InformationWeek

October 11, 1999

Behind The Numbers:
ASPs Make A Strong Impression

ood IT managers are inherently skeptical of vendor claims. That's not surprising: There's a never-ending supply of quick fixes or can't-miss products in this industry, most of which never live up to their promises.

But a new class of vendors known as application service providers isn't setting off any alarms. It's hard to think of other IT service offerings that have spread this quickly across corporate America. No wonder that venture capital is chasing after these Internet-based ASPs so aggressively.

The business case certainly seems compelling. Your IT shop licenses software from a firm that delivers it to your users directly over the Web or via a virtual private network. You rely on third-party experts willing to guarantee uptime and save yourself the hassle of internal management issues. In theory, it's less muss and fuss.

InformationWeek Research conducted 250 interviews in August with IT managers responsible for their organizations' portfolios of business applications. Among the sites surveyed, 30% already have one or more applications with an ASP. Another 14% plan to work with an ASP in the next 12 months. The rest have no plans or intentions of working with these types of providers.

Four out of five IT managers considering such services cite guaranteed performance levels as one of their key business justifications. The idea of predictable costs and tapping into an ASP's expertise are equally compelling. Few clear winners have emerged among ASPs, however. That includes both "pure-play" specialty firms that only support third-party products and software companies that have expanded their offerings to include ASP services.

Is your company going to rely on ASPs? Please let us know at the address below.

Rusty Weston
Senior Managing Editor/Research
rweston@cmp.com

This week in Behind The Numbers:

Why They Say No

Division Of Labor

Payback Scenarios

ERP To Go

Why They Say No

ASPs realize they're entering a mature market space in which many IT shops have existing relationships with systems integrators and other types of outsourcers. So, if they're going to carve out a niche, ASPs will have to demonstrate to early-, late-, and even non-adopters that they're not only cost-effective, but reliable, high-performance, and flexible. A lack of flexibility is a common complaint among IT managers regarding their organizations' relationships with systems integrators.

The majority of IT managers not yet inclined to use ASPs simply don't outsource. But only 12% of the uninterested group say ASPs are still unproven as a concept.

Division Of Labor

A majority of ASP adopters say they will seek primary support for their leased applications from both the ASP and the software vendor that authored them. Only one in four sites plans to rely primarily on its own organization for support. Even fewer, 17%, will look solely to the ASP that hosts the application for product support.

The method of delivery for these applications varies. A majority of sites will rely on the Internet to access their ASP-hosted applications. About two of five sites will use a WAN or a virtual private network to access their ASP-hosted applications.

Payback Scenarios

Implementing a technology solution doesn't guarantee an instant payback. In fact, on the list of organizational priorities, putting out business brush fires generally takes precedence over figuring out how to achieve return on investment.

Accordingly, very few IT managers expect to receive an instantaneous return on their companies' investments in ASP-hosted applications. Nearly one-third expect the payback to take more than one year. Another 13% say they never will recover their investment or say they have no expectations of a return on investment.

The reality is that companies moving at Internet speed often don't take the time to work out payback scenarios

ERP To Go

Demand for enterprise resource planning seems to have fallen. But ERP modules are the choice of two of five organizations either leasing or planning to lease applications from ASPs in the next 12 months. Outsourcing ERP may be a way to enjoy the enterprise apps' well-documented benefits while avoiding the widely known and formidable deployment problems.

Could renting ERP modules from ASPs reduce the deployment problems and reignite the momentum that ERP had in the mid-'90s? Among companies planning to rent an above-average number of applications from ASPs, demand for ERP and database applications runs very high.

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