The ABCs of ASPs

Despite some uncertainty on the part of IT executives, the application service provider (ASP) market is poised for significant growth in Canada.

In a recent IDC Canada study, the research firm forecasted $69 million in Canadian ASP spending for 2001. With triple-digit growth rates in store for the next few years, IDC anticipates Canadian organizations will spend $455 million on ASP services in 2004. However, the optimistic growth forecasts and the high level of awareness tend to obscure the fact that many IT executives are very wary of today’s ASPs.

Recent focus groups conducted by PeopleSoft indicate that CIOs share fundamental concerns about the services that ASPs currently provide, and question whether these services will meet their business needs.

Here are some comments from those focus groups:

    “ASPs don’t really offer me a service. They offer technology, but not it’s management and care.””Should the service level agreement break down and fail to meet our requirements, there is no ‘get-out’ clause.””We had to fit our business to the software rather than the other way round.””Problems arose with ASPs bringing out new versions of the software too quickly and dropping support for previous versions without notice.”

Top of mind amongst IT executives surveyed were commitment, good service and long-term customer care from an ASP. They also want flexible service level agreements (SLAs) that are able to change to meet the changing needs of their companies. Also, executives find transaction-based pricing expensive and would like their costs to be more predictable.

CIOs also have reservations about certain technological issues, including security, integration and interoperability.

Addressing the Issues

While concern over security comes as no surprise – it is raised whenever any new proposition regarding the Internet hits the market – it is still important for ASPs to address this issue clearly.

There needs to be an assurance that the data centre itself will be physically secure against malicious access – that customer data will be kept separate from that of other clients, and access to the data will be controlled with encryption and firewalls. Providers should allow IT executives to visit the data centre and see the entire operation, including where their data is stored. If an ASP protests at the idea of a visit, then one should feel justifiably suspicious.

When it comes to concerns about integration and interoperability, service providers need to be aware that some software can be in a chain of interdependent relationships, which means that decision-making can be infinitely more complex for the customer. The challenge for the IT executive is to have an open dialogue and work together with the ASP to define their needs and identify the best solution.

For a successful relationship to develop, the CIO as well as the vendor must be prepared to adopt a flexible approach, with a willingness to embrace change. In achieving this, the re-turn on the initial investment then comes from the fact that the customer is ensured a tailored quality of service and more time to focus on their core strengths.

The Benefits

Despite common misgivings that companies have about using ASPs – including the time it takes to develop a relationship with the vendor or the types of applications that the ASP can or should host – good ASPs are helping com-panies implement applications, while conforming to the specifications of the IT executive.

CIOs engaging an ASP can look forward to a more focused operation, where they are free to concentrate on core competencies. No longer will they face the perpetual challenge of recruiting and maintaining IT staff while constantly spending to stay ahead of the technology curve. With suitably qualified resources being in such short supply, it often makes sense to let external experts worry about keeping up with changing technology.

Another important benefit of the ASP approach is that it enables CIOs of smaller companies to take advantage of leading enterprise software solutions – something previously beyond the reach of most small and medium-sized enterprises (SMEs) because of the capital outlay involved.

SMEs are increasingly demanding these solutions as their businesses increase in complexity, and reach beyond national boundaries.

Maturing Enterprise ASP Market

The increasing demand means anticipated growth. In fact, the personal ASP space has the largest forecasted growth rates. IDC expects the market to grow 167 per cent over a five-year forecast period. However, the largest revenue opportunity will be in the enterprise ASP market, as this is where pure play ASPs have largely concentrated their efforts, both partnering and competing with the leading ERM and CRM application vendors.

As enterprise ASPs offer increasingly competitive services, it’s less a question of whether an organization can find the right solution as to which provider to choose. Whether a company needs to outsource all business processes, or only a specific range of applications, the marketplace is diverse enough to accommodate very specific needs.

CIOs concerned they cannot get the services they want at a price that suits them might want to revisit the ASP model to see how it has matured. I anticipate that those who are sceptical about the benefits of application service providers today will soon change their minds when they see the performance their competitors are able to achieve using this approach.

Given the breadth of offerings in the Canadian ASP market, it’s easy to forget that the ASP market itself is relatively young, with vendors still working to develop their offerings and IT executives still defining their needs. It’s vital for vendors and information executives to develop the marketplace to its fullest potential, and in particular, to educate each other.

CIOs also need to start enlightening providers about what it is they really want, while application service providers need to allay fears, develop more flexible service offerings and constantly work to deliver the full benefits of ASP hosting.

Andy Aicklen has over 20 years of experience as a software executive and was recently appointed Managing Director and VP of PeopleSoft Canada. The company’s eCenter provides rapid deployment and management of PeopleSoft 8 pure Internet applications, including CRM, SCM, Professional Services Automation, Human Resources Management, and Financials.