IT PROFESSIONALS are no strangers to waves of change, but there is a new ripple that some say could become a tsunami that engulfs the internal IT development strategy and erases boundaries, leaving behind a new world in which IT is no longer restrained by corporate walls.
It is the application service provider (ASP) model that has many forecasting major swells as we move into the 21st century. Analysts are watching ASP developments with keen interest, and there are even a few customers willing to test the watersAmy Wohl, president of Wohl Associates, a computer industry analyst firm in Narberth, Pa., says the ASP phenomenon is all about redefining boundaries.
"We call [ASP] the reinvention of IS architectures," says Wohl. "Instead of being built inside the company, they will be built outside and accessed from the inside."
But with technology vendors of every conceivable shape and size suddenly morphing into ASPs, there is considerable confusion around the term. Clare Gillan, an analyst at International Data Corp. (IDC), in Framingham, Mass., says ASPs have a few key defining features.
"An ASP delivers an application," says Gillan. "The ASP supports a one-to-many model that entails relationships with management, application, network, and implementation partners -- and an ASP offering is centrally managed."
This definition encompasses much of what IT managers do in-house today -- and represents a major shift away from what has been mostly internal activity until now. So IT organizations are slowly warming up to the idea of letting key applications out the front door. In fact, most of the ASP wind is blowing from vendors. However, Art Williams, an analyst at the Giga Information Group, does not dismiss the ASP craze as vendor-driven hype.
"There are three strong drivers that are converging on the demand side," says Williams. "Namely, the chronic shortage of technical personnel, need for more speed in implementation, and [electronic-] commerce anxiety."
The Internet is behind these drivers, particularly for speeding implementation cycles and rethinking commerce models.
"The start-up dot-coms want to be in business yesterday," says Williams. "Long implementation cycles to get back-office business processes up and running don't play well in that market."
Opening new doors
Some of the biggest names opening up an ASP shop include USi, Oracle, Qwest Cyber.Solutions, and Corio. And no standard model prevails: Each vendor has a different take on what it means to be an ASP, and where the market is going.
This also means IT managers can let go of application tasks at varying degrees and for the particular applications that make the most sense to them.
Joshua Greenbaum, principal of Enterprise Applications Consulting, in Berkeley, Calif., puts four companies in the full-service category of the ASP market:
USi, Oracle, Qwest Cyber.Solutions, and Interliant. What distinguishes these from the rest, according to Greenbaum, is that each claims to "do it all."
USi offers a suite of "best-of-breed" applications running on USi data centers, deployed and managed by USi staff, including Siebel for sales force automation and customer relationship management (CRM), PeopleSoft and Lawson Software for enterprise resource planning (ERP), and Microsoft and BroadVision for e-commerce.
Oracle, like USi, claims to be a full-service ASP. But Oracle is unique in this space because it's the only enterprise ASP that owns the applications.
Customers can go to Oracle's Business OnLine (BoL) division and buy Oracle applications, running on the Oracle database, deployed by Oracle Consulting, and managed by Oracle staff outside your firewall at a data center managed by Oracle.
Qwest Cyber.Solutions, another full-service enterprise ASP, has merged a services giant with a hefty bandwidth provider to offer SAP, Siebel, and Oracle applications, says John Charters, CEO of Cyber.Solutions, in Denver.
Interliant, another full-service ASP shop, is taking direct aim at the mid-market with Pivotal and Onyx software for CRM solutions, among other services, says Jim Lidestri, president of Interliant, in Purchase, N.Y.
Most of these players own their own data centers. USi has invested heavily in building its own data centers, whereas Oracle contracts with Exodus to supply the data and networking infrastructure.
"We believe the physical infrastructure and specialized connectivity are all critical to providing robust user access," says USi CEO Chris McCleary.
"I am not terribly interested in building rooms," says Tim Chou, who took the helm at Oracle BoL, in Redwood Shores, Calif., in November. He believes that ASPs add value in the applications and services they provide.
Like Oracle, Corio is an ASP that sees little value in building data centers, according to Jonathan Lee, founder and chief strategy officer at Corio in Redwood City, Calif. Instead of investing in data centers and networking infrastructure, Corio has chosen to focus on vertical market expertise.
Riding the wave
Although these emerging ASPs differ in their approaches and philosophies, they all agree on one thing: If the ASP ripple turns into a wave, it will mean big changes for IT departments everywhere.
Naveen Chanana, CEO of Systech, a value-added reseller of computers in Torrance, Calif., recently signed up with Qwest Cyber.Solutions, and his experience could provide a clue to the shape of things to come.
"We wanted to install SAP for our back-office applications," Chanana says. "But our IT department consisted of one person. To implement SAP, we would have had to hire several additional IT experts."
So Chanana chose to go outside the old IT boundaries.
"Cyber.Solutions hosts and manages the entire system," Chanana says. "We were up and running in about two months. We still have an IT staff of one."
He adds that saving time and money were not his only concerns.
"It is difficult to keep skilled IT people inside a company like ours," Chanana says.
But this doesn't spell out less opportunity for IT workers. It just means that the walls will have moved. Many who now work in corporate IT may take up residence at an ASP.
"Corporations have been largely unable to inspire and retain technical expertise," says Williams. "There is simply a chasm between IT people and businesspeople that isn't going away."
Which is why, according to some, the ASP model makes perfect sense.
"If it isn't your core competence, you outsource it," says Corio's Lee. "This means the CIO will become more of a strategic partner. Many IT workers will work for ASPs, which will be an improvement for them -- you are no longer part of a cost center, a burden to the organization; rather, you are now part of the core business."
Wohl puts it more succinctly: "We could easily see a change of address for some IT professionals. That's fine. Working for an ASP might be more fun."
Senior Editor Mark Leon (email@example.com) covers IT services, outsourcing, and consulting issues.
Testing the ASP waters
Back in October 1997, the clock started ticking for Charles Warczak, vice president of finance and information systems at Sunburst Hospitality, a hotel management company in Silver Spring, Md.
"Choice Hotels International had just spun us off," says Warczak. "Choice agreed to provide us with financial information services until we could get up and running with a system of our own. I manage all the IT stuff, so it was up to me to chart our course as an independent company."
Warczak wanted to go with PeopleSoft financials, but when he added up the cost of implementation, additional hardware, software, and personnel, he began looking for other options.
"It was a pretty hefty price tag," says Warczak.
One of those options turned out to be USi: Its model of application hosting appealed to Warczak.
"When we were still a part of Choice [Hotels], I had seen a lot of the hidden costs of doing this in house," says Warczak. "With USi, there is a set monthly fee, which includes the setup and implementation."
Warczak could not disclose the USi fee, but he says that the do-it-yourself alternative would have cost at least $1.3 million and required five additional staff members.
Sunburst began working with USi in October 1998, and Warczak says they were up an running by April 1999. They are running PeopleSoft's General Ledger, Accounts Payable, and Fixed Assets applications, and he says things have gone well so far.
His primary concern from an IT perspective -- and one that analysts often cite -- is how well his ASP (USi ,in this case) really understands the application.
"This ERP software is not easy, nor is it user-friendly," says Warczak.
Sunburst still has an internal IT staff to manage their Novell LAN and for PC support.
Although he is relieved not to be maintaining a staff of PeopleSoft support specialists, he has a word of caution for anyone considering the ASP model.
"You have to make sure the ASP understands your application," says Warczak.
"There are a lot of folks that can give you a screen and a help desk, but do they really understand your business?"
So far USi has convinced Warczak that he is in good hands.
"We always get the same person when we call for service on our account," he says.
Will this always be the case?
"I don't know," says Warczak. "I have asked them about that -- what happens if they grow rapidly, will we get the same level of service?"
But living with this anxiety, Warczak says, is still better than the alternative.
"If you build it yourself," Warczak explains, "then as soon as you finish training them, your skilled PeopleSoft and DBA professionals [can] get picked off."