The ABCs of ASPs.

• Author: Liang, Yonghong
• Position: Application Service Providers - Statistical Data Included

New technology often requires the implementation of a costly infrastructure and more importantly, it requires highly skilled staff to support it. The most promising alternative to governments expanding in-house technology capabilities is the Application Service Provider (ASP) model.

Your place or mine? That's the question being asked by governments that are struggling with how best to implement and support new state-of-the-art technology. Not only are organizations challenged with the high cost of purchasing software and installing the infrastructure necessary to support new technology, but they also must compete with the private sector for the people required to support these systems. Today's highly competitive marketplace coupled with the private sector's ability to lure skilled employees with offers of high starting salaries, signing bonuses, and stock options, make the latter issue insurmountable for most small to medium-sized organizations. In the past, these challenges have proven too prohibitive for governments to invest in new technology, thereby increasing the "digital divide" between public- and private-sector organizations.

Instead of inaction, some public-sector organizations are choosing to cope with these issues by shifting the non-core activities related to new technology to outsourcing agents called Application Service Providers (ASPs). In its basic form, an ASP removes many of the headaches related to the implementation and support of new technology and allows a public-sector organization to focus on core business activities. In many cases, ASPs provide a more flexible and cost-effective alternative for governments.

The rise of the ASP model is the result of the convergence of Web-based software with the rapidly growing, Internet-based, distributed computing architecture and broadband network infrastructure. Essentially, customers "rent" applications over the Internet versus buying and implementing new systems themselves. Distributed computing dramatically changes the traditionally closed mainframe architecture to a more open and scalable environment. This allows multiple users to more easily gain access to centrally managed application servers that are housed and maintained at the ASP'S data center. At the same time, the expanding broadband network makes it possible to deliver a larger volume of data over the Internet at a high rate of speed. Continuing advances in software and broadband network technologies will further propel the proliferation of the ASP model.

The projected advances in the delivery mechanisms along with supplier-driven enthusiasm for Web-based software have led industry experts to predict enormous growth in the ASP market over the next few years. The GartnerGroup, an industry research firm, reports that the worldwide demand for ASP services will grow from $3.6 billion in 2000 to more than $25 billion by 2004. As was the case with the unprecedented growth and subsequent consolidation of the dotcom industry, GartnerGroup analysts also forecast that of the 480 retail ASPs in business today, 60 percent will be gone by the end of 2002 due to bankruptcy, consolidation, merger, or simply fall as the result of competition. They further predict that only 20 of the 480 ASPs will exist by 2004.

Even in the face of these predictions, the benefits of the ASP approach continue to be highly touted. Promises of faster implementations, seamless point-to-point maintenance, 99.9 percent system uptime, and access to sophisticated software applications delivered through a Web browser are the mainstay of ASP marketing content. While some of the claims are still unproven, the concept is compelling and governments can expect the ASP approach to be a viable, sustainable model for delivery of all types of applications ranging from complicated Enterprise Resource Planning (ERP) and e-commerce systems to simple on-line e-mail and scheduling packages.

This article provides an introduction to the ASP concept. It also discusses the potential benefits and risks for organizations that are considering ASP services. The discussion focuses on the following questions.

* What is an ASP?

* What are the different types of ASPs?

* What types of services and applications can be accessed through ASPs?

* What are the typical pricing models for an ASP?

* How can organizations benefit from an ASP?

* What are the risks of an ASP engagement?

* What are the best ways to mitigate the risk of an ASP engagement?

Defining the ASP

ASP, while a relatively new term in the information technology industry, is a result of the Internet-driven evolution of application outsourcing. An ASP offers "out-of-the-box" applications to customers on a subscription basis and usually provides the technical infrastructure and support services needed to install and maintain these applications. More specifically, the Information Technology Association of America (ITAA) defines an ASP as "any 'for profit' company which provides aggregated information technology resources to subscribers/clients remotely via the Internet or other networked...