have on traditional telephone lines."

Nevertheless at a recent Microsoft Exchange conference in Nice, where NetStore had provided the communications network for delegates' use, Exchange was reported by many to be running slowly. This network was using a connection much faster than a 56K modem and while it was catering for over 150 users at a time, it shows that perhaps the issue of speed is not as irrelevant as NetStore seems to think.

With BT finally rolling out ADSL, the problem of connection speeds may soon be relegated to the background, which could let small businesses compete on the same terms as some of the big boys, at least in the case of software packages. Exchange may only be a small part of the picture, but as ASP services advance, the offerings will become richer and businesses could find that having a great deal of their systems provided by third parties could offer huge benefits.

Paul Grant

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