Application Service Providers (ASPs]: Can ASPs Bring ERP to the Masses?

• Author: Kavanagh, Shayne
• Position: Enterprise Resource Planning

Application service providers represent an exciting opportunity for small- and mid-sized governments to take advantage of powerful enterprise software, but there are a number of special challenges associated with this approach.

Application Service Providers (ASPs) are firms that manage, maintain, and deliver software applications over the Internet. The application is accessed by the government through a Web browser and most, if not all, of the application software components are housed on servers off-site. This article focuses on the delivery of Enterprise Resource Planning (ERP) technology through ASPs. ERP is an integrated software suite of financial and human resources modules as well as a broad range of other applications that vary by vendor. The use of an ASP arrangement to provide ERP software has great potential to make these powerful applications available to small and mid-sized governments that could simply not afford a conventional multi-year and multi-million dollar implementation. Specifically, this article will examine ERP's relationship with ASP, issues to consider before going to ASP ERP and issues in implementing ASP ERP.[1] The information for this article was collected via structured interviews with top ERP and ASP ERP vendors operating in the public sector.

ERP and ASP

While ASPs have been confirmed by the marketplace as being a viable mechanism for providing such services as ISP (Internet service providers, e.g., AOL), questions remain regarding ASPs' suitability for delivering more complex offerings such as ERP. The GFOA Research and Consulting Center's study of the matter gave cause for optimism regarding the viability of ASPs for ERP.

ERP Vendors Are Committed to the ASP Model. Some technology analysts had been quick to question the viability and staying power of ASPs as a mechanism for delivering complex applications such as ERP. However, ERP vendors have exhibited a great deal of commitment to this model. All of the ERP vendors interviewed were heavily engaged in some sort of ASP effort and expect the model to pay big dividends in the near future.

Vendors Are Utilizing a Variety of Strategies to Deliver ASP Offerings. Applications can be offered via ASP through the original manufacturer or through a third-party reseller. No definitive trend has emerged amongst ERP firms in this regard. In fact, some are only utilizing third parties, some are using third parties and also offering ASP services themselves, and at least one vendor is only offering it through their own resources, with no third-party involvement. There are a number of arguments for and against using a third party to host the application versus the software company hosting it itself. However, one option does not seem to be inherently superior to the other, but rather it seems that differing approaches are appropriate for different companies and customers. For instance, a smaller ERP company that sells to a variety of markets may be better off going through a variety of third-party, value-added resellers who modify the software to meet the needs of a specific vertical market. Such an ERP compa ny would not have the resources to effectively offer various hosted applications to meet the needs of a variety of markets. On the other hand, an ERP company that specializes in only a few markets may be better off hosting the application themselves because there is little a third party could add. Larger ERP companies may wish to host applications on their own and also use third parties. Third parties could still provide some value, and also would result in a system of redundancy of ASPs, should the customer feel the need to change ASPs.

Major Issues in Going to an ASP

Before engaging an ASP vendor in discussions, a government should be aware of a number of general issues that get at the core of the viability of the ASP model, including technical considerations and pricing.

Technical Considerations. As the practice of ASP is relatively new, it is important to understand the technology issues that drive it, especially considering the vital role the ERP system would play in the government's business processes. These technical issues can have important effects on the quality of the ASP service. The important issues include the service delivery model in use by the ASP, bandwidth ownership, and telecommunications technology.

Service Delivery Model. There are three basic models of service delivery in common use: traditional ASP, managed services, and managed service provider (MSP). These three approaches vary according to who is responsible for the communication link between the ASP data center and the government's network. It is important to note that in all three cases, the government is responsible for its own LAN/WAN and related internal issues. This service could be outsourced as well, possibly even to the same company providing the ASP service (depending on the company). However, this service is normally out of the scope of what constitutes "ASP," so it is also outside the scope of this article. [2]

Under the traditional model, the ASP is only responsible for what happens inside the walls of its data center, while the communications link is the responsibility of the government (i.e., the government usually contracts with a telecommunications or cable provider just as it would under any other conventional connection to the Internet). This model may be less reliable as neither of the parties to the ASP agreement has any direct control over or direct responsibility for the communications link between the client and data center. However, this option also would be correspondingly less costly as well.

Under a managed services approach, the ASP installs a router at the ASP's "point-of-entry" into the government's local network system. The ASP company is then responsible for everything between the router and the ASP. This option may be more dependable because there is no gap in responsibility between where the government leaves off and the ASP begins, as with a conventional model where the communication link is the responsibility of an independent telecommunications company with no personal or particular interest in the integrity of the...