Focused ASPs seek second wind

Pressure on IT spending and service improvements are breathing new life into the struggling ASP (application service provider) model, with financial services, health care, and government sectors in particular turning anew to application hosting.

The financial advantages of fixed-cost hosting, remote access, and promises of greater attention to maintenance, security, and customization have become more attractive to enterprises, especially as the economy sinks deeper into uncertainty.

In addition, analysts have said the recent terrorist attacks have underscored the need for multifaceted disaster-recovery and business-continuity plans, and hosted applications can be advantageous in these situations.

"We considered building a Lotus Notes application, adapting other software products to our needs, or even developing the application ourselves," said David Moore, manager of HR IS at Ada, Michigan-based Alticor, the operator of manufacturing and logistics for the business formerly known as Amway.

Instead, Moore turned to ASP TimeTrade as a way to reduce or eliminate the manual process of managing several of its personnel scheduling programs.

Next week, TimeTrade is scheduled to announce the corporate enterprise edition of its Web-and rules-based TimeCommerce scheduling and resource availability platform. The service helps users arrange the availability of personnel, equipment, and events based on factors including resource interdependencies, work flow, skill sets, cost, and location, said Marc Peterson, (chief executive officer) CEO of Waltham, Massachusetts-based TimeTrade.

In a similar vein, EYT (formerly Ernst & Young Technologies) based in Chantilly, Virginia, this week unveiled Ibeam, the company's ASP and managed services suite offering, which gives financial services outfits more administrative control over SLA (service-level agreement) management.

Also this week, San Francisco-based CaseCentral, a host services provider for legal documents, launched a hosted online documentation and collaboration service, DealCentral, for investment banks.

Analysts said that ASPs such as these have had to narrow their application focus, serve fewer customers, and give companies some degree of customization.

"[ASPs] are offering more of a suite of solutions trying to address a specific need of a certain subsegment of customers, be it infrastructure, applications and content, or financial advice," said Laurie Seymore, an analyst at Framingham, Massachusetts-based IDC.

Instituting these moves lends the stalled ASP space much-needed credibility and customer confidence, said John Madden, an analyst at Boston-based Summit Strategies.

"With many IT shops, it comes down to whom you can trust and who has expertise and who's going to be around for a while," Madden said.

According to Alticor's Moore, outsourcing makes more sense than ever because of factors including fixed ongoing cost, no large capital expenditure, and no variable upgrade or maintenance costs to expect. "The application was developed, the hosting was taken care of, and all the user needs is Internet access," he said.

Recognizing that trusting an "unknown, potentially insolvent" ASP is a risk, Moore suggested weighing that fact against the costs of training internal staff, developing expertise in a noncore competency, and all other challenges of developing a product in-house.

For Putnam Lovell Securities, the unglamorous aspects of ROI held sway when the investment banking firm was weighing its options for CRM (customer relationship management), said Rodric O'Connor, vice president of technology at the San Francisco-based firm.

Putnam had considered going with a traditional in-house client/server application for its CRM needs. However, he said the company was a bit "nervous about ROI" with such an investment, ranging from US$500,000 to $2 million for the complete life cycle package.

"We knew the [application] functionality couldn't be customized to the same level of an in-house application, but we thought we could live with its limitations given its cost," O'Connor said. The firm adopted a solution from Salesforce.com. "We liked that it was Internet-native so that it could be accessed from any point of base; that was appealing to traveling employees."

O'Connor said Putnam Lovell uses only the outsourced option for general, less mission-critical applications.

"We haven't done it for the still-sensitive [securities] trading applications. We have private lines for trading," O'Connor said. Those core business applications will remain in-house. "The trade-off has worked very well," he said.

Putnam Lovell also employs Jamcracker for its HR applications; a Web-native product, Blue Matrix, for its research content creation; AppShop for its Oracle Web Expense and Oracle General Ledger applications; and for online travel and booking, GetThere, a product hosted and provisioned by American Express.

Application hosting is also catching on among enterprises that need to improve their b-to-b ties.

Boomerang Logistics, a school-supply liquidation company based in Charlottesville, Va., is using a hosting service from theSupplyChain.com to help the company sell $6 million worth of school supplies, said Adam Fickley, Boomerang's CEO. The solution, which the company is now using for automated entry, comes with a $4,000 price tag for three months, compared to the more than $65,000 it would have cost to do in-house, Fickley said.

Boomerang plans to use the service to host 20,000 product catalogs and to take orders from schools online, Fickley said. "They have built into it the ability to have our suppliers participate so that through that same system we can do a requisition and place a purchase order to them," he said.

Fickley said it has been easier for his company to have security handled by a third party. "Their obligation is to the company and not to one party internally," he added.

Going forward, enterprises may find they need their storage hosted in addition to their applications, and ASPs are likely to play a role in that scenario as well.

ASPs will be courted more frequently by SSPs (storage service providers) such as Storability, said Jeffery James, strategic marketing manager at the Southborough, Mass.-based vendor. Introduced this week, Storability's ASMS (AssuredStorage Management System) allows ASPs to deploy secure, dynamic storage networks that protect the data of their customers, James said.

"Hosting centers are moving upscale to higher levels of storage delivery," James said. "Our main line of business is to sell managed storage services ... particularly through xSPs. In a sense, the xSP becomes our distribution channel." In addition to supplying the technology, Storability also has a program to help ASPs and other hosted service providers that use its product to better sell storage services to their customers.

Additional reporting by Heather Harreld and Dan Neel

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