Exploring the world of ASPs: Software services, support for a monthly fee

By Judy Johnson, FieldCentrix, Irvine, CA August 1, 2000

Rent software by the month? Access software over the internet while a company somewhere-anywhere-in the world handles all the system administration, upgrades, and support? From The Wall Street Journal to Network World, business people and technologists are talking about application service providers (ASPs), the newest delivery model for distributing software applications.

According to industry analysts, ASPs offer a win-win for users and application and network service vendors alike. Advantages for users include a 20-30% reduction in up-front IT costs, quicker software implementation, and an earlier return on investment. Application and network vendors benefit from greater customer exposure, ongoing revenue, and an ability to leverage competency in applications development expertise.

Despite recent publicity, many people are still unaware of what an ASP is and what its potential service benefits are. The following review of ASPs, their benefits, and their selection criteria is designed to help you determine if there may be an ASP in your future.

What is an ASP?

Application service providers deploy, host, manage, and lease software applications from centrally managed facilities using a wide area network. A user purchases these services, usually on a month-to-month payment schedule. And, if this approach has a familiar ring to those of you who have been around for a while, you are right: It is really a web-based form of the old timesharing services of the 1960s.

What types of software applications are provided? The first ASPs offered standardized applications, designed for quick deployment and requiring little or no customization. More complex applications that integrate with other business systems or require more customization are evolving. The end user can access one application or several, depending on his requirements. Of course, cost varies with the applications that are rented and the support needed.

What kind of support is available? Service contracts generally guarantee all necessary support and expertise required for installing, managing, and upgrading applications. This feature is one of the key advantages of an ASP. If a user wants support 24 hr/day, 7 days a week, for example, the service can generally be added for a relatively modest fee. Because the ASP already supplies unlimited support for other system users, costs are shared and are thereby lower. The user simply accesses the hosted applications over the internet, or leased lines, and obtains help according to contract terms.

Basic support usually includes running the software (commonly referred to as “hosting the application”), providing basic network support to allow access by all users, and such operational support as monitoring the servers and providing backup services.

Driving the ASP market

According to the IDC Research Group (1999), the 1998 ASP market was only $23.1 million, or about the size of a small company. By 1999, it had reached $150 million and is expected to hit the $2 billion mark by 2003. What factors are driving this burgeoning new field?

  • Decreased capital investment. Before ASPs, if a user needed a new, expensive software application, the company IT department would calculate the capital the requesting department would be assessed for a new server, a new database, and perhaps a new operating system. In most cases, department managers ended up concluding the project would never be funded.
    However, an ASP contract avoids the cost of investing in software that can cost thousands of dollars. The ASP model is a rental system, with costs shared among users. The overall cost drops, and a monthly fee replaces the capital expenditure. As a result, small companies can afford to deploy the same sophisticated application suites used by larger firms without incurring significant initial costs. They benefit from group buying.

    • Quicker implementation. For many companies, the biggest delay in installing new software is the budgeting, acquisition, and installation of the required hardware, databases, and operating systems. Use of an ASP removes this entire process from the equation because those elements are provided by the ASP. v Less risk of obsolescence. By the time the budget and the approvals necessary to purchase the new systems are obtained, the hardware is often obsolete. With an ASP, the user doesn’t have to worry about obsolescence.

      • Reduced need to train personnel. Companies are finding that well trained, experienced IT personnel are both expensive and scarce. This shortage has increased the difficulty of hiring, motivating, and retaining IT pro-fessionals, especially among small-to- medium-sized companies that cannot offer many professional incentives. ASPs remove the hiring burden by employing trained professionals. Using an ASP also reduces the problem of having application experts leave at inopportune times.

        • Infrastructure growth. ASPs are able to keep pace with their clients’ growth. Complex application requirements and services are easily adjusted to meet user needs while current productivity is maintained.

          • What is right for your operation?

            ASPs are a new concept. Many have existed only a year or two. Many are well funded, benefiting from recent IPOs (initial public offerings) and multi-billion dollar market capitalizations. They are interested in acquiring your business. If your answers to the following questions are “yes,” an ASP may be the right choice for your operation.

          • Is time-to-market to install an application and get it running of critical importance?

            • Is the capital budget limited? Are predictable expenses desirable?

              • Are monthly rental fees a preferable way to pay for an application?

                • Is the application relatively self-contained? Can data that are exchanged with another application be handled by periodic data transfer?

                  • Do application support requirements (extended coverage and wireless communications) differ from standard support provided by the inhouse staff?

                    • On the other hand, if the following circumstances or conditions apply in your plant, using inhouse services may be a better decision.

                    • The software application being considered is of an older technology not offered by an ASP.

                      • The new software application must be integrated with existing inhouse software, such as accounting.

                        • New software applications can be deployed quickly using existing resources.

                          • Extensive and ongoing software customization are required.

                            • Data are confidential and company policy requires the application be kept in house.

                              • Inhouse charges for adding a new application are minimal.

                                • Whether or not an ASP is right for your operation, it is becoming apparent that this new approach is changing the face of software application selection and operation. Inhouse or ASP, the option that best meets your needs is now available.

                                  Judy Johnson is senior vice president of marketing at FieldCentrix, a leading wireless and internet-based field service automation company. She joined the company in 1996 after spending nearly 20 yr with IBM in a variety of positions. She most recently was program director of global systems, implementing a $100 million SAP software project in 41 countries. She has written numerous technical articles and speaks frequently on using technology to revolutionize field service. Contact her for more information at jjohnson@ fieldcentrix.com or 949-851-7800, x234. The company web site is located at www.fieldcentrix.com.

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