What does it take to be a good ASP?

IT directors' desks have been awash with pitches from application service providers (ASP) over the past year. So it is worth...

IT directors' desks have been awash with pitches from application service providers (ASP) over the past year. So it is worth considering the technical problems these suppliers may face, writes Danny Bradbury

For one thing, small software developers may not feel able to offer the datacentre infrastructure needed to support an online software rental customer base. Issues such as service level agreements and system uptime become critical and, for a company with no core competency in this area, moving into such services can be a prohibitively expensive business decision.

As a result, there are many pure-play ASPs springing up with experience in this area which are happy to host applications for others. Companies such as Digica, for example, have their own facilities dedicated to this purpose.

Perhaps more of an issue for potential ASPs is cash-flow. Unlike conventional software sales, where companies get payment up-front, online software rental entails a steady trickle of payment, which will force firms to reassess the way they do business.

Some suppliers are sympathetic to this problem, especially those that are heavily focused on the ASP market. Progress Software, for example, which sells a database and development tool, launched its Aspen programme in 1999 specifically for software houses wanting to move into this area.

As the Aspen programme has developed, Progress has revamped its licensing arrangements for those wanting to rent software over the Internet. Now, it offers to take a percentage of revenue from ASPs rather than insisting on an up-front payment. This will make it easier for channel partners to get involved in the ASP space.

Other companies, including Sun, are taking an educational approach to help small software houses move into the market. The company runs a programme that consists of a number of seminars to alert software suppliers to the business and technical challenges surrounding the ASP market.

Additional reporting by Justin Wastnage

Issues to consider when choosing an ASP

  • Does it have UK references? US figures, or endorsements from US analysts may not be relevant to European organisations

  • Does it have the right staff? An ASP should have high-calibre staff familiar with many technologies. Be sure the ASP does not have a track record of poaching personnel directly from customers

  • Will it survive? An ASP should demonstrate a well-defined business model and have access to extended lines of credit. The ASP market has yet to consolidate, so the players can expect to be squeezed as customers shop around

  • Is the contract clear? ASPs should keep service level agreement contracts simple. Key areas such as liability and termination clauses and intellectual property should be clearly defined. US contracts are often not compatible with UK customers' due diligence procedures, which require contracts to be made under English law

  • Will it share risk? An ASP should be able to give you a clear answer as to how much risk it is sharing. It should be prepared to be measured against not only technical benchmarks but your business objectives

  • Are the system requirements clear? ASPs should detail in any contract exactly what kind of connection the customer is expected to have in place in order to receive peak performance

  • Is it secure? For ASPs, the physical security of servers is an added consideration above network security. Many ASPs operate from lower-rent areas than their customers. Also, consider the risks of ASP staff having unauthorised access to user data.

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