October 9, 2000

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ASPs Gain Ground

More--and bigger--companies are turning to ASPs to manage large software deployments, so they can focus on business

By Jennifer Maselli

More on ASPs:

TechWeb: Customers Slow To Adopt ASP Model (10/5/00) VARBusiness: Jamcracker Talks Strategy (10/2/00) VARBusiness: ASPs Air Concerns (10/2/00)

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ight after J.P. Morgan Mortgage Capital Inc. emerged from an 18-month project to develop an automated commercial loan-processing system, the company needed to start work on a Web interface for its new application. But after assessing the strain the job would place on its relatively small IT staff--and realizing the job would take a year or more to complete--the J.P. Morgan subsidiary decided to follow the lead of many less-fortified businesses: It hired an application service provider, CapitalThinking Inc., to implement, host, and maintain the front-end system.

"It just about killed us to complete the last IT project," says Megan Goodfellow, a VP at J.P. Morgan Mortgage Capital in Atlanta. "Luckily, we found a partner that could do everything from providing the application to aiding with the integration to performing the hosting."

The mortgage company isn't alone. More companies, and bigger companies, are using ASPs to host software implementations--and the new projects are intended to support many more users than earlier deployments.

• Enporion Inc., a consortium of 17 large energy companies launching an Internet exchange with the potential to handle $6 billion in transactions annually, last week sealed a deal with Corio Inc. to host marketplace applications from Commerce One Inc. and SAP.

• Nissan North America Inc. revealed during the last two weeks that it's using Interrelate Inc. to host E.piphany Inc.'s customer-relationship management applications and software vendor and hosting provider ECCustomer Solutions Inc. to manage an application for sending lead-generation data to 450 Infinity auto dealers.

• EFTC Corp., a $222 million provider of electronic manufacturing services, recently contracted with Nupremis Inc. to host Oracle 11i applications for 650 users.

• And Redback Networks Inc., a $230 million network equipment maker, two weeks ago signed with Qwest Cyber.Solutions to host Oracle and Siebel applications for 800 employees.

An InformationWeek Research survey of 375 business and IT managers released in June found that 39% of midsize companies and 31% of large ones are using or would be likely to use an ASP. But Dataquest analyst Ben Pring says that of the $3.5 billion in revenue ASPs are expected to generate by year's end, 80% of it will come from contracts with major companies. That growth, he says, will largely be because of deals made in the second half of the year.

Chalk up some of the new interest to changing priorities--and changing perceptions. "We're not in the business of managing applications," says Redback Networks CFO Craig Gentner. "We want to focus on serving customers and creating network equipment." Also, larger companies facing IT staff shortages and desperate to implement technology are realizing that the ASP model is more than a passing fad. Corio boasts more than 70 clients, and USinternetworking Inc. and Qwest Cyber.Solutions each claim 150 customers. "After seeing success stories, large companies are ready to take advantage of the ASP model," Pring says, even if it means trading customization and convenience for speed.

Nissan North America is dealing with multiple ASPs for the complex task of handing off lead information to ensure "speed of delivery," says Ted Ross, corporate manager of E-business relationship marketing for the Gardena, Calif., carmaker. "There's a downside to hosting applications with multiple providers [in terms of accountability], but it's a significant enough advantage for us to roll this out quickly." Since the site went live in August, Nissan has delivered 1,000 sales leads to its dealerships.

It doesn't hurt that some vendors, including Oracle and PeopleSoft, have retooled their software to support a thin-clientęcentral-server architecture. Not having to install client software makes it easier for ASPs to extend browser-accessible apps to hundreds of users. ASPs also continue to shore up their data centers to ensure they have enough servers to support companies' scalability needs.

And to appeal to companies with complex IT projects, ASPs are partnering with consulting firms to handle implementations that require customization, and sharpening skills to integrate their software with existing systems.

"By far, the biggest issue has been the integration of Web-based applications with mission-critical and legacy systems," says Bill Lederer, chairman and CEO of investment firm Minotaur Capital Management, which is backing three ASPs.

Integration is a sticking point for Greg Pekas, global sales manager of GE Fanuc Automation Inc. in Chicago, a 1,600-person joint venture between Fanuc Ltd. in Japan and General Electric Co. in the United States that offers factory automation services and systems. Pekas turned to Salesforce.com to host sales applications for 53 salespeople and would like to roll out hosted sales software to other divisions.

Yet Pekas may opt for a different provider next year, because Salesforce.com can't integrate its system with the company's back-end SAP financial application. Clarify is coming out with a hosted version of its sales applications, he says. "We may switch," he adds. "They already integrate to SAP."

Vertical-industry ASPs, relative newcomers to the market, are appealing to companies that make in-depth industry knowledge a priority, says Gartner Group VP and research director Audrey Apfel. Both industry expertise and integration skills helped CapitalThinking land J.P. Morgan Mortgage Capital's account, says Rob Wojciechowicz, chief administrative officer for the lending company, which originates about $2 billion annually in commercial loans. "It was important that the hosting partner have a strong management team, the latest and greatest technology, and commercial real-estate expertise," he says. CapitalThinking, an ASP focused on improving the commercial mortgage process, was co-founded by CEO Heather Shively, formerly a director at Bank of Montreal's Real Estate Capital Markets Group.

CapitalThinking's BlueWire software, which uses the Extensible Markup Language to integrate loan-application data entered on the Web with J.P. Morgan Mortgage Capital's internal systems, has been the right foundation for quickly building the Internet front end, Wojciechowicz says. The system, which the mortgage company helped integrate, is in final testing, and everything's running well.

The process involves moving data across two firewall-protected CapitalThinking servers to the lending company's systems. It offers security, Goodfellow says, answering her concerns about unauthorized outside entries infiltrating proprietary systems. When it's live, the commercial-loan application will feed data to about 190 Morgan Mortgage and J.P. Morgan employees and receive data from hundreds of brokers at more than 100 mortgage banks.

Not every company sees a need for ASPs to be integration experts. Scott Dawson, business services manager for Enporion, says a Commerce OneęSAP module that lets buyers make a purchase request will reside at Corio's site. And many large companies on the exchange, which could swell to 10,000 buyers and suppliers, may bring the procurement app in-house for integration with their back-end systems.

"They won't see a need to host this application and pay a monthly fee for it because many of them already have the infrastructure in place to handle the application themselves," says Dawson, who's on loan from Allegheny Energy Inc., a $2.8 billion energy company in Hagerstown, Md., where he serves as the company's general manager of technical support. Dawson counts Alleghany Energy, a founding member of the exchange, among this group. Smaller energy companies, on the other hand, may want Corio to host the E-procurement tool for them and take advantage of the ASP's ability to integrate it with their own systems.

EFTC, meanwhile, likes the ASP model for its scalability. The fact that Nupremis offered an environment that scales more quickly and easily than one EFTC could build on its own led the company to entrust the ASP with its Oracle upgrade. The company went from an in-house implementation of Oracle 10.7 to a hosted version of 11i. EFTC says it expects Nupremis to eventually support 1,500 Oracle users; the initial 650-seat implementation of the $5 million project is expected to be completed next month.

Ken Zita, co-founder and executive VP for corporate development at Nupremis, points to its use of Compaq's NonStop Himalaya servers in its data centers, combined with dedicated front-end servers, as key to ensuring scalability and reliability. He says that Compaq's services organization will aid in implementing Oracle for EFTC.

KPMG LLC Consulting is helping Redback Networks move from Baan enterprise apps to the more Web-friendly Oracle and Siebel systems. KPMG, which launched Qwest Cyber.Solutions with Qwest Communications International Inc. last year, offers best-practice templates to speed implementation and will handle the data migration, integration, and implementation, leaving the hosting to Qwest Cyber .Solutions. "I wanted to go with providers that were experts in their fields," says Gentner, who's forgoing customization in favor of rapid deployment.

But other companies want customization, and more ASPs are developing partnerships with consulting firms to help them meet those demands. ASPs previously avoided such services, which add to implementation costs and can create complex support issues.

Cap Gemini Ernst & Young, which took a 14% stake in Corio this spring, is helping the ASP conquer that problem and penetrate larger accounts. It led Enporion to Corio, which is integrating the marketplace applications for the exchange, while Ernst & Young handles the customization.

Corio officials say that by working with Ernst & Young, they'll be better prepared to support customized apps. But as analyst Pring notes, adding consultants to the mix adds a significant cost to a fixed-price ASP model.

For that reason and others, not every large company is ready to enlist an ASP. Toromont Industries Ltd., a $484.1 million construction equipment manufacturer in Toronto, is considering outsourcing a critical SAP implementation but will likely decide against it, says CIO Mike Cuddy. "IT isn't easy to implement," he says. "But if it's important for your business, it's worth doing yourself."

Laurie McCabe, VP for IT consulting firm Summit Strategies, disagrees. "In the New Economy, large companies feel they have to react quickly to the market," she says. For some, ASPs may be the quick-change artists they need.

Photo by Mark Escher

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