ASPs are hot, but will the fire cool?: Page 3

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For instance, if the organization already has the server and network infrastructure in place, the partially pre-configured quick implementation solutions offered by many packaged ERP application vendors can rival what the ASPs provide. Both the quick implementation solutions and the ASPs rely on the customer accepting a uniform set of configuration defaults and parameters. Packaged application vendors report that customers can get their quick implementation solutions up within 30 to 90 days-which is about what ASPs can do.

Decision makers involved in the ASP services buying process
Source: Zona Research Inc., 2000
The cash flow around the ASP solution may be different, but it is debatable whether the net result is a lower cost. "It is hard to believe the ASP pricing models benefit customers. We have done fully-loaded comparisons and have found very little difference," Caruso reports.

Read the fine print

ASP pricing often entails an initial setup fee and fees for any back-end integration. The customer has to pay the packaged software license fee, either by directly licensing the software from the vendor or by rolling the fee into the monthly charge. There are also charges for a variety of production services. Finally, there is the monthly charge, which may be based on the number of servers, number of users, or number of transactions. Pricing models are still evolving.

Knoll Pharmaceutical, in Mount Olive, N.J., a wholly owned subsidiary of BASF, opted for the Siebel sales force automation (SFA) solution through USinternetworking Inc., a leading ASP based in Annapolis, Md. Knoll purchased the software license directly from Siebel. "We found that the ASP is somewhat less expensive; it provides a minor advantage in cost," reports Rick Ofeldt, Knoll's director of sales and marketing systems. By subsequently shifting its communications network from costly 800-lines to the Internet, it was able to lower costs significantly.

"Cost is a consideration, but that wasn't our top priority," Ofeldt continues. The company is counting on the SFA package--which it is rolling out to 800 sales representatives--to generate revenue. "Our priority was to make this project successful," he asserts, and the ASP option provided a primary way to reduce risk and ensure a successful Siebel implementation.

When Clarent's Blumhorst did his cost comparison, he had to take into consideration the cost of building a data center capable of supporting the PeopleSoft application. "We figured it would cost us over $1 million to do it all ourselves," he notes, if the company could hire the right people. With Corio, the company paid a one-time implementation fee and the monthly hosting fee based on named users. Corio also helped with some integration between PeopleSoft and Clarent's internal Clarify CRM system.

ASPs generally can save money by eliminating the need to hire and retain highly paid people, and by doing away with the need to upgrade hardware. They also save money as the organization grows, while providing easier, non-disruptive scalability.

Selecting an ASP
  • Demonstrated expertise in the application you want
  • Proven financial stability, track record
  • Ability to integrate with your back-end systems
  • Competitive pricing
  • Predictable pricing
  • Responsive (commitment to a service level agreement)
  • Reliable performance (uptime performance commitment)
    The economics of the ASP model vary with the organization, its needs, and its approach to cost accounting and financial analysis. At Commercial NetLease Realty, Lachicotte did an return-on-investment (ROI) analysis and found that the ASP approach costs a little less than half of what the company would have spent trying to implement Oracle Financials on its own.

    However, the one factor that will kill any economic advantage of the ASP model is customization. The ASP model, like the vendors' own quick implementation packages, rely on the implementation of a vanilla version of the application. "We aggressively changed our business processes so we could take full advantage of the ASP," Lachicotte explains. A sister company, on the other hand, needed some serious customization, which eliminated the ASP model from its consideration.

    While ASPs certainly have an immediate roll to fill in the corporate computing landscape, it is unclear whether the ASP model over the long term can avoid the pitfalls that led organizations to abandon time-sharing. Back then, the complaint was lack of flexibility and customization, which prevented organizations from achieving unique strategic advantages. Organizations today still hope to gain strategic advantage through IT. That leaves the ultimate value of the ASP model debatable. //

    Alan Radding, based in Newton, Mass., is a freelance writer specializing in technology and business. You can view his Web site at

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