Application Service Providers

Introduction

A shift is occurring in the way businesses are using information technology to gain operational efficiencies and strategic advantages. Application Service Provider or (ASP) as they are called have a significant placement in the business world. ASP provides customers with access to business application via Internet connection through specialized software from the provider, and guarantees specific customer services. This has become more popular over the past few years and is still one of the most functional methods for IT outsourcing.

Overview

The idea of an ASP has been around for quite some time even though such computer capabilities have not. An example of non-technological ASP would be a delivery service. “Shipping companies - Instead of maintaining your own distribution network for packages, you pay a low incremental fee to ship a package with the post office, Fedex or UPS.” Shipping services like these are far less expensive than buying the required materials and labor to carry out within most businesses. However, there are companies that do so much shipping that they actually own and operate their own truck fleets but this are a rarity. Moreover, ASPs are usually refered as companies who provide software services for businesses. The ASP owns and operates a software application. The ASP operates and maintains the servers that run the application and also employs the people needed to maintain the application. Most companies pay a monthly or yearly cost for the services. For example, most of us pay for the use of an Internet Service Provider which gives us access to the Internet and e-mail. This is a prime example of an ASP.

ASPs in the Market

Businesses of all sizes benefit from the use of ASPs for web hosting service and email. Especially for small businesses and startups, the biggest advantage is low cost of entry and, in most cases, an extremely short setup time. Plus the pay-as-you-go model is often significantly less expensive for all but the most frequent users of the service. The ASP model, as with any outsourcing arrangement, eliminates head count. “IT headcount tends to be very expensive and very specialized (like pilots in the airline example), so this is frequently advantageous.” ASPs are able to offer customers more options, higher quality, and lower costs.

IT roles and ASP customer Roles

It’s Typical RolesASP Customer’s Roles

  • Plan InvestmentsSpecify application services needs
  • Build facilitiesBudget service costs and return on investment
  • Hire and train peopleContract for services
  • Budget and track expensesFocus on your business, not IT
  • Select and procure systems
  • Select, procure, and test software
  • Work with vendors and providers
  • Hire integrators and consultants
  • Organize and define processes
  • Install systems and software
  • Develop software
  • Customize packages
  • Maintain systems and applications
  • Provide user support
  • Run the data center
  • Plan for the future

A significant portion of companies costs are spent on a wide range of labor, products, and services, most of them expenses, such as expenses and personnel, training, facilities, and outside services. It is these first 50% that are described in the table below. Also, it should be noted that the real numbers provided in the table are less important than the logic behind their use.

Cost Categories / % of IT Budget / Who Pays What Costs
Business Applications
Application Licensing
Customization / 52% / ASP pays all costs.
Data
Web Content
Databases
Data Warehousing
Applications / 5% / ASP pays for hosting of apps and
All data management software
licenses.
Company Pays for design,
population, updates, and processing
off all data.
Core Systems Software
Email, Directories, Backup,
Archival, Web, etc.
Distribution Systems
Middleware
Cobra
Systems and Network
Management / 8% / ASP pays for hosting all core
systems.
Computing Hardware
Equipment(servers,data
Storage, workstations, PC,
Hubs, routers, switches,
NSM equipment
Equipment Deployment
(installation, tuning, and
testing)
Incidentals (facility prepa-
ration, documentation, and
cabling) / 26% / ASP pays for all costs
Communications
LAN
WAN
Internet Services / 9% / Company pays all costs which
May be higher with the ASP than
without.
More LANs and LAN equipment
are needed to link existing LANs
to the Internet and WAN via routers.
Most Communications previously
done over LANs will be conducted
over WAN and the Internet.

Given that most companies rent or lease ASP services the cost will depend on upon its application.

Genneraly qualities in any service are know to increase costs, certain synergies with ASPs hold the promise for cost economies. For example,

  • Redundant facilities required by multiple customers to increase availability can be shared;
  • Fixed costs of scaleable products cab be shared;
  • A powerful firewall can protect multiple customers without much commingling, if any; therefore allaying customer concerns;
  • A comprehensive (and scalable) suite of network and systems management tools and processes can apply to multiple customers and even used throughout the entire ASP.

The real potential for cost economies would very much depend on the ASP’s ability to manage all the complexity of delivering qualities. While in the absence of Qualities the real cost economies of ASP are easy to identify, adding qualities introduces higher costs, but value added.

Advantages of ASPs

There are several advantages to using ASP’s. As indicated above a business of any type will reduce their spending and there are not many companies who think that is a bad idea. ASPs also offer superior technical support which may be reason enough for most businesses. All of this, for the most part, at a very low cost to the customer. The fact that ASPs are application-centric, this means that they exist for one purpose; to provide their customers access to business applications. However, as a business ASPs are a junction of various enabling technologies, and professional and technical skills used to develop, deploy, manage, and service hosted applications for ASP customers. Also, an additional advantage is the guarantee of uptime. Most would agree that paying for an ASP service would be less costly than the high-price of downtime.

What Vendor?

Major application vendors have focused both on the Business Process and Outbound and Inbound Logistics. Mostly mainframe based, therefore requiring considerable resources, these applications are functionally stable, businesses believe they could afford the long development cycles. Because they are expensive and mostly big, only wealthy business customers could afford them. Here are some suppliers of technology,

  • A Web hosting company - Companies like Verio and WebHosting.com provide a classic ASP scenario -- virtual Web hosting. These companies provide hardware, software, bandwidth and people to host Web sites for companies and individuals. Typically, they charge something like $15 to $30 per month for the service, and may host hundreds of accounts on a single machine.
  • An e-mail provider - A Web hosting company usually provides some sort of e-mail service with your Web hosting account. There are two other alternatives:
  • Free services such as Hotmail or Yahoo! Mail
  • E-mail server ASPs who run exchange servers, POP servers or IMAP4 servers and distribute them on a monthly-fee basis - For example, a company in the Raleigh area called Inter-path offers a complete e-mail solution at a rate of $8 per month per account (as of 4/10/2000).

The advantage of the second approach is that the e-mail address uses your company's domain name.

  • A fax provider
    E-fax provides a free fax service that delivers faxes to your e-mail box. This is a classic example of a free ASP.

It is therefore important to make sure that the ASPs you choose will handle your information and relationship in a mission-critical way. Here are a set of questions you should ask any ASP:

  • How do customers access the software?
    Is it through a browser or an application? If it is through a browser, how does the user experience feel?
  • How are customer service issues resolved?
    If you (or employees) have questions and/or problems with the software, what happens? Does the ASP provide training?
  • How secure is the data?
    You want to find out about internal security policies with ASP employees, passwords and access reports to protect your employees, firewall and other safeguards against external attack, and things like tape backups to handle hardware failures.
  • How secure is the connection between the ASP and the user?
    Data flows between the ASP and the user whenever the user accesses it. Is it secured by encryption, a VPN, proprietary techniques or some other system?
  • How is the application served?
    Is your data on a dedicated machine or a shared machine? Both techniques are common and you often have a choice (with dedicated service being more expensive).
  • How does the ASP handle redundancy?
    If a machine fails or an Internet pipe goes down, what levels of redundancy are in place to keep your servers online?
  • How does the ASP handle hardware/software problems?
    If a hard disk fails or the application hangs, what are the policies in place around recovery?
  • How does the ASP handle a disaster?
    If the building were to burn down or a hurricane came through, how would the ASP handle the complete loss of the facility? How long would it be before the ASP restored service?
  • Who owns the data?
    Obviously, the customer should, but this fact should be stated in the contract.
  • How can I get the data out if I choose to select a new ASP two years from now?
    This is a tricky question on more complicated applications, and one that bears some thought for mission-critical applications.
  • How can I move data between existing applications and the ASP?
    For example, if you have a home-grown ledger system and want to move data back and forth to a billing ASP, how would that work? Many ASPs have already thought of this and handle it very well.

Conclusion

The future of ASPs and their influence ,on anyone who is involved in IT and networking industries, is hard to envision. However, there are going to be many interesting advancements to come with the industry and how it will be used and sold. Also, it is reasonable to expect the traditional education and training companies to enter the space which, besides offering professional education and training services, will also legitimize these services in the eyes of the ASP ecosystem, end customers, and the business community at large.

References

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Factor, Alexander. Analyzing Application Service Providers.2002. Prentice Hall. Palo Alto.

Rowe, Stanford. Telecommunications for Managers. Fifth Edition. 2002. Prentice Hall. UppersSaddleRiver.

Weiss, Peter. They Do More Than Just Save Money. Information Weekly.Nov 2001, Issue 862.