Imagine a world in which every business is responsible for its own telecommunications system. Not just for paying the bill, but for buying, installing, arranging a maintenance contract and operating the telephone systems. Add to this the notion that every company would have to take care of its own money; there would be no banks, just a mattress in the managing director's office into which numerous fivers would be sewn.
The ideas sound ludicrous, yet this is exactly what the vast majority of companies do with their computer installations, which can be equally complex. It is into this space that the application service provider (ASP) has emerged. The idea is straightforward enough: the customer pays to have all of their applications and information on an ASP's system, which they access via the internet (see box below). It started in the corporate world but stalled somewhat, as Butler Group's director of research Mike Thompson explains: "We always said we didn't feel that size of organisation would be happy to have their applications and their data outside their direct control." In addition to this, although there are cost savings to be had from the ASP idea, most if not all blue-chip companies already had their IT under the management of in-house specialists.
Clearly, the same was not true of small to medium-sized enterprises (SMEs). These organisations, previously denied the analytical power of such high-end offerings as Walker's financial systems, were suddenly able to rent time on these sorts of systems without having to buy the servers or configure the systems. Maybe it is a little odd, then, that the market still hasn't really taken off.
There are a number of reasons for this, the first of which is likely to be the sheer conservatism of SME managers. In most cases an attempt at selling them the idea of farming their technology out to a third party will meet with a blank stare and a question as to why they should spend time and money fixing their systems when basically they work.
There is also the issue of trust. "My advice to ASPs is to get some sturdy systems and service level agreements in place. The ones that do this have the upper hand as they're ensuring customers get value for money," says Simon Robinson, Europe, Middle East and Africa marketing manager at e-commerce infrastructure specialist NetIQ.
Other companies - mostly ASPs themselves that have vested interests - have commissioned independent research on why the ASP model isn't capturing people's imagination. Interliant, for example, found five major reasons for using ASPs: the cost/headcount ratio improved; technical support was good; skill shortages were largely eliminated; implementation was fast, and the service level agreement - the document guaranteeing a certain standard of performance - was better than most internal IT departments could offer. The reasons people weren't using the services included already having a tailor-made system in place, already having the right skills in-house, and a feeling that the applications were already managed properly in-house. "What was most interesting from the research was the disparity between difficulties expected when using an ASP from those actually experienced," says David Yuile, Interliant UK managing director. "For example, while only 15% of respondents expected that there would 'no problems' at all if they used an ASP, an enormous 46% reported there actually being 'no problems' when they did use an ASP."
Perceptions are not the only inhibitor. Everything an ASP does will be delivered via an internet connection, and in the UK a constant, reliable connection is not cheap - leased lines, which are among the most reliable forms of connection, start at £3,000 per annum, and it is worth repeating that ASPs at the moment are asking their customers to replace an internal system which is basically working.
Nevertheless, many analysts believe ASPs will become increasingly important, and the market is already showing signs of segmenting to fuel that growth. International Data Corporation is forecasting an ASP market worth £480 million by 2004, and many large software companies are developing a strategy in which their products can be delivered in this way. Sean O'Reilly, vice-president of marketing for ASP Netstore, says: "The implementation of an ASP strategy by some of the world's largest software vendors - for example, Microsoft, Sun and Oracle - demonstrates that this software delivery method is increasingly seen as a business reality."
The segmentation is evident in the emergence of the Internet Business Services initiative (IBSi). A spokeswoman explains: "The mission of the IBSi is to separate its members from 'traditional' ASPs, which it believes are simply retro-fitting expensive, cumbersome, packaged software for the internet as opposed to developing applications from the ground up for delivery over the web."
Whatever the truth of this, ASPs are showing signs of growth in certain markets. John Wilmott, managing director of analyst NelsonHall, suggests the business hasn't grown as quickly as the early predictions had suggested. He points to the difficulties in offering a 'one-to-many' (one ASP host with many clients) service for businesses when they actually want a more tailored service. There are two areas in which he suggests there will be faster than average growth, though: "The best opportunities for one-to-many remain in areas close to the IT infrastructure such as traditional ISP services, back-ups and so on," he says. "Start-ups are more likely to buy ASP services than established organisations since they require cost-effective speed to market and have less of a business process history."
The idea of importing a specialist to handle complex technical problems must- as long as it is done right - ultimately make sense. The difficulty facing ASPs is to persuade a market used to hype and hollow acronyms that they can offer a service of genuine value.
What is an ASP?
An application service provider (ASP) will tell you the service they offer is brand new, but this is not absolutely true. We've been here before, from 1960s-style 'bureaux' to 'outsourcing partners' with high-flying corporate clients. In many ways there is little difference between outsourcing - in which a company pays an independent company to send staff to install, maintain and manage systems and remain on site in lieu of support staff - and an ASP. The key difference is that the ASP's work takes place on its own site.
An ASP at its most basic is an organisation that rents space on its computer systems, into which customers can dial and access their applications - everything from a word processor to a complex suite of financial applications can be run independently through a web browser.
There are many advantages in this. Smaller businesses have access to business tools they would otherwise not have. Lotus Notes, hitherto aimed at the corporate environment, requires dedicated computers called servers to run and staff dedicated to its management. The financial outlay required is reduced because the ASP will be handling more than one company's systems. Fewer software licences are needed because users will only dial into, for example, the accounting system when they need it rather than running effectively redundant copies on different workstations.
Many software systems companies have responded to the emergence of ASPs by offering cut-down versions of their systems. Enterprise resource planning organisations - the likes of SAP, which makes an integrated manufacturing, distribution and financial application - typically took months if not years to configure their systems correctly. Now, elements of it can be rented from an ASP with vastly reduced set-up time and costs.
The idea also carries a number of negative points, though more psychological than technical and involving the security of an ASP's system and the soundness of the ASP's business. Most small businesses regard their customer data as their main asset and the idea of storing that information on someone else's computer can be problematic. Many analysts are convinced the advantages outweigh the drawbacks and the business as a concept will succeed. However, John Serle, chair of the Society of IT Management's best practice committee, remains unconvinced. "The problem before with the model was that providers relied on a return on investment period that proved unrealistic. In today's volatile IT market this is likely to be even more of a challenge," he says.
EquIP gets back to basics
EquIP was established last year to supply internet infrastructure products, usually through channel partners. When the company was set up it intended to sell to application service providers (ASPs) as well as other organisations. For consistency, therefore, it elected to farm all its computer applications and infrastructure out to London-based ASP Pasporte. The impetus to use an ASP came partly from the need to save money but also to prevent problems arising when the company needed to grow - if someone else was responsible for networking and other technical infrastructure as the company grew, the company itself could concentrate on its core business.
Joint managing director Neil Ledger says EquIP has been delighted with the results so far. "The financial director in particular is pleased because we're using systems we couldn't have had otherwise," he says. The complete system includes a Sage accountancy system, Business Objects intelligence software and Lotus Notes Domino for messaging and web services. Pasporte installed the systems over a weekend and included
remote diagnostic and monitoring tools so that if a problem arises it can be fixed without a site visit wherever possible, taking the maintenance task away from EquIP altogether. Security and constant availability are crucial in an agreement like this, so one of the first things EquIP did was to inspect Pasporte's equipment; as a company with a background it knew what to look for to gain reassurance. The other issue the company considered important was the paperwork. "We have a written service level agreement," says Ledger. This outlines how the service works and what the compensation will be if it fails.
The end result is that EquIP has the use of systems that would normally be associated with far larger businesses, with none of the expense or time of maintaining and upgrading it. The costs are per user and per month, so the charges will be entirely predictable.
