ASPs may bite into IT departments' independence

Will ASPs cost companies their independence?

Will ASPs cost companies their independence?

ASP is the IT supply industry's latest buzzword. The trouble is, few users know what an application service provider does - still less why they would need one.

For suppliers, the ASP opportunity looks different depending on their own business model. To the giant outsourcers, ASP is "outsourcing lite". But to Internet service providers - many of whom have yet to make a profit - becoming an ASP looks like an easy route into the black. To the software suppliers it is an aggressive new channel to market. To the network carriers and telcos it is more money in the bank.

But what is in it for you? In general the attractions are the same as any outsourcing decision. Renting applications should be cheaper than buying them. Making application management somebody else's headache can ring-fence costs there as well. ASPs can alleviate the skills gap.

But many of these advantages evaporate when ASP is viewed as a concrete proposition instead of just a business model.

In the first place, it's not really a case of "rent or buy": users license software, and the enforced upgrade path, the prevalence of stiffing, and the lack of price transparency create a more complex relationship than a one off purchase. The worry is that as suppliers push users to the ASP model they will make licence terms more onerous and loss-lead on ASP deals. Then, instead of outsourcing your application headaches you may simply have a supplier with a tighter hold on your business decisions than before.

There is still uncertainty as to what kind of applications and what kind of companies benefit from the ASP approach. Logic says that the "no-brain" apps should be easiest to outsource - desktop productivity and groupware, for example. But some of the most aggressive ASP pitches are for large ERP contracts - or even for the whole IT system. Logic says SMEs should benefit most - but SMEs are proving to be the slowest in taking the ASP bait.

Then there is the service level agreement: who is liable when it goes wrong - and what sanctions can you take when an ASP owns your vital daily productivity tools?

Finally there is the problem of network capability. An upcoming ASP conference agenda asks the question: "Is the European infrastructure up to the challenge that the ASP value chain will place on it?" The short answer is no, for now. And many corporate Lans will be inadequate too. That's why it is no accident that the major network hardware suppliers see ASP as a future gravy train.

In theory there is much to recommend 'apps-on-tap', once the network technology is sorted out. Small businesses especially can benefit from a combination of lower prices, faster implementation and fewer skills worries.

And the next generation of software is being written for the ASP environment rather than the client/server model.

But, for now, the ASP initiative is a supplier-driven model. Many of the suppliers are new, some unproven, and there is bound to be consolidation.

IT departments should look long and hard at the ASP option before taking the plunge.

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