Application Service Providers (ASP) have much to offer companies in today’s connected, competitive world, according to Rita Terdiman, vice president and research director at the Gartner Group, a Stanford, Connecticut consulting firm. They level the playing field, allowing small and medium-sized companies “to leap frog to Tier 1 applications,” she points out. And multinational companies doing business globally benefit from the easy connectivity of the ASP solution.
Terdiman defines ASPs as companies that “deliver application functionality and associated services across a network to multiple customers using a pay as you go model.”
Because ASP solutions are what she calls “apps in a box,” they lend themselves to rapid deployment. Little or no customization is required. That’s one reason why ASPs are popular with dotcom companies eager to introduce their products to the world.
There are no up front capital costs because the buyer does not need to purchase hardware or assemble a staff. Many find the concept of renting versus buying attractive. The on- going costs are lower, too, since the supplier can amortize its costs across many customers. Pricing becomes predictable and simple.
Using an ASP also makes sense in a business environment where mergers and acquisitions are rampant. Switching costs can be lower.
Terdiman says ASP applications “tend to get optimized” because the providers use templates by industry. This allows all users to take advantages of best practices.
ASPs also address the IT skill shortage. High staff turnover and escalating salaries are creating stiff competition for the talented few. Outsourcing providers are more qualified to attract the best and brightest. Staffing becomes the outsourcer’s problem.
The Need For Speed
ASP applications scale, an advantage for rapidly growing companies. They are able to add a large number of customers without spending a significant amount of capital. A company that uses other types of applications would have to employ additional hardware and software and do some programming work to alter the system architecture to add those 100 customers. Selecting an ASP solution eliminates this headache for those in the fast growth mode.
That may be one reason why the early ASP adapters are aggressive growth companies. Another important ASP user group Terdiman labels “green field companies.” These firms have no prior infrastructure. There are no entrenched procedures which are the “right” way to do things. Because there is no precedent, “green field companies have little problem adapting to what the ASP has to offer,” says the Gartner executive.
But Terdiman says slow growth companies are perfect candidates for ASPs, too. ASPs are cost effective; price is an important consideration for this group.
Companies with global expansion plans also are turning to ASPs for applications. It becomes difficult to hook up everyone to the home office if they are located in all parts of the globe. Logging into the Internet makes this solution possible.
All those prospective customers are causing ASPs to grow rapidly. Dataquest estimates this year North American ASP revenues will reach $2.2 trillion, up from $650 billion last year. It estimates ASP revenue in 2002 will reach $11.6 trillion, a 110 percent increase from 1999. Worldwide, revenues in 2002 should hit $25.3 trillion, a 139 percent increase in just three years.
Selecting An ASP
What’s the best way to select an ASP? Terdiman says most companies today select an ASP because it offers the applications the company needs. That selection method will change over time, she believes. After a company develops a working relationship with an ASP, it will ask the supplier to add new applications the buyer needs. Interpersonal relationships will take precedence over software.
Terdiman says there are two caveats buyers must consider when electing to outsource to an ASP. First, the ASP market is so new almost everyone is in a learning mode. The lack of experience might cause some rough spots. Pick someone with a proven track record.
Second, the delivery of the application is over a network which rarely operates 100 percent of the time. This is a technical issue buyers must factor in when outsourcing applications through an ASP.† Look for a carrier-grade network infrastructure, a reliable data center and real time Web-based reporting.
Finally, Terdiman says the ASP must be the single point of control and be responsible for end-to-end service delivery. Comprehensive service level agreements (SLA) are a major ingredient in the ASP “recipe for success.”† She recommends that both the network and the systems be available 99.97 percent of the time. Guarantees should include a set number of simultaneous users, nightly back-up and† prescribed response times.
SLAs for services support should include a response time of 30 minutes or less. Top priority issues must be repaired within two hours; low priority items within two days.
Lessons from the Outsourcing Primer:
- ASPs provide a faster ramp-up time.
- There are no up-front capital costs and the on going operating costs are lower, too.
- ASPs allow small to medium sized companies to leap frog to Tier 1 applications.
- ASPs are scalable, allowing fast growing companies to add large numbers of new customers with ease.
- Slow growing companies use ASPs because the solution is cost-effective.