When will ASP bear fruit?

We look behind the recent hype surrounding ASP and finds that it has yet to find many takers in the UK. So just what is holding it back?

Does the concept of the application service provider (ASP) fill IT managers with the same excitement that it has clearly invoked among their suppliers and the media? British Telecom's experience seems to indicate not.

Last March, BT launched its Business Manager online rental service based on the finance and payroll modules from SAP's R/3 suite. The human resources module will be launched next month at the Softworld event. It has also been piloting online Microsoft Office and Exchange.

So far the BT Business Manager has only three customers - two of those are Maritime Cargo Processes and eNet. BT admits the lack of interest was disappointing, putting it down to anxiety about the Year 2000 date change and the fact that the market is only in its early stages. BT now intends to make a "seven figure" sum available to help educate the market.

Dave Hill, head of BT Business Manager, claims that BT is the only UK provider with a rental service that is up and running, with customers using the service. Few rival ASPs are in a position to prove otherwise.

Packaged service

ASP is a packaged service of hardware, software and systems management, hosted at the provider's premises, for a fixed monthly fee, which can be replicated for a number of customers. ASP is not as far-reaching as outsourcing contracts: it will run a human resources or procurement application, but not the HR or purchasing department.

There have been a number of ASP announcements, ranging from building hosting facilities to strategic alliances and even mergers.

Analysts expect more this year. Several providers - other than BT - have announced live services in the UK, but with little success so far. Oracle's Business Online, boasts one customer, a computer reseller called Fulcrum Solutions, which has a live Oracle human resources application. IBM Global Services and Catalyst, a systems reseller, both announced services last summer, but both are yet to announce customer wins.

ASP can offer clients costs savings and reduce the headache of supporting distributed NT systems, says James Eibisch, research manager at IDC. He believes that the biggest impact will be in the small and medium sized enterprise (SME) market where the ASP model promises to make expensive applications affordable. But the industry must think carefully about how to price the service, looking at issues like software licensing, particularly if it is considering a charge based on usage or number of transactions.

Despite the hype, users are only just beginning to wake up to the concept and it faces considerable acceptance issues, most notably concerns about data security.

Having reference sites is the key to success, agrees David Pinches, director of group marketing and product at Newcastle-based QSP. When QSP, first offered hosted and managed financial applications, three years ago - long before anyone dreamed up the acronym ASP - it too struggled to convince customers of the viability of the service. The first few customers came very slowly, but things changed once it had reference sites. It now has 29 UK customers including Siemens and Northern Rock.

ASP often rings alarm bells in IT departments, even though it does not necessarily lead to outsourcing of the entire IT function. Tim Foxlow, UK managing director of German company TDS, explains that unless there is a senior IT manager, his first port of call is the financial director, not the IT department, because the financial director sees a cost saving of a third, whereas the IT manager worries about his job.


TDS claims to have 120 customers in Europe using SAP and Siebel-based ASP services. This week the company signs its first UK customer.

When considering an ASP, IDC believes that customers look for a provider that can offer a track record in consulting, hardware and software integration, and application management, together with network coverage and a hosting facility - which none of the contenders can offer on their own. IDC foresees an industry made up of strategic consortia - behind the scenes these partnerships are already springing up.

Later this year KPMG will launch its ASP service, which will focus, unusually, on the higher end of the market (as opposed to SMEs). KPMG will provide integration and consulting skills and will partner with software providers, including SAP and Compaq Services, as the hosting provider.

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