ASP Users Guide

Since nearly all technology vendors are splashing the term Application Service Provider or ASP into their offerings, selecting an ASP can be a confusing process. Buyers must either educate themselves or wait until the market consolidates.

Fundamentally, no single company can be an ASP because putting all the pieces of the ASP model together is too much for any one company. According to Kevin Wachter, VP of Sales/Marketing for Champion Business Systems, "ASPs are not single entities, but partnerships of collaborators delivering technology value."

The figure below shows how the ASP approach depends on collaboration between several types of vendors: Infrastructure, Hosting, Software, and Reseller. Since ASP customers actually get service from multiple vendors, it is important for them to understand how vendors collaborate.

The dependence on multi-vendor collaboration will be a bitter pill for businesses seeking turnkey solutions from single vendors to swallow. Yet, the very nature of deploying an ASP solution makes it impossible to single source. Even seemingly self-contained web-only applications do not typically run on computers owned by the software vendor. Some companies embrace rather than hide an ASP’s collaborative nature and work to manage their multi-vendor environments. For example, value added hosts like FutureLink and ProTier provide first level customer support and then redirect calls to the appropriate vendor or reseller if needed.

Even with increased vendor collaboration, ASP customers must understand how each layer of the model fits together and into their business. The strength of the ASP solution will only be a strong as the weakest link.

Infrastructure is the foundation of any data center and includes physical equipment, internal and external network capacity, and operating systems. Delivering ASP technology demands high levels of both manageability and performance because ASPs work on a massive scale with tens-of-thousands of users and hundreds of servers.

Infrastructure vendors like Microsoft, Compaq, Citrix, Sun, and IBM are working hard to meet the ASP market’s demands. Having the winning infrastructure solution is critical to these vendors since a single ASP host is making buying decisions that used to be handled individually by hundreds of customers. While this unification of decision making helps simplify the users’ lives, it puts much more pressure on the vendors.

Dwight Krossa, Application Hosting Developer Division Group Manager at Microsoft, says that winning the ASP market is all about "the three abilities: scalability, manageability, and reliability." He believes that Microsoft does exactly that with their new operating system, Windows2000. He expects Microsoft to win ASP loyalty because Windows2000 "provides the plumbing" to give ASPs the most feature rich platform available.

Infrastructure may not excite many ASP customers, but it is the foundation for reliable service. Without solid operating systems, servers, network switches, and connectivity, ASPs are just building a house of cards.

Hosts put together the infrastructure pieces into workable solutions. They invest the capital in servers and administration experts; therefore, they must exploit economies of scale to stay in business. These economies let hosts cost effectively deliver technologies that their customers (both direct users and other ASPs) could never effectively deploy themselves.

There are two types of ASP hosts. A Co-location host delivers one or more dedicated servers to each customer, software vendor, or reseller. These servers act as isolated environments to separate user data and demand. A Managed platform host pools servers to build an umbrella environment to support all their customers. These servers distribute loads over a shared environment. Each approach has strengths and weaknesses.

Co-location ability to isolate needs maximizes customer flexibility and avoids user management and security issues; however, it is nearly impossible to integrate applications in a co-location environment. For example, ASP products available today are often stand-alone Internet accessible web tools. These tools fulfill their core purpose but are difficult to interface with mission critical systems inside the firewall. This lack may be a fatal flaw since analysts like AMR Senior Analyst David Caruso believe that integration must be part of an ASP’s tool set.

Managed platform hosts deliver integration by creating an umbrella environment for all users. A single environment lets the ASP create a very sophisticated platform to be shared by all users, developers, and software vendors. This approach aids integration because the shared platform includes integrated services, commonly known as middleware, to deliver functions like security, database management, transaction processing, groupware coordination, and web site interaction.

For example, a managed platform host may deliver an application on a combination of servers including database, web site, COM object coordination, groupware/email, file, and Windows terminal/Citrix. Since these are shared resources, the processing load for each hosted application is spread over many redundant servers. This may seem like a lot of equipment, but a sophisticated operations center is a requirement for many top and middle tier applications.

The benefits of integration also create a potential dilemma for managed platform hosts. Sharing resources in an integrated environment means that performance problems and software bugs uncovered by one customer can impact other customers. Managing this environment demands extra diligence and administrative effort from the host.

Traditionally, independent software vendors (ISVs) are held captive to their customer’s technology savvy. ASP hosting not only breaks these customer constraints by delivering a sophisticated platform in a simply way; it ensures that the platform is stable and uniform. Instead of having 1,000 slightly different and geographically distributed customer configurations, vendors selling in the ASP model may have just one or two installations. This centralization radically reduces deployment effort and makes delivering software much more predictable.

However, deployment improvements are just the tip of the iceberg for ISVs. Vendors expect ASP solutions to help them penetrate new markets because they give companies access to a wider range of applications. For example, Missy’s Candies chose an ASP deployment of Lawson hosted by the Revere Group because it best fit their expected growth. Tony Pranigoni, COO of Missy’s Candies, knew that their expansion plans would require Lawson in three years but they could not afford the product based on their current size. Using an ASP meant that they could affordably grow into Lawson without having to step through other products.

To seize these benefits, ISVs must adjust both their technology and their thinking. Adapting the software is manageable: vendors can use web or Windows terminal to quickly conform to ASP deployment. Changing a sales approach is much harder: the ASP model adds new partners and requirements into the sales process.

Even with some resistance, ASP initiatives are sweeping the industry. Current ERP software leaders like Oracle, PeopleSoft, Lawson, and JD Edwards all have ASP programs available through select resellers. Some vendors already have ASPs focused on delivering product, Corio specializes in PeopleSoft and USInternetworking delivers Sieble. Middle-tier vendors are starting to follow suit and forge their own programs and alliances.

While some vendors struggle, others see opportunity. Ron Alvarez, CEO of Capstan Systems, only deploys his global supply chain execution product as an ASP because of the model's "leveragability." Being an ASP lets Capstan Systems sell more than just software. Alvarez sees the Capstan system as a tool that leverages their expertise in all aspects of supply chain execution, including import, export and logistics management. This fundamentally impacts how they sell their offering: it is a subscription to a virtual trading network that is knowledge and integration focused, rather than a licensed product.

Still other vendors use the ASP platform to deliver customized software. Ron Harris, President/CEO of Pervasive Software, makes a product that helps developers quickly deliver ASP/web enabled software. He sees ISVs turning parts of generic products into vertical solutions. This trend is already taking place among the new breed of enterprise software products that are devoted strictly to ASP deployment. For example, Apps4Biz uses customization features built into their product to introduce pre-configured interfaces for select verticals like Injection Molding and Paper Processing.

All this activity spells a sea change for ISVs. Harris of Pervasive Software sees solutions becoming more integrated into the delivery infrastructure. This linkage ensures that customers can transform their businesses as technology advances.

The buy-in of resellers and consultants is essential for mainstream ASP success because they have the most direct customer contact. Unfortunately, many resellers and consultants see ASP hosting as competition instead of a value added service. This view has some basis since ASP deployments greatly reduce the hardware side of system sales and early ASPs bypassed resellers.

Early ASPs tried to fill the role of both host and consultant by focusing on direct sales. This "do everything" approach proved very difficult to achieve. According to AMR’s Caruso, first generation ASPs "missed the bigger picture and now the second generation ASPs are starting to unfold that take care of the hard stuff." He explains that winning ASPs do more than host, they demonstrate customer-focused expertise in three core areas: integration, depth of knowledge, and customer support.

To build customer-focused expertise, ASPs either specialize in a vertical or collaborate with existing experts like resellers and consultants. ASPs that specialize in vertical products can do everything themselves within a narrow focus. This focus was essential for early ASPs charting new territory but limiting for vendors attempting integrated solutions. Collaborative ASPs leverage the established resellers and consultants to deliver high touch services.

Collaborative ASPs work effectively because hosting improves the delivery of high touch services like training, consulting, integration, network design, and program customization. While these services can command premium rates, resellers must often discount or give away non-premium services like PC maintenance, generic programming, and hardware/software installation. For example, few clients want to pay $200 per hour for their ERP consultant to troubleshoot Windows95 client issues or to wait for the server to reboot after having to install the latest software patch.

ASP partnerships let resellers concentrate more effort on helping customers use applications and less on installing and maintaining computers. This shift translates directly into more value for all parties: customers get more for their money, resellers have fewer headaches, and hosts can leverage existing networks of experts.