ASP Model Gets High Marks from Customers

BOSTON (06/05/2000) - Last year, I made a not-so-bold prediction in this column that the nascent application service provider (ASP) market was about to take off. It did, in fact, so I'm feeling pretty smart about my prognostication. It wasn't hard to see then that a model that would save the customer money, get his application up and going in short time and allow for scalable growth would become a mainstream way to get IT functionality delivered.

Not quite a year later, we're starting to see maturation in the ASP market.

(From infancy to maturity in under a year - now that's what I call Internet speed!) We can look back over the past year and see the signs of industry consolidation, market focus, partnerships and alliances, some customer failures and many more customer success stories. In short, the ASP market has found its niche and is here to stay.

I spent a few days recently at the USinternetworking Inc. industry analyst conference. I expected to hear the usual marketing presentations from corporate executives, and yes, I did have to sit through a few of those. But the talks I found most interesting were the ones from USi customers. USi brought about 10 customers to the conference to tell us about their experiences. While of course they all had glowing remarks about USi's performance and service, they talked more broadly about how and why they chose the ASP model.

You may think these customers were flashy new start-ups or dot-com companies, and some of them were. But other customers represented the opposite end of the spectrum - staid companies such as Blue Cross/Blue Shield of Michigan and Knoll Pharmaceutical that are conservative in their approach to IT. Startup or century-old, brick-and-mortar or cybercorp, all of these customers sang the praises of a computing model that frees them from traditional hassles.

Before the customers took the stage, USi Chairman and CEO Christopher McCleary cited the seven problems the ASP market addresses: integration risk, large capital investment, system security, software licensing issues, complex networking, IT staff shortage and unpredictable costs.

Before the day was over, customer after customer confirmed McCleary's claim that the ASP model mitigates those problems. Knoll Pharmaceutical was looking for risk reduction, complexity reduction and a faster, more reliable implementation of a sales force automation project. They found it. Sunburst Hospitality needed to establish a financial processing system without creating an expensive in-house infrastructure. They did. High-tech consulting firm Belenos was looking for a scalable professional services administration application that would support the enormous growth the company has experienced in its first year. Problem solved.

After about the third or fourth customer presentation, I could almost predict the reasons the next ones would give for opting for an ASP solution, as well as the benefits their companies have already realized. The reasons/benefits cited most often were: reduce capital investments in industry-standard solutions; focus on business issues and let the ASP partner handle the IT issues; ensure high security for business-critical applications; and allow for managed growth in a wildly unpredictable e-business era.

Industry-standard solutions are a key part of the maturation of the ASP industry. The providers have learned to focus their service offerings on repeatable, predictable, manageable solutions that have broad applications to many clients. Applications like Siebel for sales force automation, PeopleSoft for human resource management and Exchange for e-mail are ideal ASP offerings.

The deployment of these applications is almost cookie-cutter, which helps to lower costs and decrease implementation times.

By the same token, ASPs have learned to forego customers that want highly customized applications. Even McCleary acknowledged that USi, recognized as one of the leading ASPs in the U.S., wants little to do with custom application development. The bread and butter for his company are applications with very broad appeal.

If you think you might have an application that is ripe for hosting outside your own data center, shop around. The Web site www.webharbor.com is a good source for finding the ideal ASP.

If I had to summarize the advice given by the customers I heard last week, it would be this: Choose an ASP that takes a thorough approach to understanding your business. Select one with a "business partner" mentality. Look for business and technical expertise in the applications. And finally, find a provider that views you as a "recurring responsibility" rather than a "recurring revenue stream."

Musthaler is vice president of Currid & Company, a Houston technology consulting firm. She can be reached at linda@currid.com.

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