While such issues as performance and security are still concerns, the application service provider model is gaining momentum with many companies as the benefits solidify.
The company was growing rapidly, and it was short on the time, money, and expertise required to build a much-needed customer tracking application. So B2B e-commerce solutions provider Identrus LLC did the only thing that made sense: It turned to an application service provider (ASP) for a Siebel Systems Inc. customer relationship management (CRM) application.
|AT A GLANCE: Identrus LLC |
The company: New York-based Identrus LLC is a global firm that helps e-commerce companies engage in secure transactions over the Internet. The privately held company was founded in April 1999 and has 45 employees.
The problem: Rapid customer growth required Identrus to implement a customer service/customer relationship management application quickly and cost effectively.
The solution: Identrus turned to USinternetworking Inc., a pure-play ASP to host a CRM system from Siebel Systems. In three months time, the CRM application was up and running, allowing Identrus to focus its resources on its growing customer base.
Identrus needed a CRM solution to help track customers through its sales and solution process, as well as to find a way of putting all customer and sales information into a single database. Using the CRM system allows the company to track any customer at anytime, says Matthew Tuttle, operating roles product manager at New York-based Identrus.
Prior to using the Siebel solution, Identrus employees from different departments maintained separate databases, which slowed down information sharing. Today, the CRM software links departments and customer information enabling Identrus employees to easily share information. All of Identrus' employees who need access to the CRM application can access it through a simple Web interface.
Six months into its contract with USinternetworking Inc., an ASP in Annapolis, Md., officials at one-and-a-half-year-old Identrus say their company got the quick relief it needed, and today, Identrus is able to do more with less. Turning to USi allows us to focus our resources on our customers, rather than on application maintenance and support, Tuttle says.
Although still in its infancy, and in a state of transition, the ASP market has been hopping for the past two years, according to Amy Mizoras, senior analyst at Inter-national Data Corp. (IDC), of Framingham, Mass. One of the more notable changes has been the adoption of the ASP model by larger companies, which have the resources to purchase applications but choose not to so they can, instead, focus on their core competencies. For these organizations, the real value of the ASP model is focusing on their business, not CRM or e-commerce, she says. In contrast, early adopters of the ASP model were small and medium-size enterprises (SMEs) looking for cost savings based on an annual payback model. Many of these SMEs couldn't find or retain the IT staff required to run applications or equipment, Mizoras says.
According to industry players, initial application renting costs aren't much cheaper than in-house costs when it comes to licensing an application. However, the real savings are in the longer-term application administration and maintenance costs. These savings vary from organization to organization depending on the application outsourced, number of users, and how geographically dispersed the company is, for example. Mizoras also notes that in the ASP model, companies benefit from opportunity costs such as shorter implementation time, and there's a less pressing need to hire and retain IT staff.
With 45 employees, three of whom make up the IT staff, Identrus knew from the get-go that turning to an ASP was the solution. In three months' time, the company had hired a consultant to help identify its needs and survey the market for applications and ASPs, found USi, and went live with the Siebel application. According to Tuttle, the company's main CRM needs were the ability to track customer information as well as business opportunity and product reports. Identrus is currently tracking about 50 customers in its CRM system. In the near future it expects to add another 100 customers.
Small, large, or somewhere in between, the reasons companies turn to an ASP model are clear, according to Zona Research Inc., of Redwood City, Calif. All have the desire to focus on strategic business objectives and reduce the costs associated with owning and administering applications. And turn they do. A $1 billion dollar industry in 1999, the worldwide ASP market is expected to reach $3.6 billion in 2000 and balloon to $25.3 billion by 2004, according to San Jose, Calif.-based Dataquest Inc., a unit of the Gartner Group Inc. Finding the Right Provider
Clearly, the ASP market is growing by leaps and bounds. At the same time, the ASP landscape continues to change as companies of every ilk attach the ASP label to their list of service offerings. There doesn't seem to be any clear definition of what an ASP is because the market has gotten so broad, says Greg Blatnick, vice president at Zona Research Inc.
While the proliferation of ASP players is expected to continue for the short term, industry analysts expect to see consolidation over the next six to 12 months. In the meantime, potential ASP customers are left to sort out vendor confusion (see Industry Watchers Identify Four Types of ASPs sidebar). Who will ultimately be left standing when the ASP industry shakes out is anyone's guess. IDC's Mizoras has her own theory. The best ASP is the one that is great at partnering with players in all of the required disciplines for application delivery, she says, including network infrastructure, service and support, and application expertise.
In their respective searches for the necessary industry-specific application services, the Parson Group and Digital Foundry Inc. turned to Portera Systems. Both firms are professional service organizations (PSOs), which provide their clients with consulting services, and Portera, a vertical ASP based in Campbell, Calif., caters primarily to PSOs. Portera delivers its ServicePort suite of applications on a subscription basis over the Web. Key ServicePort modules include managing opportunity, resources, knowledge, engagements, and operations.
|Industry Watchers Identify Four Types of ASPs |
Pure-play ASPs, like USinternetworking Inc. and Corio Inc., of San Carlos, Calif., which partner with one or many independent software vendors (ISVs) to offer applications.
Software vendors, like Peoplesoft Inc. and Oracle Corp., which partner with pure-play ASPs but also offer direct application services.
Service companies, like EDS, which partner with ISVs to offer application renting.
Networking companies, like PSInet Inc. and Cable and Wireless PLC., which are becoming ASPs. In many cases, ASPs are also the clients of these networking companies.
Portera's ServicePort application services software is flexible and configurable to mirror our methods, says Susan Halicky, managing director at Chicago-based Parson Group, a five-year-old PSO specializing in finance, accounting, and corporate risk management. The company was clear that it preferred to turn to an ASP and focus on its core business rather than worry about getting software to work. We figured we'd leave the technology to someone else, she says. Using Portera's software helps Parson Group consultants track customers from the sales process through a business engagement, as well as get national views of consulting projects and clients.
After engaging in a vendor search process that began in February 2000, the Parson Group ended up with a short list of two viable ASPs, the second of which Halicky declines to name. We knew we needed a solution that was scalable, and even though Portera was a new vendor with a new software solution, we liked the quick software development cycle they offered on the applications we access, says Halicky, noting that major releases come out about every four to six weeks.
As a Web solutions provider and software development shop, Digital Foundry Inc. could have built its own project management and reporting application but opted to use its in-house technical talent on customer billings. Wes Stauffer, CFO and COO at the eight-year-old company based in Tiburon, Calif., chose Portera over some larger ASPs in September 2000. Portera's application suite is more closely designed to do what we need to do, he says.
Furthermore, Portera met the company's search criteria by providing a cost-effective functional application that was Web-based and had an interface that could be easily used by management. Most importantly, Portera offered a basic software package, featuring project management, project reporting, invoicing, and reports, that provides Digital Foundry with exactly what it needs without the bells and whistles. From a cost perspective, Stauffer says his company is paying half of what it would have cost to develop and maintain the application in-house.
To date, he notes that application availability has been very good. Digital Foundry has only experienced an occasional problem. Portera does an excellent job of notifying us when there is a problem, and we have a guaranteed response time in our SLA [service level agreement] when issues occur, Stauffer says. Important Business Functionality
Like many companies that turn to ASPs, the issue of application customization came up for both the Parson Group and Digital Foundry. Customization was a major issue for us, and it's one of the things you give up when the application isn't truly yours, says Digital Foundry's Stauffer.
For example, he says he would set up the approval routing system differently if he were designing the application. However, given choices on how to configure an application, customers can make their instance, or version, have the look and feel of a personal application. It's a trade off that companies make when outsourcing, but we feel the time savings is worth it, Stauffer adds.
|Digital Foundry Inc.'s Wes Stauffer likes the guaranteed response time from his ASP.|
Parson's Halicky agrees. It's challenging when everyone shares the same code, but Portera caters to our business so we didn't require a lot of customization, she says. According to Halicky, Portera's software mimics processes in place at the Parson Group. The vendor also allows users to configure the application to their liking.
ASPs sustain their business by gaining economies of scale in application delivery and support, which puts limits on the amount of customization they can do. These limits allow them to support and implement applications more effectively. And while companies don't outsource their most mission-critical applications, they do turn to ASPs to deliver important business functionality.
According to Zona, customers currently utilizing ASP services are accessing a wide spectrum of applications, of which communications such as e-mail, messaging, and groupware are the most prevalent. Financial and accounting applications are the next most popular applications being accessed, followed by e-commerce, customer service/CRM, and education and training.
The demand for ERP applications or personal productivity applications, for example, is much more limited, according to Zona. Blatnick contends that ERP applications may be too complex for hosted access, while personal productivity applications may be better suited to a desktop or internal corporate deployment model.
In fact, after conducting continuous research on the ASP market for more than a year, Blatnick concludes that not much has changed over the past 12 months. The ASP users we survey are sticking with the same kinds of applications and continue to have the same reasons for using ASPs, he says.
A Work in Progress
|Lessons Learned about Application Service Providers |
Expect glitches in the first application rollout.
Like any organization, an ASP can lose key technical people and users may suffer the consequences.
Be prepared to be aggressive with the ASP about performance measurements that go into the service-level agreement.
Being clear about your expectations in the SLA pays off, i.e., what's fundamental, what's important vs. what's nice to have.
It's important to require routine results and reporting of services, downtime, and project changes.
Clearly, the ASP market is quite young and in a transition period. So it's not surprising that Zona's research indicates users continue to have issues with the market. For example, Blatnick says most applications delivered via the ASP model are existing applications that have been Web-ified with a browser front end. They weren't necessarily created as good Web applications, he says.
This leaves room for improvement on many fronts, namely, performance, reliability, and security. One application category where Blatnick says this is particularly prevalent is in the ERP space. Perhaps the reason for this is due to the complexity of the application. But we do see vendors working on this on a module-by-module basis, he says.
According to recent Zona research, unacceptable application performance and security are the top two concerns of ASP customers. Just ask Physician Practice Partners LLC (PPP), a Springfield, Mass.-based medical group. During a time of transition about 18 months ago, PPP turned to TriZetto Group Inc., a vertical ASP in Newport Beach, Calif., that caters to the healthcare industry. TriZetto provides multiple services to PPP, including billing and collection; basic software and hardware support for three of the medical practices' systems, i.e., practice management, financials, and pharmaceutical; managed care database and analysis; onsite personnel and equipment, i.e., PCs used in the practice; and network design.
We were half a year into our contract when our ASP lost a key person in one product area and we haven't been satisfied with the performance in this area since, says Doug McKell, CEO at PPP. The company signed a three-year contract with TriZetto, but officials will not say what they pay for the service. Fortunately, the SLA drawn up between the two parties addresses remedies for situations such as this one and, as a result, McKell says he'll renegotiate his contract with TriZetto. He adds PPP is not ready to bring the applications back in-house, and it will stay with the ASP model for now.
It's still user beware, though. Not all vendors calling themselves ASPs offer SLAs, according to IDC's Mizoras. However, many do, and all of the businesses Datamation spoke with cited a solid SLA as part of the criteria for vendor selection. As the ASP market matures, Mizoras expects SLAs to be a great differentiator. Among the things SLAs cover are network uptime, support response times, and security.
For B2B e-commerce solutions provider Identrus, whose business depends on its ability to secure transactions in a PKI infrastructure environment, security was at the top of its list when it went looking for an ASP. It was critical that we maintain the integrity of our customer database, which contains information on the PKI infrastructure; the nuts and bolts of our business, says Tuttle. To that end, Identrus had security written in is a core part of its SLA with USi.
Despite a lot a bumps in the road and the need for the ASP market to solidify in terms of both vendors and business practices, an increasing number of organizations of all sizes are kicking the tires. For many, the ASP model is a compelling one. PPP's McKell says being an ASP customer has been a positive experience for the medical group. Using TriZetto gave PPP's internal IT organization time to evaluate where it was and where it needed to go.
Even areas of customer concern, such as security and performance, are not barriers to choosing or planning to choose an ASP, Blatnick says.
One of the lessons we learned about being an ASP customer is to take it slowly, write down what we need, where there are glitches, and work it out with our vendor, Identrus' Tuttle says. None of the issues we've had thus far has been a show stopper. //
Lynn T. Haber reports on business and information technology from Norwell, Mass.
The Wireless ASP
While ASP usage trends have remained somewhat consistent, according to Zona Research Inc., of Redwood City, Calif., it doesn't mean that some companies aren't breaking the mold. Take United Parcel Service of America, Inc., a global package distribution company that transports more than three billion parcels and documents annually.
An innovator in the use of technology, Atlanta-based UPS wanted to offer customers the ability to access shipping information from a wireless device. The company selected Air2Web Inc., also located in Atlanta, and in September 2000 it launched the application. UPS offers the wireless application capability for free as a customer value-add. The company won't comment on what it costs to outsource the application, but officials do say UPS had no interest in hosting the application in-house.
|"Despite large numbers of companies calling themselves wireless
ASPs, this segment of the ASP market is very immature."|
According to Robert Conner, director of interactive marketing at UPS, customers using a number of wireless devices, including one-way short message service (SMS) phones, two-way SMS phones, WAP devices, Palm Pilot VIIs, and Blackberry pagers, can access four different types of shipping information from the company's back-end systems. These include package tracking information, time in transit, drop off locations, and a quick cost calculator. Reception to the wireless application has exceeded our expectations, Conner says, noting that thousands of mobile professionals have used the service to date.
Like other companies that turn to ASPs, UPS decided to have Air2Web create and maintain the application because it knew the work wasn't its core competency. However, before partnering with Air2Web, UPS did a thorough search for potential vendors, which included looking at the breadth of wireless functionality each ASP offered, the stability of the company, and its background, size, expertise with wireless technology, investors, customer base, revenue stream, etc. UPS wouldn't comment on the other vendors its evaluated.
The way it works is, UPS provides four APIs for data feeds to Air2Web, which customizes and formats the data so it is presentable to the end user and then sends it through its carrier network to the end-user device. Today, UPS offers its U.S.-based customers the wireless application as a value-added service. However, the company has bigger plans for using wireless technology. We want to add functionality to the application where we can push out information to the customer, information that they'd be willing to pay for, as well as expand the wireless application internationally to customers in Europe, Asia, Canada, and Latin America, Conner says.
Greg Blatnick, vice president at Zona Research Inc., notes that despite the large numbers of companies calling themselves wireless ASPs,'' this segment of the ASP market is very immature. While he wouldn't comment on any specific providers, he did acknowledge that, there have been singular wireless ASP applications that have been very successful. --L.H.