ERP vendors stake claim to application outsourcing market: Page 4

Posted September 1, 1999

Philip J. Gill

(Page 4 of 4)

Personnel shortages drive companies to ASPs

Application outsourcing is a cost-effective alternative to consultants.

In this article:
Sebastiani Vineyards purchased SAP R/3 and outsourced the hosting
Start-up ConvergeNet conserved precious capital by going the ASP route

A critical shortage of appropriately skilled information technology (IT) professionals is what drives many small and medium-sized companies to outsource critical business applications to application service providers (ASPs).

With IT talent so hard to come by, it makes sense for corporate IT managers to turn to specialists who have a pool of talent and experience from which they can draw. As if to emphasize the benefits offered by ASPs, early ASP customers cite costs, implementation speed, time-to-benefit, and the need for a quick Year 2000 fix as reasons for turning to vendors of outsourcing services.

Quick start in the vineyard

Andrea Norup, a systems analyst at Sebastiani Vineyards Inc., says that when the Sonoma, Calif., winery went looking for a quick solution to Y2K compliance issues with its existing systems, finding the software to remediate its systems was a lot easier than finding the personnel to implement and maintain it.

Norup says the outsourcing approach provided the fastest solution to the company's Y2K concerns, as it didn't have to hire in-house SAP professionals, who are scarce and expensive in the San Francisco Bay Area. "It's very hard to attract and to keep the skilled IT personnel we need," Norup says.

Sebastiani purchased SAP's R/3 modules, including accounting and HR, but outsourced the hosting and maintenance of the applications to Electronic Data Systems Corp. (EDS). As is usual in such arrangements, a specialist company provides business-logic and screen-display customization.

Best use of resources

For others, it's not just a scarcity of people but also of dollars. ConvergeNet Inc. president Dick Watts, whose San Jose, Calif., company is building a storage area network (SAN) product for debut later this year, says the ASP approach made the most economic sense, given that his company doesn't have unlimited funding.

"We wanted to preserve our capital for our business," Watts says. "We felt it was better to invest the capital in our products than in purchasing hardware and software for our business applications, when we could rent them at a lower cost."

The company is leasing Oracle Financials to start and expects to rent additional modules from Oracle Business OnLine--Oracle's ASP initiative--such as purchasing, supply chain management, sales automation, and customer support, as it builds business. Watts notes that another advantage of the ASP model, especially for small, fast-growing companies, is that it allows the company to start with only what it needs, and ramp up as it grows.

ASPs appear to be hitting their mark. Among the announced ASP customers so far, there's a preponderance of small high-technology firms, many of them start-ups in e-commerce or related Web-business ventures. For example, two early Oracle Business Online customers are Core Technology Group, Inc., a vendor of enterprise database and data warehouse technologies, and ConvergeNet Inc., which sells data storage systems. Both are San Jose, Calif., start-ups.

Redwood City-based Corio Inc.'s customers include Clarent Corp., Excite@Home, Internet Service Provider, Internet telephony company, and integrated voice and data communications firm, Vertical Networks.

USinternetworking Inc. (USi), which shares Annapolis with the Naval Academy, serves Lattice Communications Corp., an applications software developer for mobile computers, Liveprint.com, a marketing communications firm, and NetGift Registry LLC, a Net-based gift registry.

ERP vendors say that such a Web-intensive, high-tech focus is to be expected, given that many of these companies are basing their existence on the Internet computing model already and so should have a higher comfort level with ASPs. "They get it," says Great Plains manager of new business development Jim Traynor, manager of new business development for Great Plains Software Inc., Fargo, N.D. "They [naturally] understand the value proposition of the Internet." --P.J.G.

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