ASP Options: What Does This Recent Phenomenon Bring to the IT Table?

If you haven't considered making an Application Service Provider part of your IT solution, it might be time for a closer look.

• 03/01/2000

When the term "Application Service Provider" (ASP) was coined a few years ago, it initially referred to providers that specialized in renting applications over the Web to companies that couldn’t or didn’t want to buy software and pay for its care and feeding.

However, the ASP genus has evolved into many different species over the past two years, and some of them are much higher than others on the evolutionary scale. The software ASPs focus on today ranges from simple e-mail and groupware offerings to IP telephony, ERP systems and industry-specific vertical applications. At the top of the ASP evolutionary ladder are enterprise-oriented ASPs that even provide back-end business processing services, such as payroll and claims processing.

If you’re confused, you’re not alone. There are many misconceptions about ASPs. The most common fallacies have to do with delivery. Many think that using an ASP means the Web will be their only vehicle for service. Since security and reliability remain paramount in the eyes of an IT professional, many IT executives are not yet ready to trust their IT activities to the Internet.

Many ASPs offer various connectivity options. Not all ASPs are exclusively Internet-based, and some do a lot more than simply deliver applications. It is also important to note that not all enterprise ASPs are so new that they present the risks often associated with some dotcom companies. Some have track records that extend back two or three years – an eternity in Internet time.

Since the Web remains in the forefront of most ASP talk, let’s explore where it really fits into the ASP scenario. Mission-critical applications can be delivered securely over today’s public Internet, but end-to-end performance can’t always be guaranteed. If you’re not sure you are ready for the Internet, an enterprise ASP should be able to deliver its services over the private WAN connections – such as leased lines and frame relay networks – that many organizations already have in place.

However, there is a place for the Internet as an extension to private corporate networks, and the best enterprise ASPs will exploit it accordingly. The Internet is a cost-effective way to deliver reports and provision various types of self-service applications for managers, employees and customers.

One example of this is Web-based self service. Because of cost and complexity factors, many companies limit the use of ERP applications to a handful of managers. However, many more managers who are outside this select group may require employee information maintained by the ERP system, such as salary history. Web-based self-service capabilities from an ASP can put this type of information in the hands of every person in your company who has a legitimate need for it.

Similarly, enterprise ASPs can provide self-service applications that your employees can use to view pay-history information, enroll in benefits, change 401(k) options, or request vacation time. This same type of service can be offered across extranets, with the ASP functioning as an access point and gateway. Customers can access billing information, examine invoice histories or check the status of various requests or complaints.

The Internet is also useful and economical for coordinating business-to-business information flow between vendors and customers. For example, a benefits vendor might require eligibility feed that provides weekly updates on which employees are available for various benefits. An enterprise ASP can use XML to deliver this information over the Web at a fraction of the cost of traditional EDI solutions.

The most advanced enterprise ASPs go beyond application delivery to provide a higher level of application integration with business processes and relationships. This breed of ASP functions as an outsource provider, handling back-end processing for clients. The ASP not only supports the applications, but also the surrounding business processes.

For example, an experienced ASP partner may have already developed links into a number of popular applications, such as PeopleSoft, SAP, Oracle and J. D. Edwards. The advanced ASP may also be able to integrate such applications directly with third-party providers of HR services, such as payroll-processing and benefits vendors.

ASPs that have these kinds of capabilities can function as a hub that connects a customer to various vendors in the HR space. Take the case of a food-company spin-off that needed to implement ERP and manufacturing applications very quickly and didn’t have the necessary infrastructure in place. An ASP provided this infrastructure and also integrated payroll, benefits and claims processing from different third-party vendors into the food manufacturer’s ERP system. Without the help of the ASP, the company would have had to piece together a multiple-vendor solution.

Consider the example of a fast-growing company that needed to implement a new HR system in order to consolidate its HR activities. The enterprise ASP that was selected understood the business processes surrounding human resources, and took things a step further by recommending a recruiting application that interfaced with the chosen HR management system. As a result, the client was able to condense the average time it takes to bring a new employee on board dramatically, from six months to four weeks.

How do you know if an ASP would work with your business? ASPs have made more inroads into some industries than others. Manufacturing, government, banking and healthcare are several places where ASPs have been successful. But a company in any industry can benefit from partnering with an ASP, given the right circumstances.

Here are some scenarios that lend themselves particularly well to an ASP-based solution, no matter what industry you are in:

• You are facing a big re-engineering project or an installation in a new facility.

• You need a new application that your existing infrastructure won’t support, or that would require significant staff upsizing and retraining.

• Your company is growing so rapidly that scalability of applications is a big issue.

• You are in a region with a particularly tight labor market, with high IT-staff turnover and replacement costs.

The pace of technological change continues to accelerate, and systems are now becoming obsolete in two years instead of five or ten. Outsourcing to ASPs can reduce your cost and risk of implementing new solutions. It saves you software license fees, absorbing installation costs, and hiring an application administrator and support staff.

If you’ve decided that an ASP interests you, where do you begin? Clearly, there are many different kinds of ASPs, even among individual species, and the category continues to evolve faster than industry gurus can define it. There are no hard and fast rules for selecting one; only some practical guidelines:

• One solution doesn’t fit all, so beware of ASPs that don’t offer a range of prices and service levels. A large percentage of the value you get is consumed by a small percentage of your users, so you may get almost as much out of your ASP by giving 12-hour access to 50 key people as you would if you were paying for round-the-clock support for 5,000 people.

• There is often safety in size, but it may come at the cost of personalized service. Big ASPs can achieve better economies of scale, but they may be less focused. And if they offer a wide range of services, they may be constantly trying to sell you things you don’t want. By the same token, though, going with a small ASP is no guarantee of highly personalized service.

• It is important to understand that immediate savings from partnering with an ASP are not always going to be realized in hard dollars – especially if you are replacing a fully depreciated system and refocusing IT staff on new tasks rather than downsizing. The payoff is longer term, deriving in part from reassigning IT staff resources to more strategic activities that build value by improving the very core of your business processes. Outsourcing to an ASP can also help reduce "soft IT" costs you incur when business managers spend time providing unofficial application support.

• Outsourcing to an ASP does not imply any incompetence on the part of your in-house staff – quite the contrary. In today’s very tight IT labor market, your staff is too valuable to be tied up with relatively monotonous and repetitive work that can be handed off to an ASP.

• You aren’t losing control when you outsource. By designating a liaison person that holds regular meetings with the ASP representatives, you determine the level of your company’s involvement. Think of the ASP as an extension of your staff, and hire the ASP according to the same standards you’d use to hire your own employees.

The biggest long-term benefit that ASPs can bring your company is flexibility. You don’t get locked into certain technologies that limit your options in the future, and you can embrace the virtual-enterprise paradigm that is the key to success in the Internet economy.

Armed with the right information, selection of an ASP will be much easier. With IT employees at a premium, and technology changing at lightning speed, it may be time for you to explore this option for your company’s IT needs.