Software distribution—are ASPs the way forward?

Software distribution—are ASPs the way forward?

The ASP delivery model

Application service providers (ASPs) offer businesses an alternative to purchasing off-the-shelf software packages. They provide customers with access to software applications, as well as the IT infrastructure and support services for delivering them, on a subscription basis. Offerings include specialized applications serving relatively few users and standard enterprise applications such as e-mail. Although the market is in its infancy, both small and large companies are rapidly becoming aware of the benefits that the ASP delivery model can provide.

ASP defined

Today, ASPs are offering customers nearly all types of application

ASPs are third-party entities that offer their customers remote access to application programs and related services. Simply put, ASPs take software applications, host them on robust servers, make them network accessible, and allow users to run them directly over the Internet, a private network, or a virtual private network. Customers typically rent the applications and services from ASPs for a monthly fee. Today, ASPs are offering customers nearly all types of application, from relatively basic ones like e-mail to sophisticated applications like enterprise resource planning systems, customer relationship management systems, and human resource management systems. Moreover, some of the larger ASPs deliver proprietary applications designed for specific companies or industries.

There are a number of different types of ASPs that offer different services depending on a particular company's requirements. These include

• enterprise ASPs—offering business applications

• regional ASPs—specializing in providing services to smaller companies in local areas

• specialist ASPs—catering for companies with particular needs, for example web site services or payroll

• vertical market ASPs—providing support to particular industries, for instance healthcare

• volume business ASPs—offering small- and medium-sized firms prepackaged application services in large volumes

Benefits of the ASP delivery model

Although the ASP model appears suited to smaller companies with limited resources, larger companies are deploying it too. The advantages of working with an ASP are common to both small and large companies. They include

• availability of the latest technology without the risks, costs, and administrative responsibilities that are inherent to developing and maintaining IT infrastructure in-house

• more time to concentrate on core business issues, rather than wasting time developing and maintaining the IT infrastructure

• rapid implementation of new applications at a lower cost

• easy application scalability

• access to auxiliary services, such as security, backup, disaster recovery, and support

• safeguarding investments in legacy systems—ASP servers can cope with the intensive processing required for the applications that they provide

• cost savings associated with total cost of IT ownership

• more IT flexibility

Drawbacks of the ASP delivery model

Despite being outweighed by the benefits, there are some drawbacks to deploying an ASP system. These include

• outside forces like heavy Internet traffic or computer hackers

• the fact that some applications cannot be delivered over the Internet

• time and resources required to implement some ASP-delivered applications or systems

• costs associated with modifying applications or systems to suit the needs of certain companies

• the fact that security is out of the client's control

The future of ASPs

Businesses are contracting ASPs primarily because of cost savings and the freedom it gives them

Analysts predict that the ASP market is set to boom, some expecting it to be worth $2 billion in 2003, compared with its $150 million value in 1999. Other analysts are even more optimistic, projecting the market to reach the $6 billion mark by 2001. Companies getting into the business include software vendors like Oracle Corp., high-speed network and data center companies like Qwest Communications International Inc., and "pure play" ASP companies like USi. In fact, by June 2000, 500 service providers had affiliated to the ASP consortium, and more are being announced every week. But what are the main reasons why companies are deploying ASP? According to a study by the ASP Industry Consortium, businesses are contracting ASPs primarily because of cost savings and the freedom it gives them to concentrate on key business issues. Another reason cited was access to applications that companies couldn't afford to purchase or deploy themselves. Moreover, continued growth in the economy will drive the growth of the ASP industry into the next decade.

Challenges facing the industry

There are a number of challenges set to affect the ASP industry in the next few years. These include needs

• for standardization—especially on termination and transfer

• to establish ethical rules regarding the exchange of business-critical IT information between ASPs and their customers

• for commercial terms and conditions to be implemented

• for suppliers and vendors to understand what is viable and what isn't

If players in the industry are committed to addressing these challenges and coming up with solutions to overcome them, the future for ASPs is bright.