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This story was printed from ZDNet Australia.
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Covering all the ASP bases

By Gregg Keizer, Small Business Advisor
October 24, 2000
URL: http://www.zdnet.com.au/news/business/soa/Covering-all-the-ASP-bases/0,139023166,120106466,00.htm

The Web-based service your small business leans on today could be gone tomorrow. And maybe your profit margin -- or entire enterprise -- will go too when that prop's knocked out.

A gloomy report from the Gartner Group, a Stamford, Connecticut research firm, says that a "brutal consolidation scenario" is in the wind for the application service provider (ASP) market. ASPs, which deliver software as a service over the Internet as an alternative to shrink-wrapped CD-ROMs, are among the hottest topics in computing, especially for small businesses. Why? Because an ASP shoulders the kind of work that most small businesses are simply not cut out to handle, like hardware maintenance, updates, and laying down networks.

Rather than spend thousands on a top-flight custom accounting package, the ASP theory goes, small businesses just "rent" the software on a per month, per user basis. Access to the software (in this case, the accounting program) is as close as the nearest computer with a browser and a connection to the Web.

Today, says Gartner, there are 480 ASPs. By the end of 2001, 60 percent will be his-tor-ee, buried by bankruptcy, absorbed in mergers, or starved to death when they run out of venture capital cash. A recent example: Pandesic, an e-commerce ASP backed by Intel that tossed in the towel this July. And Corio, which hosts services from human resources to messaging, has lost four times more money than what it's brought in this year. "Today's dot-com collapses will pale in comparison to the effect that the pending ASP meltdown will have on organisations that use these ASPs," says the report. Whoa.

How can you protect yourself against this impending implosion of outsourcing suppliers? You could steer clear entirely of ASPs, but the cruel fact is that some small businesses need ASPs to grow. If you face a choice between no-growth and entrusting core responsibilities to an outsourcer to help your business boom, the decision is a no-brainer: you go with an ASP.

To keep disaster from the door, you need to make some smart choices. ASP, yes or no? And if the former, which? And once you pick, what can you do to bounce back if the ASP surrenders to market pressures and drowns? I've collected five criteria that you should keep in mind as you make these decisions, and recommend one as the smart choice for small businesses.

Get in the fast lane

Although some Web-delivered applications work within the confines of slow analog connections -- the stripped-down interface of an accounting service like NetLedger, say -- too much of what ASPs promise can't be delivered over these slow connections. This is one of the reasons why major-league ISPs like AT&T WorldNet and Juno have put off plans to host applications for two or three years, hoping that by then broadband access will be more prevalent in small businesses.

Unless your small business has a broadband link to the Internet -- DSL or cable at the least -- forget about ASPs. You may be able to bring in more powerful, expensive software by renting than you could by buying, but you'll lose tons of employee work time as they wait for apps to load and operate over the wires.

Do you have what it takes, bandwidth-wise, to try an ASP? If so, is it smart to put your eggs in a free ASP's basket? My answer's next, and it's not what cash-pinched small companies will want to hear.

Free with a catch

Free applications on the Web may sport the right price for your small business, but I don't think they're the smart choice for crucial components of your enterprise. Free services have a nasty habit of disappearing without a trace. Who remembers PlanetAll.com, the free PIM?

I don't advocate abandoning free Web services entirely, only that you be cautious about what you hand over to such outfits. I wouldn't risk accounting to a free service, nor entrust my e-commerce bread-and-butter to a free e-store hosting outfit. It's another matter entirely if e-commerce is a sideline at the start; free sites such as Bigstep.com provide an cost-effective way to introduce yourself to online customers. But think of such providers as an interim step, with the goal a reputable host that has legs and a long lifespan to prove it.

To stay be on the safe side, assign peripheral business duties to free ASPs. These might include such tasks as infrequent online meetings, or data sharing between your business and the occasional outside contractor. Tasks like these can easily be switched to another ASP if yours fails, if only because there's little or no data involved.

Assuming you do make the leap to an ASP, what's the crucial characteristic of a worthy provider? That's the next item on my tactical battle plan.

Downtime means everyone loses

Rushing into using ASPs could be a rash move for several reasons, but the one that worries me the most is a dependence that's not dependable. Service providers' servers can do down, your Internet connection can be cut off by something as low-tech as a backhoe breaking cables, and rare though they might be, malicious attacks by viruses or hackers can interrupt service. Then where are you? Sitting on your butt with nothing to run on your computers, that's where.

Before making a commitment to an outsourcer, do your homework. Probe extensively into any prospective ASP's uptime record -- anything less than 99.9percent is unreasonable -- and delve deeply in the service agreement's language on downtime, planned or not. Ditto on data loss. Any hesitation on the part of the ASP to provide those numbers, and proof, I would read as suspicious, and enough to call off negotiations.

Let's figure that your ASP will be one of the survivors -- it played the game like Machiavelli and didn't get tossed off the island. Among the cautionary steps you can take is one I think especially effective in making sure your relationship with the provider is congenial, not confrontational.

Eyes for your biz only

Software costs are just part of the overall expense of conducting business with computers. Training costs -- and re-training costs, when software upgrades comes down the pike -- can easily outpace the price you pay for the software.

That's important to remember when considering an ASP. The upside to using an ASP is that you don't worry about updating, since the ASP does that for you. The downside? The decision whether to upgrade may be taken out of your hands.

If you're concerned about being forced into upgrades your company doesn't want or need, one option may be to contract with the ASP for a dedicated server rather than one that's shared. Using a shared server, which multiple companies access for the same application, means that updates are done at the whim of the ASP.

By going with a dedicated server which only your firm uses, you can have some say about when -- or if -- the app is bumped up to the next edition.

Finally, even after all your due diligence, an ASP may still goes to its final reward. Is there anything you can do to prepare for the eventuality? You bet, and it's next in the order.

When the worst happens

If an ASP sinks and isn't rescued by another, bigger firm in a merger or acquisition, your data sinks, too. That leaves you a big-time loser no matter how you cut it. If the data's crucial to running the business, say accounting or payroll, the blub-blub of the ASP may be echoed at your company.

Investigate the worst-case scenarios. Although the idea runs contrary to the whole ASP model, find out if you're able to back up your data locally to your own computers or network. Ask too about the data's format.

You want those files saved in formats that other software (Web-based or desktop applications) can easily read so that if the ASP goes under, you have a way to salvage the bits, thus your business. Accounting data held by an ASP suitable for small business should, for instance, be transportable to formats such as QuickBooks, or at least Excel.

ASPs are tough to figure out no matter how much expertise you have. Check out the next section, where I recommend three first-rate sources of more detail about ASPs.

For more information...

Naturally, the Web's the best place to get the scoop on ASPs, whether news of an ASP's demise or a new provider entering the fray. Here are three top-flight resources to check out.

ASPStreet includes news, comprehensive directories of ASPs, and links to ASP-related mailing lists and message forums. I think it's the best place to go if you want one place for more info.

WebHarbor is more of an industry insider's portal, with analysts' takes on ASPs and links to providers divided into subject categories like sales force automation, finance, and human resources.

ZDNet's ASP Resource Center is an all-in-one portal to news, reviews, and opinions about application service providers.