ASPs: Using the Internet as an Outsourcing Platform

Analysis of News Events
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Show me something new in the computer business, and I’ll show you a new twist on an old idea. Such is the case with the latest in the Internet’s buzzword fiesta—application service provider, or ASP. The big server and application software companies reckon that after your experience with arduous Y2K upgrades and your frustration with trying to keep up with the relentless pace of hardware and software technology releases, you’re just about ready to pull the plugs on your AS/400s and go back to paper and pencil. Well, maybe it isn’t that bad. But, like most conservative AS/400 shops, you’re probably staying put until mid-2000, just to see how everything works out.

While contemplating your future strategies and how you’ll sell the next big idea to the CEO or president, think about this: To free up programming time on projects that you cannot outsource, maybe you need an ASP, a new breed of service bureau that uses the Internet to deliver access to popular enterprise resource planning (ERP), supply chain management, and customer relationship management applications. Now is the time to start thinking about how an ASP might fit into your strategy and your budget because, at the moment, ASPs are still just an idea, at least in the AS/400 market.

The idea of letting someone else run your computers is as old as the computer business. Back in the 1950s and 1960s, when computers were more expensive than any other capital equipment, people simply could not afford to buy computers, and they sure didn’t have the skills to run them. So the few companies that could buy and run early mainframes and minicomputers set up service bureaus that sold timesharing capacity to users or just simply did the work for the companies that hired them. Automatic Data Processing (ADP), for instance, still cuts paychecks and files taxes for half a million companies almost 30 years after buying its first computer.

Typically, service bureaus run either their own code or your code if you outsource to them the operations you don’t want to deal with anymore. With an ASP, the idea is to entirely ditch your applications and move to off-the-shelf applications like those available from SAP, Oracle, PeopleSoft, J.D. Edwards, Baan, and others. (Those are the top five application software vendors in the world, by rank.) You may not have a choice about which platform the ASP uses to support your company. All you will do is put Web

browsers on desktops and middle-tier servers to link users to the ASP’s servers at the other end of an Internet connection.

The fact that ASPs are now being touted by IBM, Sun Microsystems, and all the big software companies is a sign that, despite how hard the industry has tried to simplify application installation and maintenance and hardware and software upgrades, it is just too difficult for your average small and medium business. Large enterprises have the skills and the money to indulge in IT technologies, and they often try just about everything that comes on the market. But the typical AS/400 shop runs lean and mean. As ASPs enter the midrange market over the next few months, they will offer a compelling option to AS/400 customers who need to modernize their applications but don’t have the skills, time, or money to do so. It might make more sense to pay a monthly J.D. Edwards or PeopleSoft utility bill than to try to build an in-house utility yourself. One of the more aggressive ASPs, USinternetworking (USi), has just gone public with the idea of offering

PeopleSoft human resources and financials, Siebel supply chain management, and Sagent online analytical processing (OLAP) suites over the Internet. AristaSoft is peddling ASP services for J.D. Edwards’ OneWorld suite. And is offering ASP services for Microsoft Office and Exchange as well as a few NT applications for loan origination. Soon, there will be hundreds of companies to choose from, all based on the assumption that they can leverage their experience in supporting many customers to support you.

Going to an ASP for your applications makes sense for companies that want to focus on other projects, such as e-business initiatives or application development for new lines of business. It is something to think about for core financial and human resources applications, which are essentially cost centers at most companies. Obviously, most AS/400 shops would prefer to have an ASP support their applications on an AS/400 and preferably on mirrored machines to provide high availability. Although I don’t know of any ASPs that are pushing application services running on AS/400s, it is a natural match because of the AS/400’s high reliability and scalability.

Before long, enterprising Business Partners (BPs) with smarts about AS/400 hardware and about suites of applications software will figure out that they can make more money building an AS/400 ASP utility company than they can trying to push another AS/400 box into a customer site. Hardware margins, quite frankly, stink. And hardware sales tend to be seasonal and cause great duress among AS/400 BPs. But by shifting to an ASP model, BPs will be able to generate more revenues, save their customers money, and get a predictable revenue stream as well. It’s an ideal situation, provided that ASPs become big enough to get the economies of scale in hardware purchases and experience that will be necessary for them to create sustainable businesses. The prognosis is that ASPs will be able to do some of the work you support for your company for less money and less hassle, and you should definitely think about it.