ASP Delivery Model

Understanding the ASP delivery model - By Sumit Malik This article looks at the ASP distribution channel, its advantages/disadvantages and CSFs required to successfully deliver applications through this model. Introduction What is an ASP? Broadly defined, an Application Service Provider (ASP) is any organization or third-party that provisions software applications over the Internet, typically for a fee. ASPs host and manage the applications from their facilities or from co-location center(s), and coordinate the ongoing support, maintenance and upgrades of the applications. By combining software, hardware, networking technologies and technical expertise, ASPs provide superior performance and increased security, reliability and scalability over traditional corporate-owned, in-house corporate-run applications — without a significant up-front financial commitment. Application Service Provisioning is slated to become the dominant model for software application delivery. ASP customers can rent services on a per-user, per-month basis (or several other payment models) at a fraction of the cost of purchasing, deploying and supporting traditional high-end business applications. The different softwares could be enterprise software, collaborative or personal softwares. As Figure 1 shows, an ASP takes the traditionally separate phases of an enterprise software implementation and bundles them together into a full-service offering. These phases include hardware and software license procurement, implementation, hosting/operation, and maintenance of the applications. Figure 1: ASP Implementation Consolidation Software Oracle, Microsoft Hardware Hewlett Packard, Cisco, IBM, Wipro, Intel Implementation Connectivity Cambridge Technology, Wipro MCI/Worldcom, PSINet, Satyam, Bharti BT, Wipro Net ASP Solution Hosting/Maintenance Exodus, Frontier GlobalCenter, Satyam, Bharti BT, Wipro Net Applications Hosted and Managed Several applications are ideally suited for the ASP model, typically enterprise software applications that require significant capital outlays and technical resources to implement and manage. The lengthy implementation curves of these applications also make speedy time-tomarket a near impossibility for companies doing all the work on their own. Several kinds of applications fit these criteria. ERP – ERP applications, such as the human resources and financial management modules, are quite expensive and difficult to deploy. Small and medium-sized companies– those with revenues under $500 million – may find the costs of bringing these applications inhouse prohibitive and too time-consuming. ASP Applications • ERP (Enterprise resource planning) • CRM (Customer relationship management) • E-commerce • E-procurement • Data warehousing/ Business Intelligence • E-mail messaging CRM – The meteoric rise of the Internet and its progeny of “dot.coms” have placed a high premium on customer acquisition and retention. Central to these efforts are customer relationship management (CRM) applications, which include marketing automation, sales force automation, and campaign management, among others. Many pundits view CRM applications as critical to the long-term survival of any Internet business, and ASPs, such as USi and Corio, are rising up to offer them. E-commerce – In the rush to create an effective Internet commerce presence, many companies are turning to ASPs, such as USi, Breakaway, and Interpath, to provide everything from Web site design and hosting to personalization and fulfillment systems. E-commerce applications are popular choices for small to mid-sized companies to outsource. Relatively easy to deploy, these applications enable companies to concentrate on their sales and marketing strategies, rather than devoting scarce resources to an IT staff that will subsequently be faced with challenges of rapid technological obsolescence and shrinking software release cycles. Mid-size and larger companies have chosen to move their e-commerce applications from straight Web hosting companies and co-location services. E-procurement – Minimizing the cost of doing business is vital to any company’s operations. Eprocurement technologies enable companies to automate purchasing of both production and nonproduction goods and services, thus helping to reduce procurement costs, shorten order fulfillment cycles, and improve inventory management. ASPs can help a company quickly adopt an e-procurement system that links it reliably and securely with all members of its supply chain. Data warehousing – Effectively capturing and storing information gained from both internal and external e-business systems is a major headache for companies of all sizes, whether the data is from Web site visits and purchases or from supply chain transactions. Some data warehousing initiatives, if done in-house, can take years to deploy. This complexity has deterred even some of the ASPs from offering it as an option to their customers. ASPs have chosen to roll out those applications where their expertise is greatest and where the greatest customer demand lies. Business intelligence – The next step beyond data warehousing, business intelligence systems sift through the masses of data captured and stored in e-business systems and allow users to answer specific business questions or to plan strategies based on trend information. ASPs, such as USi, have begun to offer business intelligence systems that allow companies to get fast answers from their data collections. E-mail messaging – ASPs such as Critical Path, United Messaging, and USi offer to take on the challenge of implementing and maintaining worldwide e-mail systems with appropriate security, remote access, and rich content delivery services. However, e-mail messaging involves a different set of dynamics that warrants its exclusion from the market share figures that will be presented later in this report. Some of the ASPs, such as Breakaway Solutions, that focus on CRM-type applications also offer messaging as part of a total solution, but normally do not offer messaging as a standalone solution. Strategic Constituencies of an ASP delivery model 1. 2. 3. 4. 5. Application Vendors, providing the software Hardware Vendors, providing the servers, network storage Network Providers, for example, ISPs, telcos, hosting service providers Other software vendors, providing the tools and infrastructure, e.g. NMS, billing softwares Service Firms, including SIs, consultants and outsourcers Distributor s, Resellers Service Firms •SIs •Consultants •Outsourcers ASPs Network Providers • ISPs • Telcos • Web Hosting Hardware Vendors •Server •Network •Storage “Pure Plays” Other Software Vendors •Tools •Infrastructure ASPs Application Vendors ASPs Note: “business or process know-how” firms such as financial services and logistics companies and BPOs not shown. Source: International Data Corporation, 1999 Profiling the ASP market players Web hosting Companies It is logical that complex Web hosting companies could look to migrate up the value chain to compete in the ASP market. In order for the complex Web hosting companies to be successful, they will need to strengthen their professional servic e capabilities to gain greater application and systems integration expertise. Such complex Web hosting companies could look to partner with other ASPs to address the ASP market indirectly as the back-end data center provider. “Pure-Play” ASPs. As is the case with other emerging market segments, there would be “pure-play” application service providers, with business models focused solely on the ASP market, to emerge. Usinternetworking is the first public “pure-play” ASP in the US market. Telecom-Focused Companies/Network service providers. The telecom-focused companies would focus on the ASP market as they look to increase their value-add to customers, as well as to leverage large infrastructure investments, notably backbone investments. The challenge for the telecom-focused companies would be a lack of application expertise. As such, these companies would look to partner and/or utilize acquisitions to garner the application and integration expertise. Traditional IT Integrators. Systems integrators also would be looking to get a piece of the ASP market. IBM Globalservices and EDS already have announced that they would be adding application hosting to their service portfolios. This is a natural evolution for these companies, which have significant expertise in providing outsourcing solutions for customers’ IT departments. However, these organisations would have to move to rapid deployment scenarios and nimbleness. Web Integrators. For web integrators, application hosting is a natural way to round out their offerings, as companies look to offer their customers everything from strategic consulting to application development to the ongoing hosting of applications. The key issue facing these companies, however, lies in a lack of network management skills and a lack of infrastructure. Business Models – One-stop, Best of breed or Hybrid A. One stop shopping model In the one stop shopping model, one single vendor controls everything from implementation to the ongoing operation and maintenance of the application. Usi is an example of the onestop-shopping model as Usi implements a customer’s software application, as well as operates and maintains the application in its own data centers. B. Best of breed model The best-of-breed model is one that has multiple vendors participating in the process. Here the ASP does not need to have all the required skill sets within a single entity. An example is privately held Corio’s model whereby Corio’s expertise lies in implementing applications, and the company utilizes Exodus’s data centers for hosting. CSFs for the dominant model would be quality of service which includes service in terms of application itself, as well as customer service, including problem resolution. Business Model – Horizontal ASP or Vertical ASP A horizontally focussed ASP would offer a whole suite of software applications that are common to all companies. On the other hand, a vertically focussed ASP offers software applications targeted to a specific industry vertical, e.g. telecom, healthcare, insurance etc. Impact of ASP business model on software vendors C. Advantages of existing vendors Established vendors with existing customer bases Brand recognition Large sales force and marketing budgets D. Disadvantages Architecture of the solution – client server based or web based. Web based architecture would be a CSF to deploying the solution through ASP model. Functionality may be too rich for the target segments – especially dotcoms and SMEs. Different products hence would be required for different segments. E. Advantages of new vendors/ASPs with in-house development Application built & optimized for the ASP segment from ground level Web enabled software model Software enabled for integration with complementary products Functionality is geared to the target market needs Absence of legacy customer bases F. Disadvantages Lack of brand recognition Heavy investments in sales and marketing required Intense competition due to lower entry barriers and VC funding availability CSFs for the new vendors’ long term success would be first mover advantage and first mover to scale up. Opportunities and Threats The biggest single question in the development of the ASP market is: Who owns the endcustomer relationship? As per IDC’s Software Channels and Alliances group, systems infrastructure and tools vendors are generally better at structuring and managing partnerships and sell more software through channels. For the application vendor, it is hard to separate opportunity from threat. Applications vendors are threatened if they embrace application service provision as a way to deliver product and threatened if they don’t. As momentum builds, they will not have a choice — they will have to go forward. The multibillion dollar question is: To be the ASP or to be a partner to the ASP? Conclusions The ASP model has gone through a few iterations since the term was coined in 1997, but it undeniably represents a fundamental shift in application management. Just as the Internet has revolutionized business, ASPs are revolutionizing companies’ ability to leverage the Internet for maximum benefit. Some of the advantages and disadvantages are enlisted below: ASP Advantages • • • • Faster time-to-market Access to expert IT people without having them in-house Deep applications expertise Better cost control ASP Disadvantages • Customization issues • Security • Quality of service issues ASPs are now poised to establish themselves as viable solutions to the ever-increasing pace of change on the Internet. The global reach of some ASPs portends greater things to come: within three to five years, the ASP phenomenon will be worldwide, and we may indeed see the day when the idea of developing key enterprise applications inhouse is the exception, rather than the rule. The author is working as call center product manager for Parsec Technologies, Gurgaon and can be contacted at aspinfo@parsec.co.in.