ASPs - the new ERP?

ASPs - the new ERP?

Renting access to ERP applications is a relatively new business model .

Application Service Providers (ASPs) are companies that rent access to enterprise resource planning (ERP) applications rather than selling them. Renting access to ERP applications is a relatively new business model and marks a new direction for the ERP industry. Although the number of ASP providers is growing day by day, the ASP industry is still very young - whether the ASP business model can succeed remains to be seen. This paper will define the ASP business model and discuss its advantages. It will also assess whether or not ASPs pose a significant challenge to the current state of the ERP industry.

What is an ASP?

An ASP provides a complete service to the customer, providing all the expertise needed to host, deploy, and manage an ERP application.

An ASP provides a complete service to the customer, providing all the expertise needed to host, deploy, and manage an ERP application. The application is managed from a central location rather than at the customer's site. Customers access the applications remotely, for example over the Internet or via an ISDN line. The ASP generally provides the service to the customer on a contractual basis and usually supplies the application with a minimal level of customization.

The ASP model differs from business process outsourcing in that ASPs provide access to an application that is already commercially available. Business process outsourcing, by contrast, covers the management of an entire business process such as human resources or warehouse management by a third party.

A large proportion of current ASP customers have bought into an ASP solution because of a pressing need or upcoming event. For example, Sunburst, a large US hotel chain, recently entered into an agreement with an ASP whereby the ASP will manage all their bookings and accounts using the PeopleSoft? ERP package. Sunburst did not have the IT resources to implement the package themselves and did not wish to acquire them.

Some ASPs are offering smaller organizations applications that such organizations would not otherwise be able to afford, such as Customer Relationship Management (CRM) solutions.

Advantages of an ASP

ASPs can provide services that many organizations find too expensive to provide in-house.

Probably the most notable advantage of using an ASP is that the customer can have access to an application without having to make the investment of installing and managing the ERP software, saving themselves the outlay on servers, licenses, human resources, and so on. The ASP is ultimately responsible for the running of the application and for troubleshooting any problems that occur. These factors make using the services of an ASP especially attractive for small to medium-sized enterprises that do not wish to make the investment of an ERP infrastructure in their organization.

ASPs can provide services that many organizations find too expensive to provide in-house - for example, round-the-clock support, "bulletproof" data centers, and high-speed network connections.

Customers also benefit from having quicker access to new functionality as they are spared having to make the time investment that upgrading entails.

Some ERP customers who have found the costs of an ERP installation spiraling out of control may be attracted to the ASP business model because the charges are fixed over the lifecycle of the entire project.

Will ASPs replace ERP?

In the short to medium term, it is unlikely that those organizations that have already invested heavily in an ERP infrastructure will move to using ASPs immediately. It seems more likely that there will be a gradual, industry-wide shift toward ASPs.

Midway through 1999 the ASP Industry Consortium was founded, consisting of application providers, technology providers, and service providers. The aim of this consortium is analyze the current trends in the ASP field and to identify future growth areas.

ERP vendors have reacted in various ways to the arrival of ASP providers. Some ERP vendors have set up alliances with ASPs. For example, Hewlett Packard, Qwest Communications, and SAP have established an alliance whereby Qwest? networking and hosting facilities (known as CyberCenters) and SAP? application software will run on Hewlett Packard? hardware. This package will be billed to customers on a monthly, per-user basis.

Other ERP vendors, for example Oracle, have set up their own ASPs (Oracle Business Online). Oracle's CEO Larry Ellison predicts that 50 percent of Oracle? applications will be distributed online in the next three years.