Understanding ASP – Application Services Providers

The concept of running your business applications over the Internet is not necessarily new, but the technologies and services which have emerged during the past few years have introduced a variety of options and methods for working online. Fundamentally, the ASP (application services provider) model breaks down to a single practice: using a service provider’s resources for running the programs you use and accessing the associated data. Regardless of the nature of the specific application service, this basic premise is the foundation of the application service provider model. In seeking to fully understand the variations in ASP business models, it is important to recognize the separation between the actual application and the infrastructure necessary to run it.

Applications, Licensing and Infrastructure
There are really only two different types of application service providers – those who offer the use of an application and the associated infrastructure as a single subscribable service, and those who provide the infrastructure as well as the management, and may or may not supply the application licenses. This second type of ASP is frequently also referred to as a managed services provider or an application hoster (example: e-Accounting www.CPAasp.com).

When an ASP offers you both the application and the infrastructure together, it usually means that the application software licensing is being provided as part of the service. In most cases, the application really IS the service. This fits into the "Software as a Service" category, where the cost of the software is part of the use fee for the service. This model is typically available for web-based applications: applications which have been developed specifically to run in a web server environment and are usually accessed using the browser.

An example of such a service is Intuit’s QuickBooks for the Web. This is an application which exists only on the Intuit servers, and may be utilized exclusively by subscribing to the service and running via the web. You cannot purchase the software for installation on your own systems – it exists only on the Web, and only from Intuit (example: http://oe.quickbooks.com/home.shtml).

ASPs offering application hosting and managed services frequently focus on the types of applications which can be licensed and/or installed on the customer systems. While some of these may be web-based applications, more frequently they are LAN- and desktop-based applications.

Many organizations recognize that the comprehensive functionality and features of installable software cannot be replicated with a fully web-based application, and are therefore using application hosting as a means to "Internet-enable" access to these applications and their rich functionality. In this model, the ASP may or may not be offering the actual application licensing, and is certainly focusing on the underlying infrastructure and management thereof. The primary benefits of hosting licensed applications include the retention of the investment in the software asset, as well as the introduction of cost-efficient technology service management and the assurance of working systems for both local and remote user bases.

The Argument over Cost of Ownership
In most cases, the ASP will tell you that the cost of technology ownership is the biggest reason for adopting the ASP "lifestyle". At the heart of the issue, this is the truth. HOWEVER, most businesses don’t fully understand, or account for, the entire cost of acquiring and maintaining their business technology. When an ASP quotes a price for an application service, the first instinct of the customer is to compare that to the cost of software. This is an exceptionally bad way to approach the comparison, especially if the desire is to enhance or improve access or reliability as opposed to changing applications or functionality.

The comparison is more accurately made by looking at the entire system – including remote access support, security management, reliability and performance, and any other systems-related issue that extends beyond the functionality of the applications themselves. For example, a comparison of Intuit QuickBooks products – Pro version vs Web version – is appropriate because both applications offer different features and functionality. The additional comparison, available due to the ASP (application hosting) model, would be to add the features of a hosted and Internet-based delivery of the QuickBooks Pro application. Now, an accurate features and benefits comparison can be made, as both applications (the Web version as well as the hosted Pro version) offer Internet-based access and managed applications and data. The cost comparison, however, still represents a challenge.

Where the costs compare
Fundamentally, the ASP is replacing certain internal equipment, software, and IT management functions. For example, Windows programs run on Windows, and therefore require a machine running Windows. ASPs delivering Windows-based applications must provide the Windows infrastructure and systems in order for the applications to run. There are, of course, costs associated with these resources. This becomes part of the cost of the hosting service. The ASP delivers other benefits that many local PC or network installations do not and could not have or afford if approached using more traditional methods, such as secure remote user access, reliable data protection, security monitoring, and offsite IT disaster recovery. Whether or not the application licensing is part of the ASP model, the technical and operational benefits often still deliver lower costs of ownership and improved operational capabilities that many companies would not otherwise be able to afford.

But the costs of technology and tech operations, as well as the resultant cost-impacts to general business operations, are often difficult to demonstrate in their entirety. Especially with small businesses, where the business owner frequently places no real value on his own time, the ongoing costs of managing and maintaining technology becomes arguable. Therefore, the face-value ASP proposition hits on more emotional issues, such as the ability to work when it is convenient, knowing the system is well-managed and secure, and gaining the ability to work closely or more collaboratively with others.

Wrap Up
First, remember that one size does not fit all. While every business has fundamentally similar technology requirements, there are also specialized requirements that may need to be addressed. The method of selecting business technology – especially applications – has not really changed over the years.

First, find the software that your business needs, and then find the best method of running that software. The options for "how" to run the software have increased, and what you read on the box may not accurately represent the possibilities.

Second, consider why you run certain software in your business. An accountant, for example, may not actually use QuickBooks for their business, but uses lots of QuickBooks because that is the format client data comes in. This is a situation where technology costs and processes are increased due to collaborating with an outside organization. Both the client and the accountant bear the cost of software and the infrastructure to run it – a redundant expenditure. ASP services may represent the better alternative, offloading the redundant IT costs and management from the accounting firm, and offering both the client and the accountant a better way to interact at a lower overall cost. For a manufacturing company, the software may represent a means for controlling aspects of the manufacturing process.

Determine if your requirement is strategic and supports a key area of business, or if the requirement is in support of less critical processes. (Hint – outsourcing is a great way to cost-efficiently handle non-strategic technology and/or processes).

Last, look at the entire picture. Always consider the total business requirement. Applications which may not seem critical or particularly strategic may in reality support key processes, lending efficiency and effectiveness to the more strategic core applications. Consider also the overall data management requirement. Is it effective to have business data distributed in several systems? Is there redundancy in the stored data? Does the business have a way to ensure security of ALL business data?

There is no single right or wrong answer with respect to using ASP services. What works well for one company may not work for another. Business culture, management participation – many influences impact the effectiveness of business technology – whether internally sourced or obtained through an ASP.

One thing is certain, however. Constantly changing and evolving technologies represent both an emerging opportunity and an ongoing challenge for business. Technology outsourcing and ASP services have proven to be a means by which businesses may meet the demands of operating with innovation and efficiency.

Joanie Mann