ASPs get some insurance

A professional trade group plans to roll out an insurance program designed to overcome one of the major remaining misgivings end-user companies have about application service providers (ASP): their financial stability.

The ASP Industry Consortium’s insurance program will offer “protection against any of the risks to which [ASPs] could be exposed in the course of their business,” said Paula Hunter, chairwoman of the Wakefield, Mass.-based industry group.

The policy provides financial protection against liability for Web content, such as slander, invasion of privacy or copyright infringement, and against an inability to supply the services customers expect.

The policy also protects ASPs in the event of hacker attacks and includes coverage of up to US$50,000 for public-relations expenses to help re-build the image of a service provider that’s in trouble.

An insurance policy isn’t the first thing Jim Buckmaster would look for in an ASP. But a policy that could guarantee the financial stability of an ASP, or at least provide remuneration if it were to fail, would provide some incentive, said Buckmaster, the president and chief technology officer at, a San Francisco-based online classified ad and community bulletin board service.

“The financial health of companies we’re doing business with is becoming a prime consideration in how we look at things like [Internet service provider] services,” he said.

Most customers, though, probe a service provider’s architecture, infrastructure and internal security policies, rather than its insurance policies, to make sure it can do the job and is stable, according to Kelly Emo, business development manager at ASP integrator Jamcracker Inc. in Cupertino, Calif.

“The key is that you just don’t want to pick an ASP that’s going to abandon you,” said William Martorelli, an analyst at Hurwitz Group Inc. in Framingham, Mass.

“You need your [service-level agreement] and data-protection provisions. It’s Outsourcing 101,” Martorelli added.

Many ASPs have gone out of business in recent months, Hunter said. But so many large companies are offering applications as a service that the old picture of the stand-alone, start-up ASP isn’t accurate anymore. “What we’ve found is that most ASPs that did go out of business did so because they couldn’t get funding because they didn’t have any customers, so the [impact on customers] has been relatively low,” Hunter explained.

In a study to be released Monday, the ASP Industry Consortium reports that about 8 per cent of companies surveyed use ASPs for one service or another.

The appeal of ASPs is broad, but not deep in any particular area, according to the study, which includes data from 1,983 respondents at businesses in 17 countries.

However, the percentage of companies surveyed that use ASPs is about the same no matter what business they’re in, and the services they buy run a gamut so wide that it’s hard to identify a leading application.

“It’s a question of finding the right company with an outsourcing mentality and a point of pain that an ASP can solve,” Martorelli said. “And that doesn’t correlate with the market they’re in.”