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It is time to admit defeat in the war you have been
waging to control technology costs. The
pace of innovation and the demands of the global market place have left
tread marks on your budgets and your ERP consultants have just stormed
your data center (again). Before
you surrender to yet another round of computer-related capital
investments, take some time to learn about a new approach to efficiently
deliver technology to businesses that may out-flank your attacking
technology spending. This new approach can reduce technology expenditures
while making them more manageable and predictable, make multi-location
operations trivial and seamless, and enable you to make a profit while
keeping up with the pace of change. These
benefits are available today from a growing fleet of vendors known as
Application Service Providers (ASP). How does an ASP work?The ASP maintains all the servers, software, and
personnel to run your applications at their data center. You access your software using direct connections, private
networks, or the Internet. The
concept has been in use since the days of Mainframe time-sharing, but
recent Internet and Windows Terminal technologies provide efficient access
to modern sophisticated user interfaces over connections as slow as
dial-up modem. Many companies lose their ability to focus on
customer value in their struggle to balance technology dollars against
return on investment. The
costs and risks are so high that only very large companies have the
resources to get full value from technology.
Navigating the maze of software and hardware options requires
expert guidance: even with professional help, many companies give up
rather than buy the systems that would really support their business. A Competitive AdvantageThe winners in today’s markets use technology as a
tool to drive their business not as an end in itself.
When you use an ASP, your technology infrastructure is managed
externally so you can focus internal resources on building business value
from the technology. Your ASP
takes over the responsibility for staffing a data center, buying computer
hardware and software, maintaining and deploying upgrades, backing up and
securing the data, and even handling telecommunications with remote
locations. Technology
outsourcing frees you to run your business. The benefits of outsourcing are larger than simply
outsourcing your technology management.
An ASP leverages economies of scale unavailable to individual
businesses. This translates
into services generally available to only large companies like
sophisticated ERP, CRM, or Supply Chain software, Internet and eCommerce
features, effective multi-site management, and telecommuting. For ExampleLet’s look at a typical ERP upgrade scenario.
A mid-range manufacturer ($25 million gross) wants to upgrade their
DOS based ERP package. Even
though they are small with just 1 tech support person, they still have 2
locations, 25 users, and their supply chain requires them to implement XML
based EDI. After an extensive
search, they find a good software match.
Unfortunately, the expected implementation price tag nears $2
million and requires them to deploy an Oracle database. The manufacturer must both invest the capital for the new
system and take all the risk for its success. In the ASP model, the capital investment and risk is
much lower. There is no
computer hardware to buy since the ASP owns the servers and a team of DBAs
to maintain the Oracle database.
Since the ERP software is already part of the ASP’s suite of
applications, the manufacturer only pays for the licenses they need (for
approximately 30% of retail per year).
Even more important, the ASP has already deployed the
manufacturer’s critical EDI features and offers custom integrations
between the ERP software and Microsoft Office.
Finally, the ASP eliminates their multi-site issues: since all
operations are remote there is no tangible difference to users at either
site or even working from home. What’s the catch?The flip side to all these amazing benefits is an
increased reliance on wide area networks and the Internet. In order for your business to use an ASP, you will need as
much reliable data capacity (bandwidth) as you can afford. If your bandwidth is not reliable or too limited, your
business cannot adequately access its software. Yet, even without using an ASP, bandwidth issues are
already a fact of life. Companies
already are supporting complex telecommunications infrastructure to
provide telephones, call centers, Internet access, integrated web sites,
data links for multiple sites, and even dial-up for telecommuters.
The list of critical bandwidth needs will only increase as data
networks and voice systems converge.
In fact, most businesses I visit find that their telecommunications
spending is growing even faster than their technology outlay.
When an ASP takes over your data center, they actually simplify
these communication issues. Security is another critical issue for ASP users to consider because subscribers must entrust their critical data and operations to a third party. The reality is that ASPs actually offer improved security because most businesses have such poor security (see the Nov/Dec 1999 Technology Corner “What you don’t want to know about computer security”). ASPs enhance security by enforcing uniform standards, limiting internal users with administrator access, having the data removed physically from your location, and providing regular backups. In addition, an ASP uses economies of scale to employ specialists and deploy technologies that individual businesses could not afford. Early AdoptersSince the ASP model is still emerging, early adopters are
taking a risk: these businesses will have needs that are uniquely suited
for outsourced applications such as multiple locations, rapid
implementation or growth needs, mixed operating system environments (like
Macintosh, Unix, and Windows), complex software with relational databases,
or tightly integrated the eCommerce requirements.
Using an ASP does not require giving up all of your technology
management. Early adopters
will select to outsource applications with the highest return on
investment. In addition to partial deployment, early adopters risk
exposure is minimized because the ASP model not really new.
Large companies, and progressive small ones, have been successfully
deploying internal ASP's for over two years.
The primary differences between these internal hosts and an ASP
vendor are the outsourcing elements and scale of the data center. Early Vendors
Even in early stages of the ASP market, the vendor's seem
to be separating into two tiers. The
first tier vendors are focused on delivering specific applications and
tier 1 ERP products such as Oracle and PeopleSoft.
Their target markets are large or fast-growing businesses and
companies looking for custom Web applications.
The second tier vendors are targeting small and midsize companies.
Their goal is to supply all necessary applications for their
customers: these applications range from email and word processing to
second and third tier ERP software. The ASP model has been moving from concept to
establishment. The technology
community has been raving about ASP’s since last October and the concept
is now gaining acceptance in business circles.
Every major technology vendor is seeking to support ASPs: Microsoft
is starting a major ASP push with the 2/17 release of Windows2000, IBM is
deploying suites of software to support ASPs, and Sun is planning to rent
their StarOffice package. Even
hardware vendors like Dell, Micron, Compaq, and HP have are lining up
behind the model. In
addition, nearly every telephone company and ISP has announced an ASP
partnership or strategy. With so much activity, the ASP vendor list is changing too
quickly for print: visit my website, www.H-Consulting.com,
for an up-to-date vendor list. Back to the battle!
I have been in the
trenches helping businesses win battles when deploying or enhancing
technology; yet most companies feel like they are loosing the war.
ASP's can change the rules of engagement: they help their
subscribers to not only manage technology, but take advantage of emerging
capabilities. The next time
you are sitting in a meeting discussing your three-year eCommerce strategy
or your next ERP upgrade; remember, ASP’s are a new arrow in your
quiver. |
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Originally appeared in MidrangeERP, Mar 2000. Used with permission.
