Application Service Providers.
FOR THOSE WHO HAVE BEEN IN THE technology field for some time, the phrase "everything old is new again" is particularly meaningful nowadays. One of the current hot concepts for managing information resources is that of the application service providers (ASPs). This notion hearkens back literally to the early 1970s, when it was known as "time-sharing." In those days, computers were expensive and the expertise required to program and maintain them was scarce. Also, companies were not as dependent upon computers as they are today, with some firms only running a monthly payroll. Much like the borrower who does not need a vacation home at the beach all year round but rather for two weeks in July and decides on a timeshare, so too could companies purchase just the computer power they needed when they needed it.The time-share concept eventually diminished as computers dropped in price and, especially, when most employees needed access to computers during most of the day. It became more cost-effective to have your own data center with your own computer staff building proprietary applications. This was the heyday of mainframe computing.
However, over time, a majority of industries had standardized on a couple of operating system/subsystem choices, with IBM's MVS/ESA and CICS being the leading combination. Once this was accomplished, the care and feeding of the operating environment became largely generic. This meant that knowledge of the particular business was no longer essential.
Thus began the era of outsourcing, when companies large and small outsourced data center and core applications to companies such as IBM, EDS, CSC and a host of system integrators. Outsourcing was particularly welcome in the 1980S, when organizations sought to become "lean and mean" and eliminate all "unnecessary" head count.
As usual, no technology solution is completely satisfactory. Companies soon found that the outsourcers often underbid the contract for the first one or two years of operation, but that over time the cost exceeded the original in-house installation. Also, many employees who really knew the applications were lost in the shuffle, making maintenance and enhancement a real challenge.
Unfortunately, one of the downsides of outsourcing for the technology industry was that innovation in mainframe technology largely disappeared. The last thing an outsourcer wants is new and different technology to migrate their clients to. Thus, outsourcing gave an indirect boost to client/server technology. Information technology (IT) staffs focused on building a whole new generation of systems that are now also mission critical, running on complex network configurations. And, as time went by, there has been a good deal of standardization in the languages and tools used to create them. Another opportunity to outsource.
An ASP may be defined as a firm that implements and provides ongoing support of application software for customers on one or more computer platforms and networks. The term "ASP" was presumably coined by International Data Corporation, Framingham, Massachusetts, in 1998 in a study on the future of outsourcing. By May 1999, 25 companies had joined a newly formed ASP industry consortium. That number had grown to 178 by the time of the consortium's first conference in November of that year. Major technology players used the opportunity to promote the concept.
On the software side, Microsoft Corporation has unveiled Microsoft(R) Office Online to deliver its popular suite of productivity products to users across an Internet connection. Corel already rents WordPerfect(R) for $9.95 per user per month, while Sun Microsystems began giving away its [StarOffice.sup.TM] suite last year. Indeed, Gene Banman, a Sun executive, says, "Hosted application services will replace boxed software sales altogether in the next decade."
Hardware vendors are equally enthusiastic, with firms such as IBM, Hewlett Packard, Compaq, Acer and Novell all acquiring firms or partnering with companies to bolster an ASP approach. Cisco Systems and Sun Microsystems are developing standards and practices guidelines for ASPs, including a certification program.
The latter point is particularly important. Just as there were no strict rules about the services that an outsourcer once offered, there is no strict definition of an ASP. Many firms do not yet have documented contracts in place and have not really worked through their economic model. Services, performance and availability of applications are also fairly restrictive.
There are at least three models of ASPs, in descending order of popularity.
Most of us are familiar with Internet service providers (ISPs), which provide access to individuals and firms for Internet services. ISPs vary widely in terms of services provided, but most are still confined to hosting Web sites and providing e-mail capabilities. What I term bundled service providers (BSPs) are essentially service bureaus hosting a handful of interrelated applications. The most popular are enterprise resource systems (ERPs) from such firms as SAP, PeopleSoft or Baan, or customer relationship management (CRM) systems that bind together telephone, computing and Internet technologies to support telemarketing sales and service centers.
An offshoot of the ASP is what I term the proprietary service provider (PSP), typically a software company that rents or leases only its own software. This has been the model in the mortgage industry for servicing system providers such as ALLTEL, DataLink and Excelis. Recently, that same approach is being applied in the origination side as well. Fiserv's UniFi division has announced that its point-of-sale (POS) software will be available over the Internet to clients on a BSP basis. MortgageFlex Systems is currently readying its BSP offering, allowing users to utilize its LoanQuest(R) loan origination system on servers and over secured network connections it expects to own and operate.
The future
Will every technology company become an ASP, or call itself one? Probably for a while. However, a number of software firms will undoubtedly find that running reliable "data (cyber) centers" is more difficult than imagined. For one thing, many PC-based hardware and software firms have little understanding of, or appreciation for, such issues as performance analysis, tuning and capacity planning. It used to be that if an application grew too big or obstreperous, the solution was simple--buy a bigger box. To maintain profitability, ASPs will need to have a rigorous program of configuration management that is constantly evaluating and improving the reliability and performance of their hardware and networks.
And, as recent experience has shown, the ASPs will have to take the same rigorous approach to security management that was the norm for the big outsourcers, with multiple layers of security and disaster recovery. After all, an individual firm's computer center was not much of a target for hackers; an ASP handling business for dozens or hundreds of firms is far more inviting. Indeed, a recent Computerworld magazine poll of IT managers found that 96 percent of respondents had concerns about security.
Also, as anyone who has ever endured the torture of calling a software provider's customer support line knows, these firms have a dismal record in postmarket support. Staffing a competent help desk is no easy task, but it will be mandatory for a successful offering as an ASP. The firms are hosting mission-critical applications, and users will need quick and accurate answers--not an easy task when configurations integrate software from several different vendors.
Still, Cambridge, Massachusetts-based Forrester Research expects the ASP market to jump from $150 million in 2000 to $6 billion next year. Dataquest Inc., Redwood City, California, is far more optimistic--predicting $22 billion in revenues by 2003. In next month's column we'll provide guidance on whether an ASP solution is right for your company.
Leilani Allen, Ph.D., is a partner with Summer Point Consulting in Mundelein, Illinois. Summer Point provides strategic planning, process improvement and technology assessment services and has offices in the Chicago and Dallas metropolitan areas.
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| Author: | Allen, Leilani |
|---|---|
| Publication: | Mortgage Banking |
| Geographic Code: | 1USA |
| Date: | May 1, 2000 |
| Words: | 1283 |
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