Application service providers eliminate a great deal of maintenance and support headaches, but they're not completely pain-free.
You've heard the acronym by now, and you've probably seen your share of ink on the topic. But you're still on the fence as to whether the application-service-provider (ASP) model is right for your business.
ASPs are third-party companies that manage and distribute software from their servers to your network on a subscription basis. Proponents say the model eliminates much of the IT overhead associated with maintaining and upgrading desktop software on multiple PCs. What's more, it gives small businesses access to applications whose initial costsââ,¬"for licenses, servers, and staffââ,¬"put them otherwise out of reach. In fact, studies by Summit Strategies indicate the ASP approach can save businesses between 33 and 53 percent over purchasing and managing the hardware and software they would otherwise require themselves.
The ASP market remains small, though, registering only US$296 million worldwide in 1999, according to IDC. Analysts attribute the slow start to the fact that ASP offerings to date have been limited to enterprise apps. But as ASPs begin targeting small businesses, the market should grow. GartnerGroup's Dataquest predicts it will reach US$22 billion a year by 2003.
The market is broken into three groups. Application-development specialists build their own Web-based applications or modify commercial, off-the-shelf packages. Pure plays rent a variety of third-party applications. Independent software vendors (ISVs) act as both developer and host.
Within these groups are five categories. Enterprise ASPs cater to high-end businesses. Local/regional ASPs serve small businesses in their geographic area. Specialist ASPs provide applications that fill a specific need such as human resources. Vertical-market ASPs support a specific industry such as health care. And volume-business ASPs supply prepackaged application services in volume to small to medium-size businesses.
Pricing models vary from no-cost development, where the two parties negotiate the cost of the resulting code at the contract's completion, to fixed-fee development projects, where costs are front-loaded, but the client owns the resulting code. Payment models range from traditional magazine-style subscriptions to pay per use. Some ASPs even offer a try-before-you-buy option.
