Choosing an ASP

A new category of information technology infrastructure has sprung up over the past two years: the application service provider (ASP). The ASP market evolved out of Internet service providers (ISPs) as a response to customer demands for lower-cost application services. According to International Data Corp. worldwide spending on ASP services will be $2 billion by 2003. ASPs are an example of the old adage that the more things change, the more they stay the same. At one level an ASP is nothing more than an Internet-enabled version of the old service bureau model. On another level, however, ASPs are a new and different way of delivering access to applications and related services.

Service bureaus were popular in the 1970s and 1980s as a way to deliver applications to companies that couldn’t afford computer centers. As computing power became cheaper, and more programmers entered the job market, many companies created their own data centers in the 1980s and 1990s.

In the mid-1990s there was a huge debate about whether companies should outsource computer center management. This movement was driven by corporate re-engineering initiatives popular during that period. Most outsourcers focused on managing a customer's IT infrastructure as transparently as possible. They often hired the corporation’s IT staff and managed its computer systems at the customer’s site. Most organizations that outsourced applications, however, tended to limit them to nonvalue add functions, such as accounting and finance applications, or desktop deployment and helpdesk services. Many organizations retained control over business applications that represented a core business competency. The advent of packaged applications in the mid- to late-1990s changed that dynamic and many companies decided to implement enterprise resource planning (ERP) software as a way of gaining competitive advantage. What they discovered is the expertise required to effectively implement packaged applications was expensive and elusive.

The ASP represents the convergence of the service bureau, outsourcing, and packaged application business models. The ASP model is different from these other models in several ways.

First, the ASP hosts applications at a centralized data center belonging to the ASP, not the customer. Second, ASPs tend to offer preconfigured packaged applications, and typically don’t manage customized applications written by, or for, the customer. A third difference is that ASPs usually support multiple clients in their data centers, enabling them to leverage and amortize their investment in equipment, infrastructure, and personnel. Fourth, ASPs deliver applications and services to the desktop using Internet technology. These services may be delivered using a private network, but increasingly ASPs are delivering software to end users over the public Internet. This is especially true for smaller clients that can’t afford a virtual private network. This low-cost access is offset, however, by the unreliability, inconsistent throughput, and potential for security breaches on the Internet.

There are several advantages to using this service approach to applications. The ASP model enables companies to reduce expenditures on hardware, applications, and staff. ASPs allow customers to focus limited resources on core business functions. ASPs tend to have a professional staff that can afford to pay closer attention to availability, performance, security, backup, disaster recovery, and customer support than internal IT organizations. Finally, the ASP model makes it easier to keep current with technology.

Should you use an ASP? It depends. Consider using an ASP if you would rather rent a packaged application, than buy one. You should also consider using an ASP if your organization is large and distributed, and if you want to leverage Internet technology to deliver value to your users. If your business environment is dependent on keeping up with technological change, that can be another good reason to use an ASP.

On the down side, you will no longer control your data since it’s sitting in someone else’s computer center. If you need a customized application, most ASPs can’t accommodate you.

You need to do your homework and make sure that the ASP you select has the ability to deliver the services you need. Be careful to negotiate good service level agreements, with appropriate penalties if the ASP doesn’t deliver. Be sure your ASP has the staff to manage your systems, including developers, network administrators, and database administrators. Get to know these people and make sure that the ones you met during the proposal stage will still be on the project once the contract is signed. --Robert Craig is vice president of strategic marketing at Viador Inc. (Burlington, Mass.), and a former director at the Hurwitz Group Inc. Contact him at

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