Are ASP Applications Right for You? Part 1: Decision Factors

  • Written By: Miles Szczurek
  • Published On: August 22 2001



Are ASP Applications Right for You?

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Executive Summary   

An Application Service Provider (ASP) provides an outsourced application to a firm, freeing the firm from hardware costs, training on the system operation, installation and system operation itself. Originally, ASP applications focused on a fairly narrow functional scope, however, as the market matures, the functionality the applications address is growing. It is now possible to contract for virtually any service or group of services required by a company.

The ASP frees the client organization from many, if not all of the tasks associated with the software such as hardware procurement and upgrades, software configuration, bug fixes and enhancements. Clearly, as we move forward, ASP applications will take on a larger part of the load of suitable applications.

Virtually any application where functionality is consistent across multiple organizations is suitable for an ASP to provide, however, whether that application is suitable to be implemented by an organization is based on the requirements and operations of that organization. It's important to know not only what the application does, but who the target market is and how current customers utilize the system.

About this note:
This is a two-part note. This part discusses the decision factors in determining if an ASP application should be considered. Part Two details the criteria for making this decision.

What is an ASP?   

An Application Service Provider (ASP) provides an outsourced application to a firm, freeing the firm from hardware costs, training on the system operation, installation and system operation itself. Generally, ASPs charge for their services by business metrics specific to the application, e.g., an accounting system may charge by transactions and number of accounts in the Chart of Accounts while a CRM application may charge by the number of contacts and users. End users are responsible for internal training, data entry and integration with existing processes.

ASP applications can themselves be split into two categories, those that are true "services", (such as a shipping cost calculator) that receive and return messages to a client application without exposing interfaces to users and Applications, (such as some CRM applications) that provide a complete system with user interfaces. Applications may transmit data to and from legacy client applications on a real time or near real time basis, but for the purposes of this discussion, the key is the transparency of the use of the application.

A service provides a portion of a business process while an application provides a complete business process. Web services differentiate themselves from traditional services by using the HTTP to deliver Remote-Procedure-Calls (RPC) and standardized messaging frameworks (e.g. XML).

Data returned from a service (such as shipping cost) is displayed using the client system. The fact that an ASP was used is transparent to the end user. With an application, the ASP application itself accepts input and displays the results to the user on its own screens and/or reports.

Originally, ASP applications focused on a fairly narrow functional scope, however, as the market matures, the functionality the applications address is growing. It is now possible to contract for virtually any service or group of services required by a company.

Why ASP Applications?   

The clear advantage of ASP applications are based on development cost and implementation time. In theory, the cost of developing and operating the application is spread over a number of users, providing a direct benefit of lower development and hardware cost. Since the application exists and is in use by other firms, one can make the assumption that the system "works" substantially as intended (provided the service has at least one user in production.)

ASP applications also benefit from the expertise gained from its relatively narrow focus and scale. Very few companies have the luxury of devoting an entire development organization to shipping costs or time reporting, but an ASP, because of its narrow focus and the transaction volume of potentially many companies can develop expertise that would not otherwise be available outside of high priced, industry specific consultants.

The ASP frees the client organization from many, if not all of the tasks associated with the software such as hardware procurement and upgrades, software configuration, bug fixes and enhancements. Clearly, as we move forward, ASP applications will take on a larger part of the load of suitable applications.

What are "suitable applications"?   

Virtually any application where functionality is consistent across multiple organizations is suitable for an ASP to provide, however, whether that application is suitable to be implemented by an organization is based on the requirements and operations of that organization. For example, an accounting system may be a tremendous application for small to medium size businesses, but may not be the best solution for the CPA firm whose accounting resources and knowledge surpass those of the ASP. Therefore, it's important to know not only what the application does, but who the target market is and how current customers utilize the system.

Infrastructure systems such as expense reporting and payroll applications would seem to be prime candidates, not only because of their consistent functionality, but also because the organization can decide, with certainty, that procedural modifications be made to utilize system features and/or work around system deficiencies.

What constitutes an unsuitable application is subject to much discussion, but generally, an application that needs to be customized would be less suitable, as would outsourcing an application that represents a value added or competitive advantage to the implementing firm. Applications that expose their user interfaces to an organizations' customers may be less suitable, if failure of the system would reflect on the organization or if the inability to quickly change or customize interfaces would tend to commoditize that portion of an organization's service offering. When an organization exposes the ASP application's user interfaces to its customers, then users may infer that the service offered through this interface is a commodity (i.e., common with little value added).

Whether an application is best implemented as an ASP provided application or service, built in-house or purchased generally depends on the same criteria as what would be used for outsourcing a function or process, among them:

  • How critical is a system is to day to day business operations?

  • What are the failure recovery requirements for the system?

  • How critical are performance requirements for the application?

  • How specific its functionality is relative to the requirements of other organizations desiring the service?

  • What are the cost savings over the development period of an internal system vs. the perceived life of the system?

Each of these areas needs careful consideration and are generally addressed to some extent in the contract and/or terms of service of the ASP.

This concludes Part One of a two-part note determining if an ASP solution is right for your organization. Part Two discusses the specific criteria to be used in making this determination.

About The Author   

Miles Szczurek (miles@appenture.com) has more than 20 years experience in the Information Technology, Trading, Clearing and Risk Management areas for futures exchanges, derivatives clearing organizations, cash forward markets and B2B exchanges. He played a significant role in a number of firsts; the implementation of the Chicago Mercantile Exchange's SPAN risk management software which has become the industry standard, the implementation of the world's first international electronic trading system and implementation of the first exchange in the deregulated power industry in the US.

Miles is a founding partner of the Appenture Group (www.appenture.com), located in Chicago, Illinois. The Appenture Group is a full service Internet Technologies development organization providing software components, project management services and software development services nationwide.

 
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