ASP Customized As Desired

An

application service provider (ASP) manages and delivers application capabilities

to multiple entities from a datacenter to a wide area network. This business

uses centralized computer services to ‘rent’ software to clients. The ASP

hosts software applications at its data or server farm and in return for a

service fee, allows users to run these applications remotely. The results of the

applications can be downloaded to the client’s site whereas the applications

themselves run only on the ASP servers.

The key to a successful

partnership with an ASP is spending time at the executive level in the financial

side and making sure that the business is comparable with the customer’s own

business. The ASP should get intimately involved in the customer’s business

and vice-versa.

Customers like to outsource to

ASPs who will offer end-to-end solutions to integrate their disparate business

processes such as purchasing, sales order processing and receivables, provide

staffing and helpdesk facilities and implement an infrastructure that can expand

internationally.

Applications for ASP

outsourcing

Common

applications are in front office as opposed to back office. By front office it

means linking ecommerce applications, sales automation, customer relationship

management (CRM), messaging and knowledge management, and collaborative tools

like Lotus Notes and Microsoft Exchange.

This seems to be hardest for

information systems (IS) shops to get their arms around with desperate users,

all across the countries of different technologies, especially when you consider

extranet and supply chain even in CRM situations linking outside parties. It is

difficult for IS shops to link these technologies and be in control. At present,

these are types of applications adaptable to the ASP model while back office

applications like the ERP will take time.

The future will continue to see

front-end applications outsourced. The back office will slowly start coming

around, but most of the back-end applications today are not really suited for a

hosting environment. These are typically monolithic installations, which are

customized and hence cannot be leveraged across a larger base. Over time, pure

web-based applications will come into prominence especially when hardware

devices like palm pilot, pagers and cell phones begin to take off and link into

these applications. Application development

ASPs will

work alongside internet service providers (ISPs) to offer a set of services to

users to make it easier for them to develop network-centric applications. Users

should not worry about security systems, billing systems, customer support

systems and registration systems. They should be able to link their applications

to ASP applications, which have already been created for them. The applications

will be scalable and can be deployed on shared servers. Most applications today

are not developed for this and are installed only in one customer’s

site.

ASP challenges

The ASP has to

rely on other providers like the ISP. The ASP has to ensure that its customers

get the kind of reliability and security they want and ensure that its bills get

paid. Most of the users want 100% up time. Just because they work with an ASP

does not mean that the hardware and software systems are reliable. ASPs need to

understand how applications work with system software, how Lotus notes work with

NT or Unix and deploy the services reliably. They have to have intimate an

knowledge on how hardware works with software and in turn, with the network.

ASPs have to be good to work with

different partners and have service level agreements in place, which will be

essential behind the scenes to meet agreements in front.

User management challenges

One of the

biggest challenges for customer management is to shift from supplier, vendor

management to managing internal staff and true management relationship. The

ideal situation is to find a single provider who can offer end-to-end solutions.

Otherwise there is a complexity of bringing so many resources together and

keeping projects on track. The ASP market is new and users should not get into a

situation where vendor A and vendor B do not have synergy. Working in a project

without synergy will cost money. The management challenge will be quick to

market to the users and reduce costs.

Companies positioning matters

Traditional

outsourcers who have managed to grab market share to gain market size will be

the ones best positioned in the ASP market. These are companies like Anderson

Consulting, EDS and IBM Global services who will tend to stay with their

existing outsourcing business models and extend ERP systems into the ASP space.

They can build size and staff, gain experience in providing underlying

technology, networking and datacenters and put service level agreements in

place.

For front office, a traditional

outsourcer may not excel in the ASP space. Size, experience and number of

customers an ASP has in its front office business model will be the criteria for

selection.

Target for ASP market

Medium size

companies can leverage this model much better than small and large size

companies. For small companies of 50 to 100 employees, you will have to have a

one to many ASP models which will require minimum customization for the business

to be profitable. These could be simple web-based rental applications, direct

mailers or banner advertisements on the internet Large size companies are high-end

customers who always need a one to one approach. They will need CRM, messaging

and applications in their own way, which becomes a traditional outsourcing

model.

The middle market with one to

many models is best suited where 50% to 75% of the standard services can be sold

through the sales force and channel model. ASPs have to team with system

integrators and local partners who can build applications and web developers.

ASP market opportunities

The ASP market

will be driven by the needs of the customer. It is clearly evolving as an

outsourcing model for the future despite today’s concerns. Customers who

decide to outsource to an ASP will have to understand what an ASP is, where

their IT infrastructures will fit in the ASP model, the value and impacts they

will have in their company. An ASP has three important functions–lease

applications, provide application hosting and manage infrastructure.

OUTSOURCING IT:

What customers want to outsource will depend on how their IT infrastructure fits

in. An IT infrastructure can be split into two parts–internal operations

backbone and commerce management backbone. The internal operations backbone

contains groups of systems that a company puts together for product and services

and the commerce management backbone manages the product to cash cycle like

order fulfillment.

Under the internal operations

backbone are three categories of companies–those with ERP systems, those with

non ERP systems like large companies in utility, healthcare and insurance, and

those who do not have much back office automation like resellers, they do not

manufacture but modify and sell–which are medium and smaller size companies. A

company that is not using an ERP today may not need one tomorrow. It may not be

a good assumption for ASPs who say they will host ERP systems and sell to small

and medium companies. This may be true for a small percentage of companies, but

the need for small and medium companies today are commerce management systems.

Critical Factors For An ASP 

• Technical infrastructure
  
  capabilities, including network, datacenters, hardware and software
  
  for 24×7 support
• Services that will
  
  surround infrastructure capabilities such as business process
  
  re-engineering, customer support and billing infrastructure–whether
  
  transaction-based or site license-based
• ASP, a general
  
  contractor works with ISPs, system software and hardware vendors that
  
  is important for customer service
• Business model of the
  
  ASP, pricing structures and support to customer’s corporate
  
  initiatives and applications

REAL OPPORTUNITY IS IN COMMERCE

MANAGEMENT SYSTEMS: There is no single

commercial package available to manage all activities of commerce management

functions like order management, online versions of customer support systems,

ordering, pricing and fulfillment. This is where the market is evolving. There

are few packages available in this area and there will be a need for web

developers and integrators. There is a trend among small and medium companies–the

market for ASP–to acquire commerce management systems which are critical to

their businesses.

COST MODELS:

The cost model for an ASP will have to evolve and it may be difficult to make

money today. Buying or leasing a car will have the same cost structure, but when

it comes to an ASP the cost structure may not be the same. For example, a top

outsourcing company in the US charges $400 per user month for providing high-end

functions and hosting with costs for customization services paid up-front. A

large telecom company in the UK charges $75 per user per month with no

customization and modification for a SAP system. ASPs are still trying to figure

out the correct business and cost model to address small and medium companies.

The IT world is moving from an

integrated business model to sub-contracting. This evolution is happening since

technology is becoming difficult for companies to manage.

Bala

Subramaniam