Making the Right Bet on ASPs

FRAMINGHAM (04/03/2000) - Until I talked to Scott Manville, I never really got the whole application service provider thing, at least for big companies.

Manville is a senior vice president at U.S. Trust in New York. He's a smart, experienced IT guy. He thinks ASPs are a good idea - but not for the reasons I'd always heard. The basic ASP concept is to outsource a whole application.

You pay a subscription fee, and the ASP hosts the application, runs it, maintains it and upgrades it as necessary.

This makes sense for startups that have no existing applications and have to control spending. It even makes sense for small companies that want to outsource jobs like payroll. They've been doing that since long before ASP became a buzzword.

But why would a large, established company want to take a functioning application, such as the horrendously complex, business-critical ERP applications that are most often cited as good ASP candidates, and hand it off to someone else?

Most organizations take years and millions of dollars to bring an ERP system online. It becomes the engine of the business. I assumed outsourcing something that crucial was a Bad Idea.

So did Manville and the other high-level IT managers who were in a Technology Manager's Forum session I moderated in New York a couple of weeks ago.

They said service levels - which are hard enough to define and support within the firewall - are a complete crapshoot once you start piping traffic outside.

Security, staffing, reliability and understanding the business processes behind the applications are also lacking at most startup ASPs.

But Manville and the others still like the idea of ASPs if they add new capabilities - like conducting business-to-business auctions, offering online billing, managing Internet recruitment advertising or sifting through electronic résumés for good candidates.

Trusting those e-commerce and recruiting functions to a service provider can give you a real advantage - and it doesn't put your core applications at risk.

Signing up with the right collection of ASPs can give you drop-in e-commercecapabilities at a low costand even lower risk.

With the right contracts, an ASP setup is flexible enough that you can experiment a bit, changing the service providers you use and the functions you provide to get the best mix for your customers. Once you have some experience, it makes sense to bring those functions inside - especially ase-commerce becomes a more important part of your business.

And with your e-commerce capabilities firmly inside your organization again, you can look for a new set of functions you want to try - with a new set of ASPs.

Kevin Fogarty is Computerworld's business editor. Contact him at kevin_fogarty@computerworld.com.

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