Changing customer demand is shaping the new application service provider, says Neil Lock.
It is not long since application service providers appeared to have fallen out of favour, only to be superseded by managed service providers. This term indicates that a range of value-added services, not just the application, were on offer.
These days, however, MSPs appear to be obsolete and ASPs are back in vogue.
The economic downturn has had a major impact on IT strategies, with shrinking budgets resulting in an increased interest in outsourcing. However, while some customers are happy to outsource departments or processes, for others the fear of losing control outweighs the benefits.
The ASP business model can meet the needs of these more cautious customers by enabling them to outsource certain applications while keeping other areas of their IT in-house.
Increasing awareness of utility computing, which offers end-users the flexibility to only pay for what they consume, is also playing a key role in shaping customer demand.
This idea of pay-as-you-go computing has been around for many years, but has only recently become a reality. Suppliers have presented compelling business propositions for multiple applications and the concept of "picking and mixing" specific applications to outsource.
Furthermore, the rise of broadband and IP virtual private networks are erasing barriers to ASP adoption. This shift in the way customers bridge the gap between the internet, their own network and the ASP has increased the variety of applications customers outsource to third parties. But while these factors increase the demand for ASP-style services, customers want additional benefits in terms of flexibility.
The traditional ASP model involves selling the same product to multiple customers, but this approach does not meet the needs of all organisations. Most companies want tailored solutions that can be flexibly deployed, mirroring what they can achieve in-house.
As a result, many ASPs are now changing their service from mass-market delivery to a degree of customisation. However, this shift presents a dilemma. Offering a standard service across a wide customer base builds economies of scale; add customisation and these are reduced.
Ultimately, service providers must find a balance between offering users what they want and economic viability. One way to achieve this is through harnessing the power of web services.
Web services enable a kind of "plug and play" IT where all types of applications and systems can work together, allowing businesses to operate faster, cheaper and with greater agility.
Web services can help ASPs reduce the cost of creating, operating and customising their services, but this should not be seen as a universal panacea.
An ASP seeking to board the web services bandwagon should do so with an aim in mind that will appeal to itself and its customers. It is particularly important to know how to manage expectations and demonstrate a return on investment or we return to the old issue of over-promising and under-delivering.
Although the terminology has gone full circle, from ASP to MSP and back again, evidence suggests the service provider has matured in line with customer demand and moved forward.
The challenge now is to maintain this momentum. By presenting the potential benefits of outsourced services and focusing on customer needs, the industry can elevate the debate beyond terminology and help dispel the confusion in the marketplace.
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Neil Lock is head of Lotus online applications at BT Global Services