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Deciding whether you should lease your software applications today through a hybrid ASP will resemble the process you go through to determine whether you should lease corporate cars for everyone on the team. However, just like tire kickers who see the latest make and model, then act impulsively, business owners tend to knee-jerk react to their next IT decision. Certain road signs can and should tip you off even in the ASP landscape. ASPectx, a Louisville-based consulting firm, has experience with counseling clients on ASP choices. Topping the ASPectx list of reasons why to avoid ASPs:

• Don’t “get one” because it’s trendy.

• Not all ASPs can run applications better, faster, cheaper. They are always tradeoffs in migrating a system.

• Don’t select an ASP option because it will “solve problems” for internal IT staff. No software choice solves problems.

ASPs known as application service providers have remained largely undefined and like the endless pile of paperwork that often goes with leasing, just what they are delivering can be hard to nail down. ASPs are now known as full service providers, internet business services, managed service providers and digital service providers to name a few hybrid terms. The number of the “special terms” will continue to grow as companies try to differentiate themselves from the more than 650+ companies in the ever-mushrooming industry.

A quick review in the trends of IT computing may help to show how we got to this point in history.

The Internet has meant certain business opportunities can be setup immediately affording customer loyalty in cyberspace. With it came the interest in web-based delivery of applications. Business owners while tempted to enter the fray with an ebusiness initiative, perhaps commerce-based, were unfortunately unable to scale quickly with a large enough IT infrastructure, much less understand all the buzz words to develop a web strategy that reflected more than a new software tool.

The client/server computing trend in the 1990s stepped away from legacy and mainframe systems in that client applications were stored on a server and typically accessed with a PC that sat at a user’s workstation. The benefits included the ability to extend functionality to many more individuals, as well as a way to improve performance and make rapid changes to applications. This worked out fine for the largest of enterprises, however in the late 1990s interest in hosted environments for those not willing to have it all in-house took the spotlight.

Before you head off down the path after an Application Service Provider, there are several road maps to observe, and tests you may want to put your think through. After talking with consultants and users about this grueling process, there are six primary factors to weigh in assessing your ASP needs.

Factor #1: Stability of internal IT Operations. If your internal IT department is large, relatively well-organized and using one platform of choice for most critical applications run in-house, then there may not be a need at all.

ASPs are designed to accommodate specific application needs, and a company’s inability to provide for these needs within an organization. They are not necessarily trying to assist a company in migrating from a legacy system, or eliminate a successful IT department. For companies with limited resources, an ASP approach may make sense, however if there is stability in internal IT than an ASP may only be useful for a particular new functionality needed.

Factor #2. Cost Control. Evaluate Costs. Look at the total cost of ownership for the particular applications that an ASP could provide. Not all ASPs are created equal. A comprehensive pricing analysis completed for a client by Arnold Information Technology of 20 top-ranked ASPs indicated tremendous disparity in pricing options, dependent upon applications and support services. The range begins with free for simplistic email management or introductory offers to thousands of dollars per month for an ERP-type solution.

Stephen Arnold indicated that most ASP firms require a three-year contract with 10 percent of the estimated value of the customer’s three year contract paid upfront. When a company cancels a contract, the upfront fees are non-refundable. And upfront fees are revealed many times only with careful questioning.

Factor #3. Customer Loyalty Keys. Ask the question, “How will this improve customer relationships and to what degree?” Most ASPs are designed to generate customer loyalty. Certainly there is value in enhancing or adding value to a relationship, not just maintaining. Some software tools only catalogue activity, but do not provide any real customer relationship management functionality.

Capitol Wings of Austin, Texas, a charter airline, caters to the needs of high-end business executives and turned to Agillion, an ASP for a more sophisticated internet-based customer channel approach. President Jerry Garrett realized that two of his company’s top priorities needed to be an improved internal communications system and better-managed customer relations. He cited the ease of use of Agillon’s system as the reason for his signing up. Advantages of using Agillion’s services included checking the latest flight schedules and assignments at any time, day or night, from Internet terminals in airports around the world and customized client requests could be communicated using Agillion notes immediately.

Factor #4. Security, Backup and Upgrade Paths. Determine the level of network security, backup, version control and support your shop needs on the applications you are considering in a hosted environment.

Internal IT departments vary in their need to deliver real-time access, 24/7 help desk support, and in their need to keep up with technology. A doctor’s office for example may choose not to outsource its basic tools of communication because it may not be large enough to see any benefit from freeing up its two IT professionals’ time for other activities. A manufacturing firm may see more of a need for ecommerce and internet-based decision-making, but depending on the industry, there may not be an immediate rush to force upgrades. A primary advantage of most ASPs is their ability to provide backup, and some base level of security and 24/7 help desk support with regular upgrades being automatic.

Factor #5. IT Recruitment in the Region. Review your IT personnel needs and recruitment possibilities in your area first.

If existing people are cheap, but the software solutions in place are still not working, there may be re-engineering occurring around the problems without an assessment of what they are. A robust ASP environment can bring to the table, an IT infrastructure needing minimal or no babysitting. Training and staffing up are major reasons cited for choosing an ASP model for growth, particularly for email, messaging, and groupware needs. A 2000 Zona Enterprise Usage Study involving a sample of 83 IT professionals found that more than a third were already using an ASP for ecommerce, financial services, and accounting as well as communication tools. But less than a third were pursuing an ASP model for training, education, or CRM to date—areas with anticipated big growth for ASPs.

George Koch Sons, a privately owned and operated firm with more than $160 million in annual revenues, is representative of the trends seen ASP acceptance for outsourcing. The company is based in Evansville, Ind., with key offices in Germany, England, Mexico, and Brazil and is a designer, manufacturer, and installer of complete paint, powder, and flatline finishing systems. Koch Sons decided to turn to a hosted approach for its financial services through Vobix Corporation, a Midwest ASP. One of the greatest challenges, according to Jim Oskins, controller and company treasurer for George Koch Sons, was to add this software to the MIS operations already underway without placing a new burden on the departmental staff or the current legacy systems. In addition, use of the Internet in operations appeared to be a useful way to approach moving the company to a more real-time-oriented accounting approach.
Oskins said he understands the impact that Microsoft’s Windows 2000 will have on future business applications, so he wanted a financial management system that was designed for Windows, to easily integrate all applications.

Factor #6 Scope of New Technology Drivers. Internal business needs will dictate just what types of applications are now needed that may not have been called for prior to the company’s growth. A vertical ASP can may provide the appropriate toolset in the industry without the headache of data management, and migration as well as change control management.

C/N Group, a Chicago-based healthcare services company operating 14 healthcare facilities throughout the US selected a vertical ASP called Andalon.com LLC. based in Buffalo, N.Y. Ravi Chopra, C/N’s CEO said, “Because of the C/N Group’s recent growth, our information technology needs have changed dramatically. For that reason, we must begin streamlining and centralizing a number of functional groups such as billing and collections.” Andalon specializes in several vertical software areas including education, legal, insurance, and medical.

With an applications evolution continuing and companies looking to web-enable as many functions as possible, these factors should be reviewed. Executives and consultants speaking on hosted services at national conference often refer to this powerful equation as: Technology + Process = Repeatability and Reliability.