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|ASPs on the Rise|
|Phone company as an SAP ASP?|
|Early adopters of ERP outsourcing services|
Today, it's labeled ERP outsourcing, and the companies are called application service providers (ASPs), but the basic concept is the same as the old-fashioned time share. Instead of hiring an IT staff, buying a lot of software and hardware, and praying for a miracle, an organization buys the processing tasks it needs from a third party on a per-seat pricing basis. The outsourcer--EDS Corp., Hewlett-Packard Co., IBM, Oracle Corp. and others--sets up the application, trains your staff, runs the software on its boxes in its data center, and upgrades the software when needed.
Thanks to three things--the Internet, widespread interest in ERP as a solution, and vendors desperate to penetrate a suspicious middle market--the lease-rather-than-buy approach is all the rage these days. Software vendors, implementation consultants, market analysts, and publishing companies can't pump out enough material praising the concept, and market researchers forecast ERP outsourcing revenues of $4 billion or more by tomorrow afternoon. For example, the ASP subset of ERP outsourcing--applications and transactions presented over the Internet by a third party hosting the software in one system for multiple clients--will become a $2 billion a year business by the year 2003, according to International Data Corp., of Framingham, Mass. (see chart, "ASPs on the rise").
A short history lesson
The time-sharing approach, also known as a service bureau, grew out of two basic factors prevalent three decades ago. One, the buyers needed the technology but were afraid of the costs and complexities of "electronic data processing"--that's what IT was called in those days. Two, the EDP sellers--IBM and the BUNCH (Burroughs, Univac, NCR, Control Data, Honeywell) couldn't find enough customers to buy their iron, so they rented the systems by the minute or second, hence the name, "time sharing." Here's the Reality Check: Time sharing was all about risk avoidance, otherwise known as risk management.
By the end of the 1970s, though, the EDP risk-management equation changed. The technology had matured. More EDP priests were available to run the systems. System prices began to drop in the 1980s, due to competition, government intervention, and improved technology (there's a reason why dumb terminals had that name). Except in a few industries or functions-the securities industry and payroll processing--time sharing became passe. CEO manhood was symbolized by having your own data center and MIS department--only wimps shared systems. Managers perceived that the risk of not owning and controlling the technology was higher than the risk of owning it.
Fast forward to 1999. Client/server ERP systems are introduced; it's a new software technology on a new hardware base. The fledgling technology acquires a reputation as money and time sinkholes. CEOs hate spending money on any new and unproven technology--look at the success of the AS/400 to this day. Yet the appeal of an integrated suite that is Y2K compliant and is used by your customers and suppliers is strong. So the cautious CEOs listen to the pitches from EDS, Hewlett-Packard, IBM, Oracle, SAP AG, and the dozens of other companies offering to reduce the ERP risk by renting you a complete solution.