ASP-iring to Greatness

Software Magazine, Feb, 2000 by Joshua Greenbaum

ERP vendors Look to outsourcing

What's better than running your own IT shop? Not running it, according to a growing number of software and services companies.

In an era when technology has never had greater value in terms of productivity and competitive positioning, the value of actually managing IT assets is dropping rapidly. Surely, the need to use IT effectively has never been greater. But in an era of Web time, most companies can ill afford to maintain a core competency in both their specific line of business and the IT side.

The answer to this problem has a varied nomenclature. ASP, or application service provider, is one of the more common terms used to describe the companies working to free businesses from the burden of designing, implementing, and maintaining IT systems. Applications hosting is another popular term. I prefer outsourcing, a time-honored term for what is really a time-honored practice, despite efforts to the contrary to make this market look all new and shiny. Regardless, the business model behind outsourcing -- and ASPs -- is relatively simple: It's too hard, too costly, and too time-consuming to find, train, and retain the talent needed to run complex IT systems today, and do so with predictable, consistent costs. Better to offload the burden and let your company concentrate on whatever your livelihood genuinely is.

The growth of ASPs and outsourcing means that most of the enterprise software we think of as mission-critical -- in particular ERP and related software -- is increasingly offered in an ASP model. Some ERP companies, like Oracle, are betting the farm that the ASP model will be the only game in town. Others, SAP and PeopleSoft in particular, aren't betting the whole farm, but they are throwing a few choice acres into the kitty. The result is that 2000 may be the year in which ERP and ASP begin to merge. If the ASPs and their allies have their way, a majority of companies, particularly in the mid-market, will opt for an outsourcing solution within three years.

What is new with the ASP model is the use of the Web as a delivery mechanism for outsourcing. In the old days, outsourcing meant that the end user sat in front of a fat client or dumb terminal. With today's ASP model, the user sirs in front of a Web browser connected via the Internet or intranet to the hosting facility. Back at the hosting facility, the mundane work of support, management, upgrades, and the like is performed by experts.

The fact that everything runs on the Web is significant in terms of the timing of the ASP market: Until two years ago, virtually no enterprise software ran on the Web and, until last year, none of the major ERP vendors could offer a complete Web-based suite of software. The technology transition from client/server to the Web has made the ASP market possible.

Which is why many companies have latched onto the ASP moniker, which was originally a derivation of ISP, or Internet service provider. The ASP/ISP duality is significant: Some ASPs are following the ISP/Internet market both in terms of delivery mechanism as well as funding and business models. Usinternet-working firs into this mode. The company raised over $130 million in an IPO before it had even remotely achieved a critical mass of customers, expertise, or the facilities needed to build on both.

USi is really the lone company making use of its pure-play ISP heritage. Startup ASP Applicast is taking a more conservative -- and to my mind more sensible -- approach to the market by promoting itself more as an outsourcer-cum-ASP as opposed to USi's ISP-cum-ASP model. E-Online and Corio are two other players that are more outsourcer than ISP/ASP.

Once you get past the nomenclature, though, ASPs have a lot in common. Each has picked a core suite of software products -- ERP, CRM, Web commerce or e-business, and in some cases enterprise applications integration (EAI) -- and more often than not a specific vertical market niche. The basic formula then becomes relatively generic: Each ASP offers some combination of implementation, hosting, and support services around their software suite. In USi's case, PeopleSoft is the ERP suite, Siebel is the CRM suite, and Broadvision is the e-business software. Corio does PeopleSoft and Siebel, as well as CommerceOne for procurement. Applicast does SAP for ERP, Siebel for CRM, and uses Vitria for EAI functionality And so on.

Don't think outsourcing ERP and related applications is the exclusive bailiwick of the ASPs, though. Also mixing it up in the ASP/outsourcing market are more traditional services companies for whom outsourcing is old hat. Origin BV, a Netherlands-based systems integrator owned by electronics giant Philips, has begun to introduce outsourcing services in the U.S. that are targeted at what is essentially a high-end version of ASP services. Plaut Consulting Inc., also Europe-based, has been offering SAP outsourcing in the U.S. market through its Syntacom subsidiary. In Origin's case, it can offer outsourcing for SAP, Baan, and QAD.