Most ASPs host a narrow selection of software, so firms wanting many applications have to manage several ASP contracts. Could yet another set of service providers simplify matters?

The number of application service providers (ASPs) offering to host corporate applications is growing. However, most ASPs only offer a narrow selection of applications, or applications for a particular industry niche.

If corporates want to use a variety of hosted applications this can cause management problems, because they will probably have to use a number of ASPs. One ASP might host desktop office applications, a second might host enterprise resource planning (ERP), a third might be hired to host customer relationship management (CRM) systems. Others might provide security, telecoms and networking applications.

This raises management difficulties and the possibility of incompatabilities between the various systems used. Ironically, this is the kind of management problem that ASPs were supposed to eliminate.

Managing ASPs
As a result, a new breed of service provider, called management service providers (MSPs), is now emerging. They offer to manage the ASPs on behalf of corporates. As a result, MSPs say that firms will finally be able to reap the benefits originally promised by ASPs of easier control and easier deployment of systems.

MSPs should offer a single point of contact for management and control. They can assume responsibility for ensuring that all ASPs a firm uses will deliver the required performance and meet service level agreements. Or in some cases an MSP might actually provide all the applications and management itself, so that corporates only have a single contract to deal with, rather than many with a number of ASPs.

The theory is that the MSP should handle all the contractual complications that ASP agreements can cause, leaving IT directors free to concentrate on more strategic matters. Dimension Data, for example, has launched a service that enables companies to monitor the levels of service being offered by service providers. Logical, a services provider that evolved from systems integrator Logical Networks, also recently unveiled an MSP service.

The MSPs are not the only new type of service provider; there are many variations on the theme ­ business service providers (BSPs), e-commerce service providers (ESPs) and wireless application service providers (Wasps) are among them. Their business case usually depends on offering a single specialised service which they are able to sell to many buyers without too much adaptation for each customer. If successful these service providers can achieve economies of scale and so reduce costs.

The appearance of so many models of service provision is causing problems, argued Duncan Crook, managing director of Equinox, itself a service provider. 'Once again the IT industry has shot itself in the foot, by taking a perfectly good idea and overcomplicating it. There are 13 different models of service provision out there now. It's no wonder no one's buying any of them ­ they are too confused,' Crook said.

It is understandable that service providers want to differentiate themselves, said Crook, but the overall effect is that few people know what all these different services can do. Dave Boulanger, services director of analyst firm AMR Research, agreed. He pointed out that the current model is only profitable if service providers have something they can specialise in and sell cheaply. The overall effect is a disjointed set of services that no one can use.

The answer, according to Crook, is to offer a service that manages the service providers. Equinox has added its own jargon to the market by launching what it calls a converged service provision (CSP) model, though others might refer to it as an MSP.

'What we need now is for someone to take responsibility. That's what CSP is about, someone to take ownership of the problem of managing all the different service offerings, even down to being responsible for contracts,' said Crook.

This also seems to be what Logical's new MSP service is about. Logical's infrastructure solutions director Steve Moxey said, 'When a solution needs the input of several different service providers, this raises the question about who should take ownership of the ultimate service level agreement ­ which ultimately means being responsible if something goes wrong. This leads to an examination of core business competencies of the lead service provider, especially those related to technological expertise, supply chain management and the management of service level agreements. What you need is a single unifying body to tie all the ends together.'

Moxey's argument for clarity among service providers is hardly strengthened by his own firm's description of its service. Logical is, by his own admission, an MSP. However, it chooses to advertise its offering as EBOC, which stands for e-business operations centre.

Nevertheless, a single supplier taking responsibility for all contracts could make good commercial sense, and analysts that have followed ASPs support this view. Reports by analyst firms Durlacher and Datamonitor argue that converged or managed service provision is indeed the way forward. They argue that MSPs meet a need among corporations and that the MSP market could soon be worth billions.

However, it is possible the analysts are wrong; after all, last year many of them hailed ASPs as the new model for buying business systems and an answer to the skills crisis. So far the number of firms signing up for ASP services has been disappointingly small, and ASPs themselves have admitted that more case studies are needed. However, some critics suggest that MSPs will just add another layer to the supply chain, increasing the cost for customers.

Most IT managers are by now familiar with the arguments for using ASPs. When companies first started to offer the services, they claimed that renting applications would be cheaper, thanks to economies of scale enjoyed by the vendor. Rented applications would be faster to implement, thanks to the accumulated system building experiences of the service provider, and they would give customers the flexibility to upgrade.

According to US market research company Cahners, demand for ASP services will grow. Cahners predicts that 1.3 million small and medium-sized European companies will be using ASPs by 2005.

Growth predictions
Dataquest predicts even bigger business among large corporates. It suggests the Fortune 500 companies will provide the main market for ASP services and they will spend $22.7bn on ASPs by 2003. UK-based research company Ovum is even more optimistic, predicting a $136bn market by 2005.

However, the pioneering firms that sign up for ASPs services now could face more difficulties than those who do so later, because best practices have not yet developed for negotiating contracts, said AMR's Boulanger. He also pointed out that if ASP services do not perform well, firms could have problems in porting their data to a new service provider. 'How do you know you'll get all the historical data ­ and what about the transactions that are on-going?' he asked.

Small wonder, then, that many UK firms have not yet signed up for ASP services. Renting applications online involves an enormous leap of faith. Many IT managers discourage users from running applications off the server, because of bandwidth problems. An arrangement where the host is not only located offsite, but connected to the user via a relatively slow WAN link could be even more problematic. Applications, in isolation, are not the only aspect of the systems that need managing.

If ASPs are to become as successful as many analysts predict, they will have to create a good record of reliability and competence. By helping this to happen, MSPs could have a key role in the process.

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