Talk about a nightmare. you've just farmed out several of your company's core applications to ASPs when suddenly the hosted version of Microsoft Office from one provider crashes. No sooner has that happened when the ERP system managed by another application service provider stops responding. To top it off, the Web-based e-mail system from a third provider has slowed to a crawl. Your end usersÃÆ'Ã,¢Ã¢,Ã,¬"who weren't crazy about having to remember different log-ins and passwords for each hosted app in the first placeÃÆ'Ã,¢Ã¢,Ã,¬"are flooding the help desk and screaming for your head.
Fortunately, in the still-early days of the ASP model, there are no known real-world examples of that nightmare scenario. Still, as IT managers become more comfortable with and begin to expand their use of hosted applications, many are likely to run into problems managing multiple ASPs. Because few ASPs offer every type of application, IT managers embracing the hosted model will increasingly need to look to more than one provider.
That means negotiating and maintaining multiple service contracts as well as managing the performance of many service providers. It also means worrying about integration between applications from a number of ASPs. As the complexity of managing multiple ASPs grows, experts say, the allure of the hosted model could fade quickly.
"There are so many kinds of ASP solutions now that it's become apparent that you're not going to get all conceivable ASP services from one company," said Bill Martorelli, an analyst with Hurwitz Group, in Framingham, Mass. "That brings up the issue of integration."
Help could be on the way, however. MiddlemenÃÆ'Ã,¢Ã¢,Ã,¬"calling themselves ASP aggregatorsÃÆ'Ã,¢Ã¢,Ã,¬"are springing up to offer one-stop shopping for hosted application services. Aggregators such as Agiliti, Jamcracker and ePanacea.com help IT managers bring together services offered by multiple ASPs. They give IT managers a single point of contact for contracting ASP services; accessing those services over the Web; tracking performance; and, if necessary, finding new ASP providers should service levels fall short of expectations. These aggregators claim to be able to do this at little or no premium over what individual ASPs would charge. Sometimes selling through partners, such as systems integrators, consultants or ISPs (Internet service providers), these ASP aggregators are initially targeting small and midsize companies. That's because, although such companies, have been among the first to embrace the hosted model, they may have the most trouble managing many ASPs.
But the success of ASP aggregators is far from assured. The early aggregators are small companies that may have trouble gaining the confidence of corporate IT managers and support from major ASPs, many of which are rapidly pushing to expand the scopes of their own application offerings. At the same time, the aggregation conceptÃÆ'Ã,¢Ã¢,Ã,¬"like the ASP model itselfÃÆ'Ã,¢Ã¢,Ã,¬"is new. An International Data survey presented earlier this month found that about 58 percent of IT managers aren't aware of ASPs, and of those who are, only 13 percent know detailed information about the ASP model.
Pulling it all together
Already, however, some enterprises are relying on aggregators to help them assemble deals with multiple ASPs. For example, RAVE Sports, a St. Paul, manufacturer of inflatable water toys, used Agiliti to tap into hosted versions of Great Plains Software's eEnterprise ERP (enterprise resource planning) system and Siebel Systems's midmarket sales force automation application. The company also contracted for Web hosting and access to Microsoft Exchange e-mail. RAVE's employees get access to all the applications through a single network log-in provided by Agiliti. At the same time, aggregators such as Agiliti say they can match ASP pricing because they are able to negotiate wholesale rates from ASPs, which then no longer have to spend money to find and sign up customers.
The result has been positive for RAVE. By going with the ASP approach, the 35-employee, privately held company has been able to keep up with rapid growth, upgrading its old accounting and order management systemsÃÆ'Ã,¢Ã¢,Ã,¬"based on Intuit's QuickBooks and Microsoft's Access and ExcelÃÆ'Ã,¢Ã¢,Ã,¬"without hiring additional IT staffers. That has allowed RAVE to keep its IT spending at about 2 percent of sales, rather than the 5 percent it projected for an internal implementation, said Pat Golden, RAVE's chief financial officer. At the same time, using an aggregator has allowed Golden to avoid the headaches of dealing with more than one ASP.
"We would have had to go through multiple providers," he said. "By going through one provider, it allows for easy management."
Agiliti's business model, like those of its competitors, is still a work in progress. For now, Agiliti hosts most of its application portfolio itself but is aggressively seeking ASP partners. So far, the Plymouth, company offers 22 hosted applications. In addition to Great Plains, Microsoft and Siebel applications, Agiliti offers workflow applications from eALITY and an e-commerce system from Intershop Communications, among others.
While Agiliti assembles and provides a single point of access to hosted applications from multiple ASPs, the company is marketing its service mainly through partners, typically resellers, systems integrators, consultants, and business-to-business exchanges and portals. These partners can choose to rebrand the application offerings, billing and support in their own names.
Atlanta-based ePanacea's aggregation model is similar to Agiliti's, except that ePanacea targets regional ISPs and telecommunications carriers as resellers. Meanwhile, Jamcracker, of Sunnyvale, has taken another approach, selling directly to consumers. Besides aggregating ASP offerings, Jamcracker is also adding IT services, such as help desk outsourcing, into its mix. (For a look at a typical ASP aggregator's IT architecture, see related chart.)
Hundreds of apps
These three aggregators are seeking to develop portfolios of hundreds of applications that they can offer to resellers and customers. So far they are concentrating on productivity and collaboration software and enterprise apps targeted at small and midsize companies rather than large, complex ERP systems from vendors such as PeopleSoft and SAP AG. These ERP systems were the focus of some of the earliest ASPs, such as USinternetworking and Corio.
Aggregators have been most successful attracting ASPs that have applications developed for the Web. ASPs such as Employease, a maker of Web-based human resources and benefits applications, and Managemark, which makes expense reporting apps, are eager to link marketing of their targeted systems with applications from other ASPs, and both have signed on with Jamcracker. Many such small, narrowly focused ASPs joined together in December to form the Internet Business Services Initiative, a 25-member organization that is looking to help smaller ASPs integrate their separate applications to complete a full business process.
"Integration will be a major theme over the next year," said Mike Seckler, a co-founder of Atlanta-based Employease, as hundreds of small ASPs that have developed Web-specific applications jockey for customers.
While aggregators are attracting niche ASPs, they could encounter trouble partnering with larger enterprise application-focused ASPs, such as USi; Corio, of Redwood City, and Applicast These ASPs have positioned themselves as full-service providers to customers and have focused on integrating the third-party applications they host. Many are reluctant to work through an aggregator. Corio, for instance, has developed its own platform for providing integration both between the applications it hosts and between its hosted applications and those run by its customers. Corio calls the platform Orion USi, to some degree, acts as an aggregator of hosted software from traditional software vendors. Although the company doesn't act as a one-stop point of contact for corporate customers, external ISVs can use its App Host service to sell applications in the ASP model, said Michele Perry, vice president of marketing for USi.
"The customer relationship, to us, is what makes the difference in the long run, and we don't want anyone in the middle," Perry said.
Too many fingers in the pie
Indeed, some CIOs say they'd rather work directly with the ASPs that are hosting the applications than through an aggregator that may be one step removed from the data center.
For example, Daniel Lubin, of Folio, a Worcester, manufacturer of trade show exhibits, was an early ASP user, signing up about a year ago for a hosted version of Great Plains' ERP software through ASP ManagedOps.com, of Bedford, Sold on the potential benefits of the hosted model, Lubin has continued to search for other applications he could turn over to an ASP. He's also investigated the aggregator model. In a field as new as ASPs, though, Lubin said he believes that working directly with the provider managing the applications is essential for ensuring reliable service and support.
"The more fingers you have in the pie, the more complex projects have a ten dency to get," he said. "Aggregators add a whole other level of management, so what you wind up with is blind faith that cooperation is going to be the norm [among providers]. The ASP's commitment is not to you, so the person providing the service has no loyalty to you but to your aggregator."
Lubin knows first that reliability problems with ASPs are not uncommon. In February, within eight days of switching to a Web-based e-mail system ASP Critical Path, Lubin and his four-person IT staff were scrambling to cope with widespread service interruptions. Lubin ended up going back to an internal e-mail system. The lesson: ASPs can cut IT expenses and implementation times, but with so many new entrants in a young field, services and reliability are often lacking.
Aggregators counter that, rather than adding an unnecessary administrative layer between end users and ASPs, they offer extra protection for users. Along with tying disparate hosted applications into a single platform, aggregators say they can help distinguish trustworthy ASPs from fly-by-night operators. Jamcracker, for example, views itself as an aggregator of best-of-breed ASPs that have been tested by its team of engineers. Aggregators also develop and track the service-level agreements among application providers.
By working through a channel of resellers, Agiliti and ePanacea are betting that small and midsize businesses will feel more comfortable dealing with their existing service providers, such as systems integrators and ISPs, rather than handing mission-critical applications over to a new provider.
For companies such as Aventail, which is looking to ASPs for the first time, aggregators make a lot of sense. Aventail is considering using Jamcracker to access hosted e-mail, data backup and human resources applications.
"You still get the benefits of using ASPs, but you have a middleman working on it for you," said Deb Joyce, MIS manager at Aventail. "It's like having a project manager here working on that relationship."
Ultimately, many aggregators plan to be more than just middlemen coordinating relationships between ASPs and end users. Many say they intend to develop a range of value-added services. They are moving toward selling access to hosted applications on demand so that, for example, a user could pick a project management application to match a single project. They also plan to provide tight data and transaction-level integration between hosted applications.
Inevitably, aggregators may end up providing the most value to end users by aligning themselves around specific industries and markets where they can begin to understand and implement end-to-end business processes to meet users' needs, said Marty Gruhn, an analyst with Summit Strategies.
Once aggregators become more vertically focused and are able to provide deep integration between apps, the idea will take off, Gruhn said.
"You'll have two or three [aggregators] like Jamcracker hit the market, and then the tsunami will hit, and when the dust has cleared, those left standing will have wrapped themselves around vertical professions or industries," he said. "It's the natural endgame of the entire ASP revolution."
