Are ASPs a suitable solution for large enterprises?

Although it is generally agreed that ASPs offer cost savings for SMEs, it is still debatable whether larger firms will need them....

Although it is generally agreed that ASPs offer cost savings for SMEs, it is still debatable whether larger firms will need them. Our panel of experts nevertheless recommends that larger firms should keep a close eye on how ASPs develop in the future

As the IT director of an organisation with more than 1,000 desktops, I have read recent news reports of the growing application service provider (ASP) market with interest. My perception of ASPs is that they are primarily aiming at small and medium sized enterprises. Is this a fair appraisal? Or should I be including ASPs in my desktop provision strategy?

Weigh up the pros and cons
Roger Rawlinson
NCC

You are correct in that ASP is more applicable to smaller companies. However, you do need to be aware of it as in the future ASP may become a more serious offering for large organisations too. There are potential advantages such as rapid implementation, scalability and freedom from maintaining client software.

Looking to the future, there may be a scenario where the application is "outsourced" in the same way that we see with other aspects of outsourcing arrangements today. The pros and cons of ASP depend on what is important to your business. Make your decision on the same basis as you would when considering outsourcing.

If you want to avoid the worry of application upgrades, maintenance and cost-of-ownership, then look to ASP as an option for the future.

Assess its merits in your strategy
Rupert Wheeler
Elite

Using an ASP enables you to link cost with usage. With some special application packages, perhaps too expensive for the use one might make of them, such a service brings obvious business benefits especially to SMEs.

Given the growing need to adapt your business and product development processes ever more quickly, there may be little alternative for some companies. Other benefits include placing users in the position of justifying the cost of the service, and not having to worry about keeping the application software up-to-date with changing hardware and system software.

Although you represent a large company, it would be surprising if there were not some specialist groups or departments whose requirements were best addressed by an ASP solution. So the answer to your question is undoubtedly, yes. You should include an assessment of ASP in your strategy, but not for office support products.

On the minus side, it is early days in the evolution of ASPs. An increasing number of suppliers are saying that ASP is the future, but few seem to be providing it. For an acceptable level of service, ASPs require high bandwidth for data communications, and that means high costs for their customers. Also, the suppliers are far from settled on how to charge customers. You will find that the same issues of trust are involved, as when you consider any other aspect of facilities management.

I expect suppliers to resolve many of the operational and service issues over the next year.

Monitor usage volumes carefully
Rob Lambert
Cranfield School of Management

The ASP market is young and growing rapidly. Originally, ASP services were seen to be for SMEs, but the concept may well be attractive to larger organisations. Their main benefit is the use of variable pricing models which move away from the standard high, up-front set-up cost models.

Such economics lend themselves to applications where the customer has low volume need for a sophisticated application. An ongoing support service is provided by the ASP, which means there is less need for you to employ staff with specialist application knowledge. All of this allows your own employees to concentrate on the organisation's own value-adding applications.

Usually such models depend upon the customer accepting a standard off-the-shelf business model, which has the effect of nearly eliminating tailoring and set-up costs and therefore results in very fast implementation times.

However, this implies the customer has to accept fully the generic solution offered. This may be suitable for an SME, but may not be suitable for larger, more complex organisations. If you intend to pursue this route to its logical end you may well encounter application integration issues.

On balance, ASPs should be considered in your IT sourcing strategy because they offer speed and flexibility - but they are not a universal panacea.

The key to success with ASPs is to monitor the usage volumes very carefully, because what seems economically sensible today, may not be tomorrow.

It depends on what you want
Neil Yeomans
Arthur Andersen

Recently, and inevitably, we have seen the ASPs widen their focus to include organisations of all sizes. Their benefits to companies can be convincing and range from the predictability of a flat monthly fee through to reduced cost-of-ownership by not having to configure, deploy and maintain a full suite of desktop software.

Unfortunately, to obtain such benefits you need sufficient bandwidth, both to your company and also to each desktop. Furthermore, given the relative immaturity of such an approach, quality of service remains a key issue and the use of carefully selected contract metrics is critical.

However, like any outsourcing arrangement, you will essentially be swapping one set of issues for another. In the case of ASPs, the trade-off is between managing your desktops or managing your contracts. Hence, ultimately, the choice of whether or not to include them in your strategy should depend on the set of issues with which you are most comfortable.

Don't consider ASPs just yet
Hugh Macken
Certus

The market is still young and I wouldn't consider ASPs for business-critical applications just yet. Much of the current interest in them is being generated more by suppliers than customers. I think it would be reasonable to suggest that the largest area of growth for ASPs is likely to be in the SME market but I imagine that the suppliers would maintain that they have "something for everyone".

On the plus side, ASPs offer companies the opportunity to buy expensive applications in "slices", without the high initial cost and ongoing overheads of in-house development and support. They can be very useful for budgeting and cost control and offer smaller organisations greater flexibility in defining their IT strategy direction.

On the minus side, however, are service level agreements, dependence, and the loss of opportunity to develop good in-house skills and experience.

This was last published in January 2000

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