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July 24, 2000

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Growing Pains

continued...page 2 of 3

ASP Market: Enter At Your Own Risk (6/19/00)

Is There an ASP in Your Future? (6/19/00)

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Some ASPs do in fact use the Web to deliver applications, mainly for small and midsize customers. One of them is Intacct, which last month signed a deal with Deloitte & Touche to develop an online auditing system for certified public accountants in small accounting firms. However, accountants will be able to use the auditing system only if their clients use the complementary Intacct financial application. In addition to potential performance problems, it may be difficult to convince companies to put their financial data on the Web for security reasons.

Robert Maragoni, a CPA at Berger-Lewis Accountancy Corp. in San Jose, Calif., is considering the Intacct service. Maragoni is trying to convince his clients to sign up for the online accounting program, but so far they haven't agreed. "Many of my clients have accounting systems already and feel they're working just fine, and they're a little resistant to change," he says.

Corio plans to partner with Web-based ASPs to reach smaller customers through a portal the company is developing called iView. The partners will provide basic applications to complement Corio's suite of enterprise-class apps. Initial online applications will include E-mail, messaging, training, Web conferencing, and other personal productivity tools. "The challenge is going to be connecting customers to applications that Corio doesn't necessarily host and then integrating those applications on the front end," says Laurie McCabe, a senior analyst for Summit Strategies. Oracle Business OnLine says it's working on a similar portal.

Such online efforts promise universal access and lower costs, but security is a paramount concern. Kelly Phillips, president and CEO of Center 7, a new ASP that offers Web hosting and Oracle applications, says his customers won't run business-critical applications, such as financials, over the Web because they're concerned about security and performance. "Applications over virtual private networks are the equivalent of a phone conversation," Phillips says. "It's much less likely that someone can hack into a phone conversation--or a VPN connection--than it is they can hack into a Web site that's designed to allow visitors to enter."

Another hot button in the ASP relationship is performance. IT managers want guarantees from ASPs that applications will perform well. As a result, ASPs are starting to offer service-level agreements that typically cover installation time frames, network availability, and application uptime.

Yet, even here IT managers need to be careful, say analysts. That's because Web-based ASPs can't control performance of the Internet. Elite.com, for example, rents business apps for time and expense tracking and billing services over the Web. The company offers a 99.5% uptime guarantee, ensuring "commercial acceptable performance" of its application, says Mark Goldin, Elite.com's president. What does that mean? "If it's so slow you can't perform any normal business processes, we will grant the company service credits," Goldin says. But according to language in the SLA, Elite.com will provide credits only if the service is shut down completely because of a failure in its software, servers, or network connections. That doesn't cover the network provider's last-mile connections to the customer site.

In addition, it's up to the customer to alert Elite.com to a problem, and the same goes for many other ASPs. Even then, the customer must actually prove the service interruption occurred before some ASPs will grant a credit. Goldin says if a customer called and complained about application performance, the company would investigate the situation and provide a credit if merited.

ASPs that offer enterprise applications over VPNs have an easier time monitoring and guaranteeing application performance. They use tools from vendors such as BMC Software Inc. and Computer Associates to proactively monitor application performance. Plus, application performance is inherently better over dedicated lines or VPNs because ASPs can control how many customers use each access line, thus preventing bottlenecks. The drawback is that users can't access them from anywhere in the world, except in cases in which they might use a slow-speed dial-up connection.

Service-level agreements can be a problem for non-Web-based ASPs as well. Gartner Group predicts that more then 70% of ASP contracts will be terminated or renegotiated because of SLA failures by 2002. "Because the ASP space is so crowded and dynamic, vendors are beginning to promise a lot more then they can deliver in order to get customers to sign with them," says Steve Sopko, VP and chief operating officer of Agreement Design LLC, a com-pany that negotiates SLAs between vendors and customers.

Sopko and others contend the 99.99% application uptime guarantee that some ASPs offer is virtually impossible to deliver. "More than 30% of application failures are due to application performance," says George Khater, director of strategic projects at NaviSite Inc., a network service provider and ASP. "Many ASPs are promising better performance than the application itself can give." NaviSite offers a 99.99% uptime guarantee, but claims it's more likely to meet that because it controls its own network infrastructure, unlike most ASPs that rely on other network providers.

ASPs are quick to offer service-level agreements because contractual fine print generally limits their liability, says Joseph Butt, an analyst with Forrester Research. "Few SLAs provide much in the way of compensation for downtime, and very few service providers provide downtime notification to clients," he says. That's the case with Oracle's Business OnLine service, according to some customers. One CIO who requested anonymity says he must notify Oracle when he experiences any kind of problem. He says that he and other customers are waiting for an ASP environment in which the providers proactively find bugs and problems and send patches to clients. "Right now, we still have to call them and tell them what the problem is, and they still handle problems on a case-by-case basis," he says.

So it pays to check the fine print. "We tell our customers that it's our intention to offer 99.999% uptime," says Tom Rhoton, managing director for Center 7. But he admits actually doing so is impossible. Center 7 performs preliminary testing of its Oracle and E-commerce applications after implementation and then discusses with the customer what service-level agreement it can offer. "We bombard the application with simulated users and find out where its weak links are and then decide if our SLA contract should be 99.9% or lower," Rhoton says.

If Center 7 doesn't deliver on the agreement, customers get a discount on their yearly service fees. And Center 7 customers have direct access to CA's monitoring and reporting tools to better gauge and prove when there is a disruption.

Of course, having access to those tools isn't cheap. One analyst predicts the cost to the ASP customer would be about $150,000 for the CA Unicenter monitoring tools. NaviSite's Khater says customers that want stringent SLAs with full redundancy to ensure uninterrupted service can expect to pay about $100,000 a month.