Outsourced software kicks ASP

Never buy software again. For many companies, that phrase has the perfect ring. The cost of purchasing, customising, maintaining, integrating, and supporting software can be overwhelming for midsize and smaller businesses. It can run into the hundreds of thousands of dollars, sucking much-needed money away from day-to-day operations.

Yet at the same time, growing companies have to take advantage of the same advances in technology as their larger counterparts if they are to avoid slipping farther behind. They can't put off developing a new data-mining application or designing a way to share files remotely or creating a Web-based customer support tool, even if the price tag is woefully out of reach.

Is success for a growing business a Catch-22? Not exactly. There's actually a clear option: an application service provider, or ASP. Essentially a way to outsource software, ASPs have been around for a few years, but they've become much more sophisticated and much more useful lately.

Where ASPs once housed basic software applications, like email, for example, today's breed of ASP goes a lot farther, providing Web development, customer relationship management (CRM), collaboration, data management, enterprise resource planning (ERP), management information systems (MIS), and networking and telecommunications services. One indication that the activity among ASPs has gotten heated is the gaggle of acronyms spawned by these applications outsourcers. You'll hear terms like MSP, NSP, AIP, ISV, and SLA; the list goes on and on. Don't worry, they're not as alien as they first sound; use our glossary as a guide to the abbreviation inflation.

Simply put, with ASPs a company can pick and choose the software it needs, from the simplest email program to a sophisticated customised database that tracks, for instance, the daily change in your company's sales figures by store or zip code, and delivers this information to wireless laptops anywhere in the country. And for a monthly fee, these service providers will handle the management of the programs and the network.

Huge capital expenditures for applications development and software acquisition, as well as overhead in the form of labour and maintenance, are virtually eliminated. Instead, using an ASP, you're left with a more manageable, and often smaller, monthly expense item.

Why choose an ASP?

By Forrester Research's estimate, ASP sales will have grown from US$711 million in 1999 to $6.4 billion in 2003. This places ASPs among the fastest-growing Internet sectors.

But outsourcing doesn't fit the culture of every company. Before you decide to go the ASP route, ask yourself these questions:

• Does your company need a technology solution faster than your team can build it?
• Do you lack the IT resources to implement a new project?
• Do you prefer a fixed monthly cost, as opposed to a long-term capital outlay?
• Do you lack the in-house resources to provide guaranteed 365/24/7 service?

If you answered yes to most of these questions, you're a likely candidate for an ASP. In general, companies in this group are smaller businesses.

In that case you'll need to decide what applications and services you need the ASP to take on. In this article, we break down the prominent ASPs into five key categories. Collaboration covers email, scheduling, and meeting planning. Data management involves warehousing, online storage, and co-location. The packaged applications model includes traditional applications such as Microsoft Office and Lotus Notes. MIS covers CRM and ERP models, as well as financial management and HR tools. Finally, network and telecommunications encompasses networks, systems management, and remote access via virtual private networks (VPNs).

Watch your ASP
When evaluating an ASP, let common sense prevail. In this very young market, brand recognition is not as important as it is with some other types of technology. Instead, says John Tonnison, consulting partner of Los Angeles-based ASPAssist ask how long the ASP has been in business, and assess its professionalism. Make sure the company can scale with your increasing business needs. "The lifeblood of ASPs is the security issue," says Tonnison. Find out how the ASP will safeguard your data across multiple networks.

To the customer, perhaps the most important part of the ASP puzzle is the service-level agreement (SLA). This document, the contract between your company and the ASP, includes the ASP's guaranteed level of performance, plus details regarding networking speed, application performance speed, security, software updates, and customer service. SLAs vary; for example, some SLAs guarantee 99.995 percent uptime; all but 4 minutes a month. For noncritical applications you may opt for 99.990 percent guaranteed uptime.

The SLA is a binding agreement between customer and ASP. Should an ASP fail to deliver, the SLA should include stiff penalties against the ASP.

Making The Switch
Most ASPs face their greatest challenge from companies' own IT departments. Certain ASPs -- network service providers (NSPs), for example -- can reduce IT manpower, meaning lost jobs for some.

So how does a company decide what service it needs, how to get the service, how to keep employees happy during the shift to an ASP, and how to make sure the company is getting what it pays for? We evaluated the five main categories of ASPs and the leading ASPs in these categories. We describe their key features and some of their advantages and disadvantages. With all this, you should glean enough perspective to make a clear decision about which types of ASPs best suit your business and which specific ASPs may be the most suitable to investigate.

Despite the potential benefits, when dealing with ASPs it's wise to make sure that they offer an exit strategy for getting your data back quickly, easily, and in a convenient format. After all, given today's difficult business climate, it's not unthinkable that your virtual partner could close up shop. For example, digital workplace provider HotOffice shuttered its doors earlier this year -- after winning our Editors' Choice two years running.

Our contributors: Ramin Ganeshram is a senior editor of PC Magazine, and Cassandra Gero is an editorial researcher. Associate editor Sean Carroll and PC Magazine Labs project leader JP Vellotti were in charge of this story.

Collaboration

By Sean Carroll, PC Magazine

When you're little, you have to make up for your lack of size with agility. As you get bigger, you need to make sure that your sheer size doesn't become a bureaucracy that gets in the way of innovation and communication, leading to lost opportunities. Collaboration tools can help employees at either kind of company work more closely together, whether they're on-site or off-site, in disparate branches, or participating in multiple teams.

The most obvious example of a collaboration application -- and the most common ASP implementation -- is email. Most companies have more email traffic than phone calls/voice mail, so it's not surprising that email tools are among the fastest-selling ASP services. In fact, as many as one-third of the small businesses recently surveyed by ASP Industry Consortium and Zona Research use ASPs for email.

What Email ASPs offer
ASP-delivered email gives employees the ability to read and respond to critical emails from remote locations, whether hotel room or airport lobby, or even home. To do this without an ASP would require setting up an in-house management messaging (email) server, which could cost up to US$20,000, plus about 40 hours of manpower to develop the email application. And that doesn't take into account the huge amount of time required to maintain and support the program, especially fielding the support calls from employees hundreds of miles away with widely varying levels of technical expertise.

Available ASPs range from simple Web mail services like Excite Inbox, Microsoft Hotmail, and Yahoo! Mail, all of which provide basic mailing functionality. Although services like these are not specifically slated for business use, a small business might find them good alternatives to paid hosting, because an unlimited number of mailboxes are available, although disk space per mailbox can be limited to as a little as 2MB. For a much larger system, a company might use an ASP like Mi8, which manages even the largest company's entire email system by providing Microsoft Exchange and Outlook programs through its own Exchange Server. Fees range based on services purchased (colloboration, wireless, and so on), in some cases starting at as little as $24.99 per user per month.

The Virtual Office
The most complex ASP collaboration programs are known variously as virtual offices, digital workplaces, or teamware. These are suites that generally build on Web email by adding such features as instant messaging, shared calendars, document sharing, Web-based presentations, and project management tools.

These applications are similar to non-ASP programs like GroupWise and Lotus Notes, but without the vast drain on IT resources that setting them up and managing them entail.

What Virtual-Office ASPs offer
On the low end, ASPs like Huddle247 provide shared calendaring, basic document management, and Web-based email services free, supported by ads; others charge about $30 per user per month. Either way, to set up a low-end virtual-office ASP is generally simple, as the level of customisability is low with such tools.

On the high end, ASPs like eRoom.net offer collaboration with customisable databases that can be used for such purposes as customised project management, for a price that ranges from $149 to $799 per month.

A company using eRoom.net can, for example, quickly and easily design its own tracking system to monitor a project from its kickoff through various stages of evaluation through the addition of outside research through the final report. This would be considered a digital workspace and would have separate security levels that let only specific employees have access to various levels of editing and approval.

An eRoom.net subscriber can set up any number of digital workspaces, which the ASP calls eRooms. Meanwhile, all of the eRooms that an employee has access to are viewable through one interface. What's more, eRoom users who participate in multiple digital workspaces can access all their calendars, emails, and task lists from any one of them.

Collaboration ASP Tip
When you're choosing a digital workplace, the collaboration features need to be carefully integrated. If employees are likely to participate in several virtual workplaces, for example, all of them must be linked, with employee calendars and task lists synced across them so that there's less information to keep track of, with fewer places each employee must check, and the interface is easy to navigate.

Data management

By Sean Carroll, PC Magazine

Company workforces gather data person by person, team by team. But it is the view of the aggregate data -- that is, the way the breadth of information is analysed -- that's the lifeblood of a business. From customer information to the back-office data collected in ERP and CRM applications, being able to answer the larger questions -- which region is growing in value, which is slumping, what sorts of people are buying what products, which products are tanking, which regions might have more business and therefore require more staff and attention in the coming year -- can give a company a running start over the competition. Without other options, small to midsize businesses have traditionally tried to manage their own data. But keeping track of all that information in-house requires the skillful (and expensive) services of a database administrator to build and maintain the vast and analytically flexible databases.

That's where ASP data warehousing comes in. With the ASP model, small businesses get the sort of analysis previously available only to large corporations. When using a data centre ASP, small businesses get the advantage of access to a database architect to create custom queries that are specific to a company's needs. A medical office, for example, might ask an ASP to create a database query to search records of patients from a certain ZIP code who have visited a given hospital in the past six months.

What data management ASPs offer
For start-ups and other small businesses, where there is virtually no old data storage system to be concerned about, low-end data management ASPs like Exenet, HostPro, ManagedOps.com, and StorageNetworks are the best option. These ASPs simply take all the warehoused data a company has and store it on their own servers in a format that has been chosen by the subscriber.

Based on this, the ASP writes programs that, for instance, search for customers by ZIP code or products by price. Because this approach is scalable and doesn't require in-house development, additional data-mining analysis programs can be added easily and inexpensively.

More established companies, and those with functioning, elaborate data management systems in place, are better candidates for higher-end data management ASPs like Breakaway Solutions, Cognos, and Great Plains.

Although the initial outlay may be considerably higher -- as much as 50 percent more than with the lower-end group -- these ASPs, with more manpower, servers, and hosting locations, can match a customer's existing database implementation and applications. In a typical implementation that we looked at, Cognos created expansive data marts that incorporated the information from a company's ERP programs, databases, and even simple "flat files" (such as traditional spreadsheets) and then performed complex business intelligence analysis on them.

For many companies, internal data bases are only half of the story -- if that. Also essential is so-called clickstream analysis of their Web sites. This involves tracking the behavior of visitors to a Web site, examining what they do there, recording where they're geographically located, keeping track of who referred them to the Web site, and noting which pages resulted in the greatest number of further requests, as well as what sorts of visitors were most likely to request further information.

Database management ASPs that are particularly strong in providing clickstream analysis include Accrue Hit List, digiMine, and NetGenesis.

Data Management ASP Tip
The key factor to consider when choosing an ASP for data warehousing is the extent of breakage -- the amount of disruption caused by the move -- the business will experience. A company that already has considerable internal data-crunching procedures in place will find that it's worth paying a bit more for a solution that is as close as possible to the existing system.

Companies that have no systems in place, or those whose internal systems aren't working right, might be able to choose a cheaper solution offering less customisation, saving money and incurring no additional breakage.

Packaged applications

By Sean Carroll, PC Magazine

Even basic software packages -- office suites and word processors, to name a few -- need to be managed and supported. But for many businesses, they can easily fall off the radar. For instance, a small company may have a two-person IT staff that works at corporate headquarters. The only time this group is going to pay much attention to the branch operation 100 miles away is when an urgent network problem arises. Simple software glitches? Those will be handled maybe tomorrow or the next day. Employee productivity gets lost in the shuffle.

Packaged-applications ASPs work two ways to remedy the situation. They can remotely manage and administer the software or simply host the software themselves.

What packaged-applications ASPs offer
In a typical scenario, these ASPs, via an Internet connection, push customised installations of virtually any application to customers, often tailored to the particular needs of the businesses. They provide local copies of the application that are available whether users are online or off-line. When subscribers are online, though, they get added features like automated backups and the ability to access shared databases.

The ASP will also serve as the IT and troubleshooting staff for these applications. If a program is damaged, the ASP can remotely reinstall it. And since files are stored remotely as well as locally, catastrophic damage to a workstation affects only work done since the last time documents were (automatically) backed up. It is important to note that in this scenario, all key applications are stored locally. In this model, access to the Internet is necessary only for backup and maintenance.

Aspire.net is a typical ASP in this space. Aspire, whose customers are mostly law firms, provides software distributions of an entire desktop, from Microsoft Windows 2000 to a word processor with customized macros, a choice of document management systems (iManage or PC Doc), and Microsoft Outlook. The pieces are all tightly integrated so that a complete paper trail of computer activity can be produced -- essential, of course, to the legal profession. And if users are not connected to the network, data transfers of this information are done in the background the next time they go online.

Employees can access live data updates via a quick dial-up in remote locations, so they have the most current information before going into the field.

In another popular model, some packaged-applications ASPs host all data and applications remotely; all the user needs is access to the Internet. A single log-on and authentication gives access to the software, files, and databases the employee has permission for, regardless of location or the machine being used.

Wizmo is one such provider. This ASP offers 56 top applications via the Internet. By offering such a large selection, Wizmo is a potential boon to productivity in that all data, licenses, training, and support are wrapped into its service. The subscriber company and its employees can forget about these matters and focus on their work.

Through continuous monitoring of applications and the ability to install patches, fixes, and upgrades at will, such ASPs can fix problems promptly and consistently. They don't have to wait for the customer to be online to repair applications.

Packaged-Applications ASP Tip
For a company whose employees are widely dispersed, the fully remote packaged-application ASP is a good choice, because it provides access anywhere and from any machine. Of course, if you're located someplace where an Internet connection isn't possible, you lose access to applications or remotely stored data. In this increasingly wired age, Wizmo doesn't see this as a problem, though Wizmo does allow users to maintain their own existing applications locally and use the online and off-line software interchangeably. Most of its customers, however, eventually opt to make the switch to fully remote applications.

Management information systems

By JP Vellotti, PC Magazine

ASPs that provide management information systems (MIS) offer a huge number of sophisticated applications formerly available only in highly customised networked environments at the corporations with the deepest pockets. Among the applications: enterprise resource planning (ERP), supply-chain and inventory management, sales and marketing, customer relationship management (CRM), help desks, sales force automation (SFA), and human resources.

What MIS ASPs offer
Traditional ERP relied on client/server architecture and tended to produce a rigid finished product, not easily altered to fit the changing needs of a growing company. Because the ASP model ERP is Web-based, it offers a more scalable and flexible architecture that can easily be adapted as a business plan or size shifts. The ASP model is, in fact, so desirable for ERP that older ERP companies are increasingly choosing it as their means of distribution. PeopleSoft, for example, partnered with Corio and usinternetworking to offer financials, purchasing, manufacturing, and HR models.

Companies that want to use CRM applications for sales force automation -- an approach that lets them track all interactions with all their customers in one centralized location -- also have good options among ASPs.

Companies that want to use an ASP for help-desk needs should expect to pay on a sliding scale. ASPs often charge a flat fee for a basic level of service, based on how many help-desk calls will be expected per month.

Smaller companies often outsource some aspect of their accounting procedures -- usually payroll -- but not through an ASP. Yet many payroll centers, such as Automatic Data Processing and Virtual Payroll, do in fact offer this service via the Internet. Many companies opt for such services, because that allows for quick and easy access by remotely located payroll departments (allowing several branches to be managed by the same staff). It's simple to provide data to third-party accountants as well; all a company need do is give them the password.

MIS ASP Tip
When negotiating, remember that the amount you pay often depends on usage. Additional activity will greatly increase the price of the service. The best idea is to be liberal in gauging your anticipated usage -- and your growth potential -- so that you don't incur unexpected and much higher ASP expenses later on. The up-front bulk cost is always less expensive than the succeeding cost for increased activity.

Network & Telecommunications

By JP Vellotti, PC Magazine

Access to your network is out of sight; with an NSP or MSP, it can also be out of mind. There are two ASP-like approaches that businesses can choose from to run corporate networks. One is a network service provider (NSP), which manages a company's network remotely. This includes overseeing access points between off-site users as well as the company's internal network. An NSP might, for example, manage a firm's virtual private network (VPN) used by field salespeople to dial into the company's network from the road.

Unlike an NSP, which manages only connectivity, a managed service provider (MSP) looks after every aspect of a company's network infrastructure, from hardware to software to support and development. MSPs charge clients for software installations, development fees, and network design and maintenance; NSPs charge for bandwidth, and client companies pay for usage and uptime.

Companies with few IT resources would do well to consider an MSP. MSPs are able to integrate different kinds of prepackaged software in a single interface over a secure connection. This lets the MSP measure performance, security faults, and assets across three keys areas of infrastructure -- networks, systems, and applications -- all from a single computer screen, for quick and easy function reporting and troubleshooting.

For companies interested in getting optimum connectivity, especially among remote users, an NSP is a good choice. NSPs allow clients to access an enterprise-level network infrastructure without laying out the cash to create it in-house. Access to a network of this size means near-constant connectivity at high speeds. Additionally, 24-hour network support makes the NSP model a good value proposition. When selecting an NSP, companies should remember they are negotiating for service rather than tangible goods like hardware or software. That's why a good service-level agreement is key. SLAs should definitively outline promised uptime and support availability, and negotiating specific and detailed restitution if those promises aren't kept is also key.

Looking forward

By JP Vellotti, PC Magazine

With the growing popularity of ASPs, new types are already beginning to emerge that are likely to be standouts. The most promising: business procurement management (BPM) ASPs, vertical ASPs (so-called VSPs), and full service providers (FSPs), which are essentially an amalgam of all current types of ASPs.

BPMs, such as Fuegotech, give managers real-time snapshots of the key details of a company's operations. These include inventory reports, shipping analysis, and production and supply data.

Vertical ASPs, such as Cosential, target niche markets. For example, a VSP that specialises in architectural applications would provide computer-aided design/computer-aided modeling (CAD/CAM) to small firms that would normally be unable to afford such sophisticated software -- and couldn't find these programs in a traditional ASP.

FSPs, such as Breakaway Solutions, deliver the whole range of ASP services, from networking to hosted apps to collaboration to data storage. To be successful, FSPs need a broad knowledge of applications, a solid networking infrastructure background, excellent customer service, and access to capital (their expenditures on technology are extremely high).

Later this year, look for a raft of new ASPs that take advantage of new wireless technologies. Peer-to-peer (P2P) will help fulfill businesses' "anytime, anywhere" information needs by replacing expensive desktop computers with cheap, purpose-built thin clients. Cable and Wireless is leading in this area, offering Compaq thin clients to its customers.

Another area that appears ready for a boom is smart phones and PDAs. Expect to see offerings that enable these WAP devices to engage in data transactions from users in the field.

ASP security guide

By JP Vellotti, PC Magazine If security isn't among your top criteria for evaluating potential ASPs, write it in now. "When people think of ASPs, they think about accessing their data over the Internet, and that immediately brings up the topic of security," says Amy Mizoras, senior research analyst for ASPs at IDC, an IT industry analysis group. In fact, 85 percent of IT executives say that security is their top priority when evaluating ASPs, according to IDC. "But the truth is," says Mizoras, "that many ASPs deliver security better than the company can." And because ASPs know effective security is essential to their business, they spend more on it than most companies could possibly afford.

ASP customers need to feel confident that their data is safe not only over the networks but also from the prying eyes of ASP employees. Information theft is a huge risk for companies. If an ASP employee stole financial data that outlined a business's new project, for instance, and sold it to the company's competitor, the results could be disastrous. While no one can predict employee information theft, ASPs must earn a customer's trust to be successful.

Before you evaluate an ASP's security model, take steps to understand what you are protecting. Develop a risk assessment plan: Think about who might want to steal your data. Also analyse critical spots in your information exchange network -- and network configurations -- including hardware (servers, firewalls) and software (passwords, authentication). Ask how the provider can implement a security solution that will protect every shred of your data and every access point to it.

But don't be too concerned about viruses and denial-of-service attacks. Almost every ASP has a similar network infrastructure to handle these. What separates the top ASPs, according to security experts, is their contingency plans. What if your ASP is compromised and data is lost? How will your ASP recover the data? Does it have redundant backup servers? Are the servers located in one location or in different cities? Will you be alerted if something goes wrong?

Most ASPs have undergone third-party enterprise-level security audits; when you're evaluating an ASP, ask to see its report card. Some ASPs will also let you tour their data centers, but be prepared to undergo a background check (which is a good thing). Before signing on with an ASP, make sure the company is willing to sign an NDA regarding your business model and information, and ask about its security guarantee. This should call for harsh financial penalties if your data is lost, hacked, or stolen.

Finally, an ASP's security is only as good as the habits of your employees. Your employees need to be trained to practice good security habits: Remind them not to give out passwords or talk about more sophisticated info, like your network infrastructure. What is common sense to you may be new to your employees, and security is often forgotten in practice.

ASPs for the Enterprise

By Ramin Ganeshram, PC Magazine

Federal Express may be an US$18 billion overnight delivery giant, but it made its mark hanging with companies a fraction of its size. Throughout its history, some of its biggest clients for shipping services have been small businesses. That's why last year, pressured by competition from UPS, DHL, and other rivals -- and faced with the need to develop a new revenue stream -- FedEx thought of small businesses first. But this time, the Memphis, Tennessee-based company was going to try to sell Web sites, not shipping services.

FedEx executives wagered that a number of its small-business customers would like nothing better than to use the Net to manage inventory, track customer orders, and market products, but were scared off by the prospect of taking on such an ambitious project. FedEx already had some experience with Web design: Its own Internet site is recognized as one of the best. But for this new plan to work, FedEx was going to have to masquerade as a Web developer.

Or maybe not.

"We knew that our brand name would make for a compelling sell but that speed to market was critical," says Lisa Short, who was FedEx's director of e-commerce solutions marketing at the time. "We needed to find a partner."

Short's team began evaluating companies that built Web platforms and soon found that traditional providers weren't what it was looking for. The main reason: Most of them just developed Web sites and didn't host them -- a key feature that FedEx wanted to offer to customers. It became clear that a full-service ASP was the way to go.

FedEx looked at six high-profile ASPs in what Short calls a "quasi-RFP" process that included visits to the ASP sites. FedEx chose Orbit Commerce, primarily because its corporate culture matched well with the team that was going to work on what eventually became called the FedEx eCommerce Builder. Additionally, Orbit had already proven itself in hosted Web development, handling the business for local heavy hitter Cincinnati Bell.

FedEx also wanted its ASP to have Web page templates that were fast and easy for customers to use. And FedEx needed to be able to layer additional proprietary content onto these pages, such as customer relationship management programs and other basic marketing tools.

"The stability of the ASP's network was crucial, too; we wanted to know about backup plans and redundancies and scalability," says Short. "We knew it would be difficult for our small-business customers to predict the number of customers they'd have and the number of catalog items they would need to have."

There were practical matters high on the agenda as well. FedEx wanted a company that was financially secure and that wouldn't embarrass it. "Our brand name is crucial," she says. "We couldn't be involved in a project that compromised the brand name or overshadowed it."

The result marries FedEx's strengths -- package tracking and order management -- with a full storefront. Companies using the product run the gamut of small businesses: florists, booksellers, lawyers, and accountants, to name a few.

FedEx's eCommerce Builder is designed around Orbit's proprietary eSymphony, a Java development tool. Orbit's network consists of Cisco routers and Sun servers.

FedEx charges small businesses anywhere from $20 to $239.95 per month, depending on the package purchased. The possibilities range from a basic free package to multiple solution levels that include paid online support and customer-built versus FedEx/Orbit-built Web sites. An "advanced" Web site with a search engine, online help, and burstable bandwidth is available, and a business can also launch a full catalog. "Without a full-service ASP partner, I don't know if we would have made the decision to enter this market," says Short.

Perhaps the most intriguing part of the FedEx/Orbit relationship is the terms of the deal. In exchange for taking a lower fee from FedEx, Orbit takes a percentage of the profits that FedEx gets from sales of Web sites to small businesses. Additions to the service include a recently launched SMB Center with management advice on cash flow and marketing, taxation, and finance, as well as downloadable forms and other tools. FedEx is so pleased with the success of its new small-business program that it plans to offer a similar Web-hosting product for global trade managers this year.