Apps on tap

Small and medium-sized enterprises haven't taken to the internet-delivered application model in the numbers ASPs thought they would. Vertical markets and larger organisations have. Andrea Malcolm discovers it's all about cost, customisation and quality of service.

Small and medium-sized enterprises haven’t taken to the internet-delivered application model in the numbers ASPs thought they would. Vertical markets and larger organisations have. Andrea Malcolm discovers it’s all about cost, customisation and quality of service.

During a series of interviews with customers throughout the Asia-Pacific region last year, market research company IDC found a range of perceived benefits in using the application service provider (ASP) model.

The highest ranking benefit was the model’s monthly access fee structure, followed by minimal infrastructure spending, speed of implementation, no need to maintain a large IT resource, data backup and restore availability, included software upgrades, one simple application model and guaranteed uptime.

For ASP selection criteria, quality of service was number one, followed by price/fee competitiveness, robust security, total cost of ownership, knowledge of one’s business, one-stop shopping, reputation, scalability of growth, full service capability and thought leadership and innovation.

Reasons given for not adopting the ASP model were lack of awareness of ASPs, not trusting a third party, no economic benefits, being too costly, security issues and a perceived lack of reliable hosting infrastructure.

So far, pure-play ASPs have failed to take off. A pure-play ASP is one which hosts standalone applications that it rents to the customer (usually on a per-user, per-month basis) and delivers via the internet. Customers receive an uncustomised, “stripped down” payroll, word processor, or other package. The software licence is usually owned by the ASP. Other ASPs offer customisation or other services.

In most cases, ASP applications need to be fairly basic in order to be optimised to run across the internet, to cater to as many people’s needs as possible, and to meet the volume needs of the ASP business model. Either they will run purely through a browser at the customer’s end or will need a Citrix thin client to run on PCs. The New Zealand-made financials systems exo-net is an exception in that it has its own thin client.

That’s how ASPs are meant to operate in theory: standalone, web-enabled, “cookie-cutter” applications hosted by the ASP and delivered via the internet to the customer, who usually pays a monthly rental fee and is probably a small or medium-sized enterprise (SME). Most pure ASP offerings are aimed at the SME market — because they are the ones who don’t have the budget for dedicated IT staff, and a lot of hardware and software — or vertical markets such as retailers, pharmacists or accountants.

Vertical markets have taken up ASP offerings to a certain degree, but the SME market hasn’t really eventuated: perhaps they simply don’t know that this option is available to them. After all, most small companies don’t follow IT developments or wouldn’t think of going to a company like Unisys for their IT needs.

Custom-made

Instead it’s medium-sized to large companies that are taking up the ASP option, but with a proviso: most of them want some customisation.

Unisys ASP Services definitely found this to be the case. Although it attacked the market at both ends, with ASP Direct catering to SMEs, the bulk of its business was from users wanting customised hosting solutions for applications such as Great Plains and StayInFront — for example, the Motor Trade Association and Fisher & Paykel.

Now Unisys has integrated its ASP services division with its outsourcing service, making it part of Unisys’ core business. According to Unisys, ASP Direct only accounted for 10% of the ASP service business plan anyway. Now it’s concentrating solely on the high end, but differentiates this from pure outsourcing with the claim that ASP customers share the same hosting infrastructure, whereas outsourcing clients have their own dedicated hardware.

And having dedicated hardware is what makes pure outsourcing more expensive, so ASP is a cheaper option.

IDC New Zealand general manager Dinesh Kumar says in the short term, the ASP market will rise around delivering enterprise services. Those wanting ASP services will be industries prone to heavy outsourcing or sweeping change. He says the market in Australia and New Zealand is set for fast growth and customers are coming from a variety of vertical markets.

Microsoft online business group manager Paul Muckleston says at the moment many ASPs are trying everything and that the market needs to mature. “Some will do infrastructure, some will integrate infrastructure with key applications. Small guys will focus on niche solutions or a part of the value chain. People need to work out what customers want and attract customers on the value of these new ways of deploying software. Everybody overestimated the market. The Gartner Group, Giga, us — everybody.”

Muckleston says for pure-play ASP to take off, users will have to accept cookie-cutter applications. “It’s expensive for the ASP if each customer has a different implementation. From a business model perspective it’s hard to get leverage out of custom-built solutions. I think it will take 18 to 24 months for the industry to develop to the point where people realise that repeatable packages will work. People have to ask, do we go for packaged or custom?”

Changes for the better

The market has evolved markedly over the past two years. Esolutions, of which Microsoft is a partner along with Telecom and EDS, has pulled back from pure ASP offerings. Although it will continue renting Microsoft and the Datacom-developed payroll application NettPay to a handful of customers, it has ceased offering them to the market. Instead it is pitching itself as an infrastructure service provider. Meanwhile, AppServ, which is half-owned by managing director Graham Clarke and half by Computer-land, has just built a new data centre, proving its commitment to the ASP model, says Clarke.

He admits pure-play ASP aimed at small business isn’t yet a viable business model.

“We’ve always seen the market as being medium [-sized companies] — 30 to 300 users. You can’t manage Office as a standalone application delivered over the internet and expect a five-user organisation to pick it up,” says Clarke. He says it has adopted a “pragmatic approach” whereby it provides bundled desktop services for rent on a monthly basis and also hosts customers’ own applications.

AppServ customer Telecom Retail (which was Cellphone City and now includes Ben Rumble and Business Direction stores) has 220 users spread across more than 40 sites. It rents desktop apps such as Microsoft Office, email, and attendant management services such as authentication, security, internet access and helpdesk services from AppServ on a per-user, per-month basis. Its back-end financial system Global 3000 is also hosted by AppServ.

Likewise, Challenge Petroleum opted for ASP delivery of its desktop apps but has its JD Edwards ERP system housed by AppServ. In this case Challenge Petroleum owns the JD Edwards licences and the hardware.

Greenwood Technology is another ASP that takes a mix-and-match approach. Like AppServ, Greenwood is a Microsoft ASP licensee, meaning it can rent out Microsoft applications, but it also hosts applications that it has custom-built for various clients. These can be on a Windows NT platform or a Sun cluster running Solaris. As well as internet delivery, customers can connect through a fixed price dial-up VPN (virtual private network) for additional quality of service and security. Obviously, the VPN connection will cost more than a straightforward internet connection.

GDC Communications is offering Office, Exchange and most other Microsoft applications through its ASP service iVASP (integrated voice application service provider), but all customers rent bundles of apps and services rather than standalone applications, says GDC executive Jimmy Baroutsos.

Baroutsos believes CRM software will be “the buzz” this year and the company is negotiating with four CRM software companies and an enterprise resource planning (ERP) software provider about hosting their products. It has started hosting the financial systems by Sage, with the first customer, sheet metal manufacturer PPS Industries, about to change over.

GDC is also targeting niche markets with applications for transport, medical/health sectors, finance and insurance, building and professional services and real estate. Real estate chain Harveys is renting Real Estate Manager, which was developed locally by Vision Computing.

Checking the essentials

IDC’s Kumar says areas where ASPs perform best are security, TCO, full-service capability, technical expertise, quality of service, speed of delivery and reputation for quality and delivery. The areas where they least perform are knowledge of business, knowledge/skills transfer and customisation.

Kumar says as far as customers go, there are definite benefits — good economics, potential ready access, guaranteed availability and performance and access to skills without hassle. But customers should remember to invest in planning, attend to detail in the contract, check credentials, and review, reassess and check future options.

He says so far no defined ASP models have arisen, which shows the need to respond fast to changing needs, and that ASPs must partner, not all applications are ready for the ASP model and there is a need to educate the market.

New Zealand ASPs

Hitachi Data Systems, Clear Net, Unisys, esolutions, Greenwood Technology’s ASP Ltd, AppServ, TelstraSaturn, GDC Communications, AlwaysThere, Nubizz, Asparona, eCom, OneNet, 3-tier Solutions, Jade Direct, Tempus Fugit

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