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.