Editorial: Rent or buy?

Does using an application service provider (ASP) rate in your IT plans? Recent headlines suggest that this is a billion-dollar market waiting to happen. Meanwhile, some opinion has it that the idea is crud because a one-size sort-of-fits-all (ie centrally hosted applications delivered through various templates) cannot deliver a strategic advantage. Admittedly, one of my early reactions was that ASP was a lot of hype generated by software vendors and ISPs looking for ways to bolster their bottom lines.

Champions of the model, such as Catherine Reynolds of four-month-old Eworld Technologies, believe that an ASP partner brings momentum from the word go. For Reynolds, outsourcing the IT infrastructure (including applications) allowed her company to race from business plan to a working ‘fulfilment mechanism' while ‘the team focused on the delivery of the business'.

The ASP option is also beginning to register favourably with Australian IT executives at established businesses polled by PricewaterhouseCoopers over the last two months. These IT leaders said they would be "absolutely likely to take up an ASP-type offering providing the Total Cost of Ownership (TCO) equation stacks up". PricewaterhouseCoopers' modelling put these savings at 10 to 30 per cent reduction in total cost of ownership over five years. If realised, this would translate into heaps of dollars for organisations such as those polled - users of and potential users of generally expensive ERP and CRM software solutions.

Chris Bennett, who until last month was PricewaterhouseCoopers' Singapore-based partner in charge of ERP, SAP practice, applications outsourcing, ASP practice, and a global leader in SAP methods, and who is now SAP Australia's new CEO, dismisses criticism of ASPs as a less than strategic, one-size-fits-all option.

Bennett says the market demands ERP and CRM be solutions tailored to individual requirements, and ‘it would be a fallacy to think that an organisation will take a generic ASP service offering'. Obviously, extensive customisation would eat into anticipated TCO benefits.

So far, it sounds like you can realise cost savings and have non-staffers on tap to worry about the usual hardware and software hassles which get in the way of the big picture. There has to be a downside somewhere.

I think the downside will be found in the familiar problems experienced with traditional outsource service providers over the past umpteen years. For the US, Gartner predicts a brutal shakeout among ASP players with more than 60 per cent likely to vanish before the end of 2001 as a result of poor service and market consolidation. With fewer new entrants, Australia is unlikely to follow the same brutal track, but a shakeout will happen. This is a new and unproved market just waiting for failure.

If you opt for caution, you would not be out of line with many of the corporates surveyed by PricewaterhouseCoopers. However, you may have to worry about not having the resources to seize emerging e-business opportunities.

David_Beynon@idg.com.au

Editor in chief

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