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What's in it for me?

ASPs appear to offer cheaper applications and an end to your skills woes. But is this all too good to be true? Alison Classe separates fact from fiction

At last, application service providers (ASPs) are getting the attention they are looking for. A recent survey found that 70% of IT directors and managers were reasonably confident that they knew what an ASP was.

Brett Mankey, chief executive of ASP HOSTeu, which commissioned the research, finds that result encouraging. “If we’d done the survey three months earlier, I’m sure it would have been the other way round: 70% wouldn’t have known.”

Mind you, the confident respondents might still have had trouble pinning down a definition.

The recent IT Directors’ Forum debated the issue but couldn’t come up with a consensus. One group felt ASP was basically a new form of outsourcing: anything from “state-of-the-art timesharing” to a close relation of managed network services.

Another group saw it as something more radical: a genuinely new and potentially more cost-effective way of buying and distributing software applications.

What is an ASP?

In a recent report, Apps on Tap, Ian Mitchell, IT analyst with Beeson Gregory, provides what might be a relatively uncontroversial definition.

“ASPs offer outsourcing of individual IT services or complete functions across a wide area network (Wan), usually in return for a monthly fee, rather than upfront software licences,” he says.

Another analyst, Katy Ring of Ovum, has a similar definition: “An ASP provides software application capabilities on a rental basis according to a service-level agreement, and delivers the service on a one-to-many basis via a Wan – usually an IP network.”

Ring’s definition adds the commonly accepted stipulation that services are usually provided with the use of internet technology, although they may not use the public internet.

She also introduces the idea of service level agreements, highlighting the fact that rather than just hosting the application, an ASP takes responsibility for keeping the application in a usable condition. That usually includes software upgrades, as well as day-to-day operation and data back-ups.

How does it differ from other outsourcing models?

There are so many different outsourcing models that it’s hard to generalise, and equally, there are (already) different flavours of ASP. But compared with facilities management (FM) there are clear differences.

Whereas an FM provider often wants to run your existing hardware and software for you – possibly on your premises –the ASP wants to rent you theirs, accessing it remotely over the Wan.

The ASP model has obvious business advantages. Because the application is already up and running, it can be very quick to get started. Because you’re taking an application that the ASP owns, rather than asking someone to look after your own application, there could be greater “economies of skills”, though the ASP won’t normally recruit your IT staff as sometimes happens with FM.

The trade-off is that with an ASP you’re often looking at a more or less off-the-shelf solution, rather than one that can be extensively customised, although some would argue that the ASP model does allow for configuration and integration of products.

Like an old-fashioned bureau?

The ASP model is often likened to the old timesharing bureau. If we think about more recent bureaux (those that offered online remote access rather than collecting piles of input forms in return for monthly piles of printout), the main difference is the use of internet technology.

While that’s critical to providers of ASP services, in terms of business benefits it’s arguable that it doesn’t make much difference what sort of communications technology is used.

Where the use of the internet does make a difference to the user is in terms of ease of access. With a browser-based application you have nothing to install at the client end, so in the case of a very simple service, you can sign up with the ASP at 10am and be using it five minutes later.

If you have a mobile workforce, the use of the internet is also an important differentiator. Users can sign on via their laptops and a local phone call. If for some reason that doesn’t work, they can sign on from an internet cafe or business centre, since they don’t need a specially configured PC. And because the applications are browser-based, there are the other thin-client advantages – you may be able to get away with cheaper machines on the desktop, for example.

Will it save me money?

There should certainly be economies of skill to be made, through the consolidation of multiple users’ requirements. That could change the look of the IT department. Ring predicts that the ASP trend could knock out many IT support jobs altogether.

“ASPs will hit support staff hard and much resistance can be expected,” she says.

There’s scope for sharing non-human resources too. After writing an application to integrate computer systems with mobile phones via SMS, software company Taskflow turned ASP in response to customer requests.

Marketing director Mike Boreham says: “We started off just selling it, but now we provide it on a monthly managed service basis because that’s what everyone was asking us to do.”

Under the ASP arrangement, Taskflow not only takes on the hassle of dealing with multiple phone companies but also shares the cost of communicating with them. “By modelling their need carefully we can often share one leased line between 10 of our customers,"”says Boreham, explaining that one customer’s peaks and troughs can offset another’s.

As with other forms of outsourcing, however, going in for ASPs on grounds of cost alone could lead to disappointment. The HOSTeu survey showed that cost was only listed as a primary concern in ASP selection by a third of respondents.

Mankey comments: “We won’t be competing on the basis of price, although we will price competitively. Our intention is to deliver a premium service – customer service to the ‘nth’ degree.”

Purchasers of ASP services are quality-conscious too, as the CHPD story shows. The promising relationship between CHPD and ESOFT Global reminds us that only the most basic applications could be run as arms-length, fully automated services. The typical ASP user is likely to need a lot of support and there is a danger that this cost may not be included in some suppliers’ pricing structures, which will lead to trouble.

What sort of application is most suitable for this treatment?

Routine applications that businesses are happy to share are obviously more likely candidates than those that give competitive edge. And because leading software suppliers, most notably Microsoft, are so committed to an ASP-based future you may get some options from an ASP that you couldn’t if you went out and bought the product.

Fraser Danbury, for example, UK managing director of Mi8, says: “Microsoft allows us to unbundle Office, so instead of being limited to the set combinations of products found in the Professional version and so on, we can offer customers whatever combination they need.”

Also being put forward as suitable cases for ASP treatment are heavy-duty enterprise resource planning (ERP) products such as SAP. The biggest attraction here is the prospect of avoiding the long and expensive implementations associated with these products.

However, many ERP experts say that these take a long time because it’s necessary to configure the products to suit the business if you want to derive maximum benefit from it. But a one-size-fits-all ASP implementation could be a useful way to dip a toe in the water, at least.

Perhaps more plausibly, suppliers of financial applications pitched at smaller companies are keen to become, or partner with, ASPs as an additional channel to market. Some of these partnerships also involve professional accountants who sell or recommend the product to their clients.

Could an ASP handle the systems that I already have?

ASPs aren’t usually so interested in customers’ competitive-edge bespoke or heavily customised applications, which, while they could be hosted, don’t fit into the software rental model.

That doesn’t mean you can’t use an ASP for your packaged applications. If you need tight integration between several applications, it’s sometimes argued that putting some but not others on an ASP could pose problems, but enterprise application integration (EAI) advocates claim today’s techniques can overcome those problems.

Patrick Coates is UK managing director of SevenMountains, which sells a framework to help ASPs manage their business. He argues that it’s possible to perm ASP options to suit the users’ business needs.

“You can integrate ASP applications with legacy systems, or have the legacy systems hosted by the ASP as well if you want,” he says.

Coates suggests that doubters can test the concept themselves by adopting an ASP-like model internally with a view to later outsourcing, as well as or instead of trying out ASP providers for their new applications.

Who is using ASPs now?

Startups and other small businesses like our case studies are among the early adopters of ASP services, which can be a very attractive alternative to trying to buy in IT skills.

Larger companies are reportedly trying out ASP services within a finite segment of their business, whether it’s an existing department or a new e-business enterprise, but these are usually less keen to publicise their experiments.

What are the potential disadvantages of ASPs?

Security is a major concern for prospective users. More than 35% of respondents in the HOSTeu survey saw keeping sensitive data off the ASP’s machines altogether as the best way to ensure data security. But ASPs argue, with some justification, that their systems should be more, not less, secure than the average user’s in-house system.

Many of the up-and-coming ASP offerings are based on partnerships between two or more companies: a software house, an Internet service provider and a telecommunications company, for example.

There are clear advantages to that arrangement because of the skills everyone brings to the party. But to succeed these partnerships have to be very well defined.

The IT Directors’ Forum expressed its concern that when problems arose there might be finger-pointing between the various parties involved. That’s a concern with traditional outsourcing deals which often involve more than one service provider too, and the same remedies apply – carefully drawing up the contract to provide the proverbial “one bum to kick” and retaining sufficient expertise in-house to manage the situation.

Your in-house management should also give attention to another hazard of outsourcing – the danger that having got into the arrangement, there’s no way out.

Generally, supplier and service management skills will be at a premium, suggesting a direction for potentially unwanted support staff to develop their careers.

What needs to happen for the ASP market to really take off?

The general availability of bandwidth and always-on connections is what many ASPs are waiting for. As Simon Moores, chairman of The Research Group and of the ASP Community, puts it: “The biggest problem with deploying applications over the internet is the internet itself. ASPs and their customers eat bandwidth, and it’s questionable whether the supply will be able to keep up with demand.”

Danbury says that Mi8’s UK launch was timed on the basis of the planned launch of ADSL, so he, like many other ASPs targeting SMEs, is waiting with some impatience for ADSL to happen. “At the moment, we’re restricted to certain groups, like companies in serviced offices with good communications links, and dotcoms which also have good internet connectivity for obvious reasons,” he says.

However, he points out, some types of application can be used perfectly well over ordinary dial-up links. “With Microsoft Exchange you can sign on, get your machine synchronised and then work off-line, whereas with something like Microsoft Office if you’re not signed on there’s nothing there,” he says.

Because of the communications issue some ASPs are targeting the City of London. Since you can hardly walk through the Square Mile without falling into a hole dug by cable layers, it makes sense to take advantage of all that bandwidth.

Moores also questions whether the software providers like Microsoft, Oracle and Lotus Development, confident as they are, can make all their products work in the ASP environment as quickly as they would like.

“Moving from one paradigm, packaged, to another, componentised and ready to be sold over the internet, is not a trivial task,” he warns. He suspects that the first killer ASP applications will come from other sources, including consumer-oriented players like AOL and the digital TV companies.

What is most needed though, is for some early adopters to provide the proof of the pudding. Unfamiliarity was cited by almost half the HOSTeu survey respondents as their main reason for not considering ASP, and that hesitation can only be partly resolved by the ASP community publicising its wares better. Many prospective users will wait for others to try the model out.

“For all this to work, ASPs must deliver a highly secure, reliable service,” says Mankey. “It will be tragic if someone fails to do that.”

How does the ASP model compare to earlier outsourcing models?

App is rented/leased, not bought Y N Y
App is accessed via a Wan [P] N Y
App is implemented by service provider Y N Y
Server infrastructure is built/supplied by provider Y N Y
Data input is responsibility of user [P] Y Y
User has online access to data [P] Y Y
Charging basis can be ultra-simple, for example, per user/application/month Y N Y
Unlimited ability to customise apps N Y N
App can be accessed from anywhere using standard equipment and comms links N N Y
Data can be stored on users’ in-house servers rather than external ones N Y [P]
Provider may take over your staff N Y N

([P] = perhaps) Note: these are generalisations based on typical implementations of the models

Do I need an ASP?

An ASP might be for you if:

  • You’re starting a new venture, especially an e-business one, that needs to be up and running fast. In this case an ASP may be able to provide you with the software and services you need off the shelf.
  • You don’t have any in-house IT staff and don’t want any.
  • You need software for a finite length of time, for example if you’re setting up a temporary company to run a six-month project.
  • You want your own IT staff to concentrate on "competitive edge" projects.
  • You’re a smaller organisation with remote sites to support.
  • You want to try out a new application without the cost of buying it.
  • You prefer monthly rental payments to an up-front hardware and software investment.
  • You were considering some other form of outsourcing anyway.
  • The ASP or their partner has application expertise that you don’t (for example, in running a particular ERP system).
  • Projecting future usage levels is difficult so you want to hedge your bets.

An ASP might not be so suitable when:

  • The application under consideration is one that is already bedded in and/or customised to your needs.
  • You have a mature IT set-up which is efficient and satisfies your users.
  • The application is critical to your competitive advantage.
  • There is a high degree of integration between this application and one that you need to keep in-house.
  • The application is highly visible to your customers and you don’t feel sufficiently confident that the supplier can meet service level commitments.
  • You don’t have supplier management skills in-house.
  • You can’t specify a clear “exit strategy” – if you throw your lot in with a particular ASP, you will be locked-in.

Service provision a go-go

The three-letter acronyms (TLAs) are breeding fast in this area. As well as ISPs and ASPs, there’s SSPs: storage service providers who rent disk space and related services for access over the Internet, particularly in connection with e-commerce.

Then there’s MSPs, Management (or Managed) Service Providers which act as a kind of remote IT department to monitor and troubleshoot applications and/or networks, the major difference from an ASP being that you still own the applications and run them on your own equipment. The same TLA has also been used to stand for Managed Security Provider – a company that will look after your firewalls, virus checkers and so on remotely in return for a subscription.

There are even more of these TLAs, but the underlying message is that, if the suppliers’ dreams come true, the internet will make it possible for all manner of specialist services to be provided remotely.

Case study: Smart Partners

Smart Partners, a specialist in marketing communications for the microelectronics industry, has used ASP services from Mi8 to create a “virtual office” for itself and four other small companies with which it collaborates. They are located in various parts of the country from Cambridge to Poole.

Managing director Leslie Franks explains that, as the most PC-literate member of the team, she had become frustrated with the inefficiency of their communications.

“We’d been relying almost entirely on e-mail to run our collaborative projects. I was finding that not only could I not communicate effectively with colleagues around the country, I couldn’t even work effectively with someone at the next desk. Also, because we look after various DTI websites in connection with projects for them, we’d been having to manually collect email from up to five places,” she says.

While Franks was investigating solutions to the problem, someone suggested Mi8, which was then in the process of opening a UK office.

Now Smart Partners’ communications problems are solved by using MSExchange on an ASP basis. Shared folders make it easy to collaborate on a project without having to whizz emails in all directions, and Mi8 has also solved the multiple mailbox problem through email forwarding. The company can do other things that would have been difficult before, like looking after one another’s business mail when they’re away.

“We wouldn’t have implemented Exchange on our own; the cost of the server would have been quite high and, more importantly, I couldn’t afford to spend too much time on the IT side of things,” says Franks.

The ASP way, getting set up with Exchange was a fairly minor job. “There’s a file to download from its website, and then a very simple set-up procedure. After about a week of tinkering with it myself I was up and running and ready to do the same thing for my colleagues,” says Franks. The monthly cost is modest, around £14 a mailbox.

Her only reservation is about telecommunications. “Once BT Surftime is available everywhere it will be wonderful. It’s not available where I am and it means logging on and off quite a bit. Otherwise, I’m delighted,” she adds.

Case study: The Centre for High Performance Development

Service quality is an important motivator for executive development consultancy The Centre for High Performance Development (CHPD). It has recently signed up ESOFT Global to provide an international workforce of 50 with access to Microsoft Office, Exchange and CRM software from Epicor.

CHPD business development director Maggie Deere says that the company had already tried a different kind of outsourcing. “We used to have a server hosted by an external company in a traditional way, but it had the habit of going down when you least wanted it to. We need a service which is reliable, and we also need the system to be working round the clock, because our consultants are all over the world,” she says.

The deal with ESOFT has demanding service-level definitions built in. ESOFT claims that the service will be 25% cheaper than equivalent in-house solutions.

Meanwhile, Deere is pleased that the business didn’t have to shell out for what it saw as the alternative – in-house hardware with the IT specialists to run it. ESOFT is acting as something of a surrogate IT department.

“It brings us a wider perspective on what’s it’s possible to do with IT than you can easily get within a single organisation,” Deere says. “That may be the biggest advantage of this arrangement.”

ESOFT Global’s market development director Tim Pickard is also vice-president of the ASP Industry Consortium. He comments that the needs of CHPD are fairly typical of ASP customers.

“It’s a fast-growing company but it doesn’t know exactly how fast. It had this issue that if you over-invest you have too much capital tied up, but if you under-invest you might get an unbudgeted expense in 18 months’ time. An ASP solution is ideal in that situation,” he concluded.

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