ASPectx... TARGETING TECHNOLOGY AND TAPPING MARKETS    (502) 292-2351

While pouring hundreds of thousands of dollars into Information Technology initiatives is widely expected and considered part of doing business in today’s economy, the alternative choice continues to be found in a leased software model.  The last three years have brought the application service provider into the forefront of technology solutions for overworked and short-staffed IT departments.  While there are many types of application service providers, they all start with the opportunity to outsource IT through a subscription-based approach. to software.  The concept of outsourcing is not new, but today’s ASP uses the internet in its equation of success.  This allows for a consistent browser on all desktops, and acts as an opportunity for small business to enter into ebusiness.
 
In this white paper we will define the terms associated with the application service provider space, and outline the basic advantages provided by industry players.  We will touch on some of the metrics that can be found with using an application service provider and the key questions to consider.  This is not meant to be a comprehensive overview of the ASP concept, but rather a primer that delineates key points for consideration.
 
The Development of the Term ASP

While some software selections have been widely accepted as outsource options, such as payroll, most small businesses have traditionally bought their software as the need arises.  With the advent of the Internet as a business tool, there has come standard communications and data protocols to solve key IT challenges such as TCP/IP, HTTP, and XML.  There has also been an architectural evolution in recent years in the ways networking is setup and what is acceptable.
 
Technology has become an enabler for increasing, real-time activities. Those who have remained in computing in the last 10 years have gone from mainframes to client servers to a tiered workstation approach.  Universal access to business data and ever-increasing storage options has created faster, more secure methods for talking within and without an organization. 

Overall, access to business data is expected to be instantaneous with less overhead due to the Internet, generating moves to reduce the “cost of doing business.”
 
Chief information and technology officers continually search for ways to capitalize on internet-focused transactions, including the exchange of data for communications. This search and a number of market drivers have participated in the forward motion of the application service provider concept.  In the broadest perspective, the following are the primary motivators:  (a) global competition, (b) rapidly changing technology, and (c) CIOs and other IT professionals looking for ways to level the competitive playing field in their industries.
 
The most basic of all critical market drivers is the shortage of trained IT professionals.  The computing cycle is now less than 12 months.  New hardware and software upgrades make it virtually impossible to keep up.  The need for a small business of even two or more employees to be a part of these release cycles and to embrace web-based models has contributed to the need for an outside solution provider to add valuable services beyond install and repair.  Upgrades are now often occurring in quarterly cycles and as they do, system users want simplicity and service.  Add the need for affordable solutions to the mix and the idea of using leased software in a monthly fee for service approach was birthed in the late ‘90s.  Companies have exited the venture capital frenzy and are looking for predictable cash flows, and improved internal efficiencies.  They know that an ASP can minimize the upfront cost of ownership. 
 
An ASP is often defined as a supplier who makes applications available on a subscription basis, according to the ASP Consortium, an advocacy trade association formed in 1999.  An ASP is also often referred to as a business partner that provides choices regarding how software applications are managed and delivered as well.

Sizing Up the ASP Space

The year 2000 saw more than a tripling of offerings in this ASP-defined space.  It seems most software and telecom companies would like to reposition as an ASP, since the term was coined in 1997.  At this time there are about 630 ASP companies in the world that will do $3.6 billion worth of business this year.  Mergers, bankruptcies, and acquisitions will shrink the number of players in this market by as much as 40 percent by the end of 2001, according to the Gartner Group. 

Estimates regarding the size of the ASP market vary widely, with some projections exceeding $20 billion by 2003, according to Cherry Tree & Co., another industry research firm.
 
The term application service provider has been used to describe various service models of delivery of leased software. In order to clarify what a “pure play” ASP brings to you as a customer, we must explain the levels of integration and delivery that can be accomplished and how they are handled.
 
Some companies have focused delivering a “pipe” to the end customer—these are generally telcos who are providing a data center for a hosted environment.  Key areas of infrastructure management functionality include:  network and application monitoring, systems and network management, capacity scaling and load balancing, security and the connectivity required for a Virtual Private Network (VPN) or a Real Private Network (RPN)  used to deliver ASP services.  Often, these companies are seen as ASPs categorized as ASP Enablers.  They may partner with other types of ASPs to deliver a turnkey package.  Some of the best known include Cable & Wireless, DataReturn Corporation, Digex Inc., and Broadwing.
 
For this paper, we are most interested in talking about “Pure Play” ASPs who offer messaging, collaboration, security, and support as a part of an end client package with data remaining in a hosted environment.  These might include Mi8 Corporation, Vjungle.com Inc, Vobix Corporation and, Webex Communications Inc.  Vobix based in Louisville, Ky., for example, has built its own proprietary integration between Microsoft, Great Plains, and its own front-to-back office applications.
 
Other types of ASPs are found as hybrids in the market today.  They include the full solution provider who is usually an independent software vendor who has developed an end-user package with custom applications.  This type of ASP tends to own the customer relationship.  The full solution provider may work with an ASP Enabler and even a “pure play” ASP to secure the right mix of connectivity, data center security, and applications outside its shop.  This then may move the full solution provider packaging many products into the category of ASP Reseller as a traditional VAR (Value Added Reseller) or system integrator.  For example, eOnline manages the full suite of SAP enterprise applications on behalf of Autodesk. 

Microsoft-centric FutureLink offers a wide range of products, services, ASP licensing, and consulting for small and midsized companies in levels of reseller/strategic partnership deals.  Prentice Technologies offers customization of  J.D. Edwards’ applications for monthly fees that start in the thousands of dollars.
 
Many ASPs have tried to coin new words to become their own flavor of ASP for branding purposes.  They include full service provider, business service provider, and others.  Mainspring, an IT research and consulting firm based in Cambridge, Mass., indicated in its recent reports that numerous distinctive business models are emerging, attacking different areas of the value chain.
 
How an ASP Delivers Value

When a small business is shopping for an ASP, there are several key questions that should be considered:

1. How long has the company been operating as an ASP?  Considerations of what the company was before, and what it can offer today are paramount.  Many companies partner in this space, and others may push vaporware not yet ready for prime time. 

2. If the company operated in another area before becoming an ASP, why did it become an ASP?  A potential client may find this answer a great asset in whether or not to purchase services.  The type of hosted environment as well as the software it deploys will be important to the decision-making process.

3. What types of technology or business partnerships has the ASP formed and why?  This will give one knowledge about product development and the direction of the company.

4. What applications are their key offerings?  A potential customer needs to know what the ASP considers its core business.

5. What types of customers do they serve?  Do they have references?  Perhaps the one selected is a vertical ASP, and you must know if its toolset meets your needs.

6. How long is the typical contract between the ASP and its customers?  Most contracts are between 1-3 years, allowing for the consistent IT needed to grow the business.  They usually include a service level agreement of 99.5 percent uptime.
 
In summary, the ASP hoster should be able to define a focused product offering, show that it is “future-proof,” and allow you to gain access to a much more robust infrastructure that will help in the growth of a business.
 
The Hosted Windows 2000 Environment
 
One of the strongest areas of ASPs to watch are those using the Windows 2000 hosted environment, such as the Vobix based in Louisville, Ky.  Windows 2000 Server, launched in Feb. 2000, provides core file, print, Web, application, networking and communication services.  Its key benefits for ASP customers is its internet scalability and performance and its ability to securely extend to employees, partners and customers.  The hosted Windows 2000 environment allows for a platform to build and run rich-web-based solutions.  It has been noted for high system uptime and dynamic system configuration which aids an ASP’s ability to use provisioning.  With Windows 2000 there is centralized management for a lower total cost of ownership and it supports the newest networking devices and peripherals.
 
Microsoft has encouraged ASPs to embrace its .NET Enterprise Servers to deliver the types of resources a customer looks for in an integrated, hosted IT environment.  Verticals in specific industries have been quick to partner or develop a Microsoft fit, because of its stability.  Andalon.com, LLC in Buffalo, N.Y. packages Microsoft applications and services for medical and legal markets.  
 
Vobix, and others have made a commitment to use the Microsoft Windows 2000 platform in order to provide the reliability of performance for its end users.  Vobix has implemented other .NET servers to be a part of its hosted model, including the Microsoft ISA server for security and tracking, SQL server for database management, Microsoft Commerce Server 2000 for ecommerce and Biztalk Server 2000 for XML integration.
 
As ASPs begin to be asked to tie entire IT systems together in a hosted model on a subscription model, it is important that the platform selected can integrate with other software choices.  For example, Microsoft-centric ASPs can leverage the anticipated integration with Great Plains, one of the world’s top accounting and business management packages on the market today.  The Vobix already offers Microsoft Commerce Server 2000, Biztalk 2000, and Great Plains Dynamics or Enterprise in a .Net Environment to its customer base. It is a certified Great Plains ASP Partner and participates in several of Microsoft’s Early Adopter programs underway. 
 
Evaluating Key Offerings of ASPs
 
When beginning to evaluate ASPs, a small business must consider how best to maximize the hosted environment to get front-to-back office technologies working together.  The basic categories of service for general business can be broken down into (a) communication and collaboration; (b) operations & security; (c) commerce and finance; and (d) help desk support. 
 
Using  Vobix as an example, communication and collaboration are often offered for $20-$25 per user per month with Microsoft Exchange 2000 which includes basic email, calendaring, scheduling, and public folders in a virus-free environment.  Exchange Conferencing is also available.  Vobix hosted Exchange 2000 is fully integrated with Microsoft Windows 2000 Active Directory TM service, allowing any permitted employee to create a single enterprise directory for managing both messaging and network resources via Vobix provisioning software.   CEO Tim Landgrave, a Microsoft MSDN Regional Director and member of the Microsoft Infrastructure Committee, has built upon Microsoft strengths to build the Vobix Platform.  “The stability of the Windows 2000 hosted environment and associated Microsoft products has allowed us to create a full suite of affordable integrated, products for a small business.  I believe that ASPs are in the future for many companies, primarily those with fewer than 1,000 employees.  Larger companies can afford to have their own data centers, developers, and engineers, but small businesses cannot,” Landgrave said.  Messaging is more than just email in today’s workspace, so ASPs like Vobix bring to the table workflow and information tracking, to streamline core operations and allow for fast growth.  Not all companies offering email in an ASP environment allow user groups to collaborate in public folders, nor do all offer free virus protection and upgrades.
 
Lightweight customer relationship management applications are becoming the norm for all ASPs.  Each so-named product is not the same. Some products are web-based and some are not.  Agillion.com has marketed a low-cost, web-based CRM solution with password-protected websites, and shared contacts, a customer interaction database that allows users one secure, central place to store and access customer information and activity.  Vobix has developed its own sales force product, called the Vobix Opportunity Tracker.  The idea is that all salespeople must follow sales leads through to closing and later follow-up, and not every company needs the power of SalesLogic or Goldmine.  Training is not necessary on many low-end ASP products, reducing training costs and allowing integration with other ASP services.
 
Operations and security mechanisms for communications are the foundation for most businesses today. Many ASPs have developed service level agreements to reflect mission-critical issues, such as backup, remote provisioning, and tracking of interactions with virus-protection.  Vobix integrated both Microsoft and Live Vault technologies together for a secure, 24/7 Vobix Platform hosted at its partner data center.  The company provides full reporting and tracking of employees’ use of Websites and email in order to maintain productivity levels.  With unified management and integrated reporting, small businesses can create Internet usage policies.  Administrators can create detailed rules for managing traffic and enforcing enterprise and local access policies by user and group, application, site, content type, and schedule.
 
A recent study conducted by the US Defense Information Systems Agency revealed a 65 percent success rate for attempted security breaches, with 96 percent of these breaches going undetected in all businesses.  The one-time firewall install is considered inadequate in today’s environment.  The hosted model for small businesses allows easier authentication and encryption in many cases.  The basic value propositions for an ASP to solve security issues are:

* 24/7 monitoring of security services to ensure detection of unwanted entry into systems
* continual management and updating of critical security initiatives including authentication
* continual updates of e-security systems
 
Questions to ask about operations and security when dealing with an ASP include:

1. How will I see what my ASP is delivering?  Ask for a timeline of when and what will be delivered to the end users.

2. Where is my data kept?  How reliable and secure is it?  ASPs work with a secure data center either within their operation or in partnership.  Depending on the platform used, reliability and scalability may need to be assessed.

3. Is my ASP certified by vendors? Most large software companies, including Microsoft, IBM, Great Plains and others offer certification to their ASP resellers.

4. How long will it take to get my data restored if needed?  Backup and provisioning are the backbone of a reliable ASP.
 
Once a company integrates its front office applications, it is often easier to turn to an ASP for help in ecommerce and financial services integration.  The advent of XML brought tremendous opportunities to export data back and forth between accounting systems already in place and ecommerce storefronts.  An ASP can often help define the scope of what needs to be done and allow access to toolsets that simplify the integration factor.  Benefits of an ASP model for commerce include:

* Reduced Time to Market
* Reduced transaction costs
* Expanded marketing opportunities with your ASP partner
* Improved User Experience
 
The Vobix ASP model  and others in its class allow for quick builds with Microsoft-centric products for aggregated product catalogs, shopping carts, personalization, clickstream analysis, and business-to-business enterprise application integration.
 
The final test of an ASP is its help desk which should be available to an IT administrator on a 24/7 basis.  End user support can usually be purchased on an as needed basis or for a monthly fee.  The help desk needs to be able to show escalating levels of help are available for questions that simply require a customer service rep to engineer-level support.  A central help desk generally relieves application, system, and administration burden with a single point of contact.  Countless hours are often spent in workstations being upgraded and maintained one at a time by an IT administrator.  An ASP brings to the table a group of customer service representatives that can bring up knowledgeable answers about their platform as well as troubleshoot unforeseen circumstances.
 
Metrics and Future Requirements
 
Total cost of ownership documentation is often offered as part of a pre-sales effort and outlines many of the hidden costs that are not discussed when software or hardware purchases are being selected by small businesses.  Forgotten costs include installation, periodic upgrades, training of IT staff, training of end users, backup software compatible with newer technologies and system-wide integration.
 
ASPs come at all price points—some are selling ERP system software, others are in vertical spaces, such as healthcare or manufacturing, and still others are entirely browser-based with only user-friendly low-end applications available.
 
The category called ASPs may soon be called something else but key value propositions remain the same.  In order to be successful as a small business ASP, the following will be important checkpoints:

* reliability
* security
* scalability
* remote provisioning
* wireless deployment on handheld devices
* applications support through a help desk
* cross application integration
* data analytics with internet tracking
 
The bottom line is that “pure play” ASPs built on stable, secure platforms will prevail. Computerworld magazine reported in May 2000 that a quarter to one-third of all companies in the United States had entered into relationships with ASPs and that number was expected to increase sizably.

IDC Corporation report, spending on ASP services will grow $7.7 billion in four years, from $30 million this year.  However, this is not new monies, just a reallocation of funds set aside for software purchases.