Are Application Service Providers really new?

Several incarnations ago, I started a service bureau. This was back in the days of punch cards, magnetic tape was a new thing and Cobol wasn’t yet a standard. The idea behind the service bureau was to have a wide range of applications that clients could access cheaply without the necessity of large internal IT departments.

If the company had its own software, it could rent time. If it didn’t, the service bureau would provide it or write it. There weren’t that many companies that could afford the cost or space for a Two-ton 32K memory monolith. Alas, the evolution of the PC and the ubiquitous notebook spelled the end of the service bureau. Or did it? Maybe we’ve come full circle in a different environment.

The irony is that as hardware became more compact, software expanded. Ever wonder what a million lines of code looked like on punch cards? It was big. We are now at a point where the leading enterprise systems packages are licensed for millions of dollars, implemented for more millions of dollars and the client doesn’t even own the software at the end of the exercise. Is it any wonder that small- and medium-sized companies have difficulty believing that SAP, PeopleSoft, Oracle and JD Edwards software is worth all that money to the company?

Enter the Web, electronic commerce, employee self-service, e-mail, chat lines, movies and music on line. It’s all cheap efficient and easy – right?

Well, not really. There are a lot of things going on in the background and there’s a lot of maintenance that needs to be done. Enterprise systems companies are chasing all of these things and the message is that these systems aren’t simple. If they were we could buy them for a fraction of the price.

The new situation is that instead of two tons of hardware to worry about, we have two tons of software that requires care and feeding. Now if we were to set up a company that licenses the software, maintains it off-site and uses transaction based costing, we could appeal to a lot of companies. Can’t call it a service bureau though because that’s old fashioned. We’ll call the company an Application Service Provider. (Let’s just hope that nobody looks up the meaning of the word created by the acronym.)

SAP and PeopleSoft offer services to small- and medium-sized clients where the software is almost free, it’s available on-line and you only pay for the transactions. At first it was tried with human resource applications, but there are more applications in the pipeline.

The trouble with this approach is that there’s need for some very complex partnering arrangements in the background. One company provides the software, another provides the Web portal and another looks after maintaining and operating the system. A variation on the theme is out-sourcing but with a difference. The client owns its own licenses and usually has its own equipment, but it contracts the software operation and upgrading. Another variation is to run on someone else’s hardware and access the applications as required. With robust communications and proven software any combination can be considered.

It seems to me that the original problems of dealing with a service bureau are the same as they’ve always been with the addition of ease of access, more complex software packages and some interesting legal and security issues. One that specifically comes to mind is the location of the processing and the data. In this new global economy it’s too easy to forget that your application could be running half way around the world. It’s too easy to forget the legal ramifications of locating your crucial company data in a country or state where it could be perceived that you’re doing business without the necessary approvals and without paying the expected taxes.

Space doesn’t allow me to continue the discussion, but basically, Application Service Providers are not a bad thing. Nor is out-sourcing the operation and maintenance of complex packages.

But don’t get rid of your IT department yet and don’t get rid of the hardware in the basement. In the new models of application service, there’s room for all of the variations.

Horner is a partner at Sierra Systems Group Inc. He can be reached at