March 27, 2000

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Solution Series: Choosing An ASP
Different Needs, Different Approaches
Without best practices to guide them, users tackle ASP selection in many ways

By Tony Seideman

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rank Weston was getting increasingly frustrated. Like many chief financial officers, he liked to be in control--especially over his payroll. But his relationship with payroll processing giant ADP Inc. kept him at arm's length from data--ranging from work histories to salary trends--that he needed to help Amerlux Inc. run its manufacturing operations more effectively. Weston's interest was in results, not computers.

Weston knew he needed state-of-the-art technology, but didn't want to increase the $20 million company's computer department from its comfortable size--one guy visiting once a week. Eventually, Weston found his solution: an application service provider.

In a totally different market, Rebecca Moore faced a similar dilemma. Moore, CEO of Museumshop.com Inc. in Arlington, Mass., was first with the idea of putting museum shops from some of the world's greatest institutions on the Web. Though the privately held company won't release its financial data, in December 1999, its site had 120,000 unique visitors who either made a purchase or spent significant time browsing.

With dot-com ads saturating the airwaves and startup costs soaring, even the best concept doesn't guarantee success. Moore faced the choice of investing in either infrastructure or marketing; skimping on either could leave Museumshop.com terribly vulnerable. Moore's solution? An ASP.

ASPs and the services they provide have evolved at a furious rate. The tough part is how to make intelligent choices. "Anyone choosing an ASP at the moment is facing a very, very confusing picture," says Ben Pring, a principal analyst with Dataquest. "The supply-side map of ASPs is becoming a complicated alphabet soup." In some ways, this confusion represents a major failure of the whole idea of ASPs, which were supposed to give companies of all kinds easy and affordable access to state-of-the-art information technology without investing in a complex and costly IT infrastructure.

Despite the confusion, users are plunging in and many find ASPs provide a way to leap to state-of-the-art capabilities without bankrupting themselves. Museumshop.com recently engaged an E-mail ASP, eGain Inc., and is finalizing a contract with a Web traffic and usage ASP. In the latter case, the application will reside at the vendor's location and Museumshop.com will pay a license-subscription fee. Because the deal isn't complete, Museumshop.com doesn't want to release the vendor's name.

In addition, Museumshop.com is working with Fulfillment Plus, which acts as both a logistics services provider and logistics ASP.

Instead of building an expensive infrastructure, Museumshop.com rented hardware, software, and databases. Even though initial and long-term costs started in the hundreds of thousands of dollars and will eventually run into many millions of dollars, the expenses were far lower than they would have been to get an in-house system up and running, Moore says. Even more important, the savings enabled Museumshop.com to keep its staff to just 15 people, even as it rapidly expands online.

Moore says one of the biggest problems with ASPs is that they're expanding as fast as the companies they want to serve. She experienced incredible frustration trying to find an ASP that had the capability and capacity to handle her work. "The biggest downside of hiring an ASP or a systems integrator today is that they're all growing so fast that they are having difficulty servicing their customers," she says. "There's so much demand for their services that they are spending most of their time getting new customers, which results in fewer and fewer systems staff available to service existing customers."

ASPs provide key applications but with the market in flux, best practices for choosing them are hard to find, so users are applying wildly different selection strategies. Cybuy.com, an Internet shopping service that employs 40 people and has offices in New York and London, engaged in a lengthy and highly

specific selection process, evaluating a long list of potential providers on the basis of technological capabilities, references, history, and numerous other strictly defined criteria, says chief technology officer Dominic DiMascia.

Like Museumshop.com, Cybuy.com was in its startup stage in December 1998 when it began looking at ASPs. The company put together a team of IT personnel to evaluate potential service providers and also gathered information from all the different users within Cybuy.com during an exhaustive 90-day process. DiMascia also looked for a company that thought in terms of a partnership rather than simply generating sales. Cybuy's primary ASP is NaviSite Inc., which provides support for several critical applications, including ad services and E-commerce.

Amerlux's Weston let results rather than technology shape his decision when he chose Software Plus Inc. as an ASP. Like many small and midsize companies, Amerlux already outsourced its payroll processing to ADP. But the Fairfield, N.J., manufacturer of sophisticated lighting systems for grocery stores was feeling increasingly stymied by the structure of that deal and the way it hampered Weston's ability to access and manipulate payroll information. ADP's quarterly reports and fees for glimpsing the data simply weren't what Amerlux needed.

So when Weston saw an advertisement for nearby Software Plus, which specializes in payroll services, he seized the opportunity. After meeting with Tim Ciassi, VP and general manager of the 70-employee company, he boiled his choices down to two options: buying a package called Geneva Plus for $10,000 to $12,000, or taking part in a new service that would give him full access to the software's power without having to purchase it.

Weston didn't even know he was jumping into an ASP relationship-- just that he got the results he wanted. Kimberly Trafford, Amerlux's accounting supervisor, now has more control over crucial information. It's easier to gain access to the data and work with it, she says, and barriers between her and the information she needs are gone. Instead of making a phone call to an outside service provider and waiting for information to be sent, she logs on to the Internet to get the data she needs. Working with an ASP also lets Amerlux automate key tasks, such as maintaining the logs the Occupational Safety and Health Administration requires the company to keep. The new ability comes at nearly the same cost as working with ADP--about $100 to $140 per payroll.

"We have access to a lot more data a lot more quickly," Weston says. He doesn't think that the ADPs of the world are doomed. However, they do need to do some homework and look at cutting their fees, he says. "ADP could have done it, but not at the price that Software Plus is giving to us right now," he says.

Though Weston's business-minded approach differs from the technology model followed by Museumshop.com's Moore and Cybuy.com's DiMascia, they have one thing in common: a thorough selection process. DiMascia would not enter a relationship with an ASP until he considered all the options. Weston refused to contemplate any connections that weren't an exact fit with the results he wanted to generate, a more risky approach, but so far, one that has yielded a successful relationship.

Moore warns potential users that they need to make certain the ASPs they're working with are in the business for the long haul. This includes checking the kind of experience the ASP has, getting some sense of its financial and executive resources, checking customer references, and seeing if the provider can handle the furious growth rates so frequently encountered in the Internet world.

As might be expected, Weston's advice is a bit more direct: Don't damage the relationship, he says, but show as little mercy as possible. He followed his own rule. "We're a beta site; I twisted some arms and used that to my advantage," he says. Technology may be wonderful. But business, after all, is business.

Photo of Weston by Edward Santalone
Photo of Moore by Shelly Harrison

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