ASPs: A State of the Market

While such issues as performance and security are still concerns, the application service provider model is gaining momentum with many companies as the benefits solidify.


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The company was growing rapidly, and it was short on the time, money, and expertise required to build a much-needed customer tracking application. So B2B e-commerce solutions provider Identrus LLC did the only thing that made sense: It turned to an application service provider (ASP) for a Siebel Systems Inc. customer relationship management (CRM) application.

The company: New York-based Identrus LLC is a global firm that helps e-commerce companies engage in secure transactions over the Internet. The privately held company was founded in April 1999 and has 45 employees.

The problem: Rapid customer growth required Identrus to implement a customer service/customer relationship management application quickly and cost effectively.

The solution: Identrus turned to USinternetworking Inc., a pure-play ASP to host a CRM system from Siebel Systems. In three months time, the CRM application was up and running, allowing Identrus to focus its resources on its growing customer base.

Identrus needed a CRM solution to help track customers through its sales and solution process, as well as to find a way of putting all customer and sales information into a single database. Using the CRM system allows the company to track any customer at anytime, says Matthew Tuttle, operating roles product manager at New York-based Identrus.

Prior to using the Siebel solution, Identrus employees from different departments maintained separate databases, which slowed down information sharing. Today, the CRM software links departments and customer information enabling Identrus employees to easily share information. All of Identrus' employees who need access to the CRM application can access it through a simple Web interface.

Six months into its contract with USinternetworking Inc., an ASP in Annapolis, Md., officials at one-and-a-half-year-old Identrus say their company got the quick relief it needed, and today, Identrus is able to do more with less. Turning to USi allows us to focus our resources on our customers, rather than on application maintenance and support, Tuttle says.

Although still in its infancy, and in a state of transition, the ASP market has been hopping for the past two years, according to Amy Mizoras, senior analyst at Inter-national Data Corp. (IDC), of Framingham, Mass. One of the more notable changes has been the adoption of the ASP model by larger companies, which have the resources to purchase applications but choose not to so they can, instead, focus on their core competencies. For these organizations, the real value of the ASP model is focusing on their business, not CRM or e-commerce, she says. In contrast, early adopters of the ASP model were small and medium-size enterprises (SMEs) looking for cost savings based on an annual payback model. Many of these SMEs couldn't find or retain the IT staff required to run applications or equipment, Mizoras says.

According to industry players, initial application renting costs aren't much cheaper than in-house costs when it comes to licensing an application. However, the real savings are in the longer-term application administration and maintenance costs. These savings vary from organization to organization depending on the application outsourced, number of users, and how geographically dispersed the company is, for example. Mizoras also notes that in the ASP model, companies benefit from opportunity costs such as shorter implementation time, and there's a less pressing need to hire and retain IT staff.

With 45 employees, three of whom make up the IT staff, Identrus knew from the get-go that turning to an ASP was the solution. In three months' time, the company had hired a consultant to help identify its needs and survey the market for applications and ASPs, found USi, and went live with the Siebel application. According to Tuttle, the company's main CRM needs were the ability to track customer information as well as business opportunity and product reports. Identrus is currently tracking about 50 customers in its CRM system. In the near future it expects to add another 100 customers.

Small, large, or somewhere in between, the reasons companies turn to an ASP model are clear, according to Zona Research Inc., of Redwood City, Calif. All have the desire to focus on strategic business objectives and reduce the costs associated with owning and administering applications. And turn they do. A $1 billion dollar industry in 1999, the worldwide ASP market is expected to reach $3.6 billion in 2000 and balloon to $25.3 billion by 2004, according to San Jose, Calif.-based Dataquest Inc., a unit of the Gartner Group Inc.

Finding the Right Provider

Clearly, the ASP market is growing by leaps and bounds. At the same time, the ASP landscape continues to change as companies of every ilk attach the ASP label to their list of service offerings. There doesn't seem to be any clear definition of what an ASP is because the market has gotten so broad, says Greg Blatnick, vice president at Zona Research Inc.

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