ASPs are hot, but will the fire cool?

The rapid growth of today's application service provider market can't extinguish an ongoing debate on the benefits the business model offers to enterprise application users.
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Application service providers (ASPs) have exploded on the scene over the last year. At last count, AMR Research Inc., in Boston, tallied more than 300 ASPs, and the number is still rising rapidly. ASPs offer everything from Web site hosting to e-commerce and enterprise applications, including today's leading enterprise resource planning (ERP) and customer relationship management (CRM) software. However, the benefits of running enterprise applications, in particular, through an ASP despite the obvious rush to provide them--are still debatable for many user organizations.

For an organization such as the Transylvania School District, in Brevard, N.C., the ASP model is proving to be a tremendous blessing. The district installed the Eltrax applicant-tracking package from Eltrax Systems Inc., in Atlanta, and will install other Eltrax human resource (HR) modules, replacing a hodgepodge of stand-alone desktop systems and manual processes. "We get Web-based applications that give us ease of access from multiple locations, and [Eltrax] stores our data," explains Terry Holliday, superintendent.

Pros and cons
Pros:
  • Eliminates the need to find, hire, and retain people with high-demand skills
  • Eliminates the need to upgrade the hardware infrastructure
  • Allows predictable pricing
  • Allows easy scalability

    Cons:
  • No customization
  • No discount on software pricing
  • No clear speed advantage
  • Must integrate with in-house systems

    The Transylvania School District has little or no existing IT infrastructure, so officials there view the ASP model as probably the only practical way to get sophisticated applications like Eltrax up and running fast. Otherwise, it would have to find and hire skilled IT personnel, acquire and set up servers, and do everything else a competent IT group would do. The small, rural school district serves approximately 4,000 students, and the time and expense involved in building its own IT department would be prohibitive.

    But what are the benefits for organizations that already have an IT infrastructure? "I haven't seen a real compelling ASP story for most end users when it comes to enterprise packaged applications," observes David Caruso, vice president/enterprise application strategies, AMR Research.

    "I do find the ASP story credible," counters Joshua Greenbaum, principal, Enterprise Applications Consulting, Berkeley, Calif. "Customers need assistance. They don't have the time or the talent to install and maintain these applications. And it is even hard to buy the necessary talent and expertise," he continues.

    The ASP appeal

    ASPs install, host, and maintain popular packaged enterprise applications such as Baan Co., Oracle Corp., PeopleSoft Corp., SAP AG, or Siebel Systems Corp. on their servers for multiple clients. Organizations access and run the applications across the Internet, using only a browser or a Windows Citrix client. The ASP knows how to run large server and storage farms, ensure reliability and availability, and meet scalability needs. It also understands the packaged application, configuring and maintaining it to meet each customer's needs.

    The benefits ASPs promise to deliver include relief from the considerable headaches of having to install, configure, and maintain the packaged application yourself; faster implementation; reduced need to hire and retain costly, hard-to-find IT staff skilled in the packaged application; and lower costs. The lower costs presumably result from the ability to amortize the staffing and hardware overhead across multiple organizations. Software license fees remain essentially the same although they may be charged and paid monthly rather than requiring organizations to shell out a large up-front payment.


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