ASPs Gain Popularity in Down Market

Traditionally, enterprise resource planning applications have either been an all in-house affair or completely outsourced. But, in this age of shrinking IT resources, the delivery of these applications via the application service provider or, hosted model is gaining popularity.
Posted November 18, 2002
By

Allen Bernard

Allen Bernard


Traditionally, enterprise resource planning applications have either been an all in-house affair or completely outsourced. But, in this age of shrinking IT resources, the delivery of these applications via the application service provider or, hosted model is gaining popularity.

This is especially true when it comes to non-critical applications like HR and financials. To save time and money, more and more IT managers are looking to software providers, third-party hosters or ASPs to handle the day-to-day administration of these applications, says Eric Martin, marketing manager for SAP Hosting, Americas.

''They see it as a form of outsourcing but a limited form,'' he says. ''They see their SAP application as critical but not as a core function of what they do as a company. What we're helping them to do is to just run these applications. That's going to make them as available as possible and take away a lot of that mundane stuff -- the patches and the bug fixes and the headaches.''

Although ASP in-roads into the ERP world are still short, they are getting longer. According to Bill Parsons, North America Theater vice president for Alliance Sales and Channels at Peoplesoft, sales of its hosted HR and financials have increased 30% year-over-year. Similar numbers are emerging at rival SAP. In just the past six months, sales have increased 10 times over last year's numbers, according to Martin. In case after case, IT mangers are educating themselves about the benefits of ASP and asking for quotes.

One reason is metrics.

Hosted software providers have finally been in business long enough to show potential customers good performance numbers from existing clients who are renewing contracts.

''[IT managers] have definitely crossed over into at least considering [ASP] in many situations as a viable option,'' says Laurie McCabe, a vice president at Summit Strategies. ''The other thing is the ASP survivors now have built up customers and some of their customers are on second-generation, three-year contacts, which gives them a lot of credibility going into a new account.''

Another reason is ASPs have stepped back from the original model somewhat, says Ben Pring, a principal analyst at Gartner Dataquest. During its heyday three years ago, ASP was all about completely replacing in-house software and IT departments. Today, they are content with offering their services as outsourced application managers.

''The marketplace hasn't really accepted that original ASP idea,'' he says. ''The ASPs have had to morph into a much more pragmatic opportunity, which is really quite removed from what they were trying to do. So, ASP -- or application management providers -- are just one of the styles of service providers that operate within the ERP product ecosystem.''

But this seems to sit just fine with many IT managers, adds Aberdeen Group Vice President of CRM Research Denis Pombriant. Overall, he adds, ASPs are fairing quite well in such a down IT market.

''Hosted solutions are doing extremely well [in the enterprise market] primarily because of cost," he explains.

But cost savings is just one driver.

The ASP value proposition -- good ROI, low TCO and predictable IT expenditures -- also is calling out to IT managers who are increasingly called upon to save companies money and add dollars to the bottom line, says Peoplesoft's Parsons.

''IT managers are more and more responsible for the business management functions of their companies so IT managers are under pressure to deliver systems that either deliver top-line growth, bottom-line cost savings or improved customer satisfaction'' he says.

So, instead of replacing software, as it once promised, ASP has come back down to earth in a form more IT managers are finding palatable. How far this new ASP model will take the industry is anyone's guess, but many believe it a far more viable model then ever before and one that will be around for awhile.






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